Some 880 of Europe’s largest businesses collectively invested €124bn (£103.8bn) in low-carbon initiatives in 2019 – but this equates to just 12% of their capital expenditure, when 25% will be needed to meet the EU’s 2050 net-zero target.
That is the headline finding from a new CDP study, published today (25 February).
Called ‘Doubling Down: Europe’s Low-Carbon Investment Opportunity’, the report reveals that 882 of Europe’s largest stock-listed companies collectively invested €59bn (£49bn) in low-carbon technologies and systems in 2019. Investments analysed under this category include electric vehicle (EV) charging infrastructure, onsite renewable generation and energy efficiency.
Within the same timeframe, the same cohort of companies poured €65bn (£54.4bn) into research and development around products, technologies and systems designed to reduce greenhouse gas emissions.
While praising this progress, noting that these investments will mitigate more than 2.4 gigatons of emissions over their lifetime, CDP is urging corporates to more than double their green investments.
It claims that all large European businesses will need to allocate at 25% of their CAPEX to low-carbon technologies, systems and R&D within the next decade – up from a 12% average in 2019 – if the EU is to meet the aims of its Green Deal. Orchestrated by European Commission President Ursula von der Leyen, the Green Deal commits the bloc to becoming a net-zero continent by 2050 – an aim backed by a €100bn transition fund.
The report notes that the 882 businesses analysed collectively emit greenhouse gases equivalent to 75% of the EU’s total global emissions footprint each year. Moreover, they represent around three-quarters of European market capitalisation. This means their support will be crucial to financing progress towards the Green Deal target.
“Across many types of investment, the business case for transitioning businesses onto a low carbon pathway is clear, and the opportunities vast; but overall current investment levels are still short of putting European firms on track for net-zero emissions,” CDP Europe’s managing director Steven Tebbe said.
“For industries where decarbonization is more challenging, there is a serious need for financial markets and policymakers to create better conditions for low carbon investment and deliver stronger incentives to drive investment into breakthrough technologies, where capital expenditure is often high and returns long-term.”
Breaking down the benefits
CDP’s analysis broke down exactly where green business investment was allocated, in order to identify which kinds of investments already had a robust business case and which needed more support.
In the R&D pillar, electric vehicles and infrastructure received the lion’s share of the funding, at €43bn (£36bn).
In the technologies and systems space, onsite renewable generation (€16bn/£13.4bn), energy grid infrastructure (€15bn/£12.5bn) and flexible or ‘smart’ energy systems (€8bn/£6.7bn) attracted the largest proportions of CAPEX.
The report, co-authored by global management consulting firm Oliver Wyman, reveals that green investments made by the 882 companies in 2019 added €40bn (£33.5bn) to bottom lines across the board.
It also outlines how this opportunity could grow to €1.22trn (£1.02trn) in the coming years, if collective annual investment is increased by 65%.
Areas where investment increases are most needed but hardest to realise due to poor policy support or a lack of technology maturity, the report notes, include low-carbon building materials; low-carbon heating systems; alternative fuels including hydrogen; and carbon capture, usage and storage (CCUS).
In its net-zero recommendations to the UK Government, the Committee on Climate Change (CCC) warned that hydrogen and CCUS are both “non-optional” pieces of the decarbonization jigsaw. But technologies in both spaces remain in their infancy and, according to CDP, received just 3% and 1% of corporate CAPEX in 2019.