EU firms outpace US firms in fight against climate change

45pc of EU firms report investments to address climate change, compared to 32pc of firms in the US, according to a new study by the European Investment Bank.

As Europe shows global leadership in the fight against climate change with the Green Deal and the new “fit for 55” proposals, around 45pc of EU firms report investments to address climate change.

Nearly half of firms in the European Union have invested in energy efficiency, up from 37pc in 2019 to 47pc in 2020. Although EU firms show commitment, enhancing their awareness of climate change-related risks will be key to greater climate investment.

“The catastrophic rainfalls and terrible loss of life this summer should leave no doubt that climate change is happening. We can no longer afford a wait-and-see attitude”

These are the key findings of a new European Investment Bank (EIB) report “European firms and climate change 2020/2021: Evidence from the EIB Investment Survey” that was published today. The new report provides an overview of EU firms’ perceptions of climate risks, their investment to address those risks and the main factors influencing their decisions.

The report builds on the EIB Investment Survey, an EU-wide survey that includes interviews with over 13,500 firms. These report findings are comparable across EU countries and the United States, as well as sectors and firm size.

Investing in climate change measures

Western and Northern Europe saw the largest share of firms investing in these measures, at 50pc. The share in Southern Europe is 38pc and in Central and Eastern Europe 32pc. At the country level, the differences are even more pronounced: Finnish (62pc) and Dutch (58pc) firms are at the forefront of climate investments, whereas only 23pc of Cypriot, 19pc of Irish and 18pc of Greek firms make this kind of investment.

When it comes to specific investments in climate change, the push towards energy efficiency continues.

Nearly half of firms in the European Union have invested in energy efficiency, rising by ten percentage points to 47pc in 2020. This is slightly lower than the 50pc of firms that invested in energy efficiency in the United States, which saw a similar jump from 2019.

Firms in Western and Northern Europe invest the most (48pc), followed by Southern, Central and Eastern Europe, standing at around 40pc. Despite higher energy efficiency investments than in the previous year, Europe’s energy savings potential remains largely untapped given the energy and non-energy benefits that these entail.

“The catastrophic rainfalls and terrible loss of life this summer should leave no doubt that climate change is happening. We can no longer afford a wait-and-see attitude,” said EIB vice-president Ricardo Mourinho Félix.

“Our latest study shows that if we want the transition to a greener economy to succeed, raising awareness of those risks matters: EU firms that understand those risks are more likely to invest in climate action. Regulatory requirements and transparency, as well as setting the right incentives for businesses will be crucial. Firms need to plan today to gain a competitive edge or risk losing ground to more forward-thinking competitors. As the EU climate bank, we finance climate projects around the world. We can assure you, becoming green pays off — for the environment but also economically.”

Physical climate risks

Firms face two main types of climate-related risks: direct physical risks and transition risks that arise from society’s response to climate change.

“Nearly 60pc of EU firms perceive physical risks, while transition risk is less well understood”

Almost 60pc of European firms report vulnerability to physical risks compared to 50pc in the United States. In summer 2020, firms were asked if physical risks had impacted their business. Southern EU countries are likely to report higher physical risks for firms’ operations than other regions. This is followed by firms in Central and Eastern Europe, reporting a higher vulnerability to physical climate risks than firms in Western and Northern Europe. This relatively higher perception of physical risk, particularly in Southern Europe, may be due to the rising threat of drought, limiting food production and potentially disrupting tourism in the area.

“As the realities of climate change become more apparent, firms have to start accounting for climate risks,” said EIB chief economist Debora Revoltella.

“Nearly 60pc of EU firms perceive physical risks, while transition risk is less well understood. The majority of firms are unaware of the challenges ahead and how to adapt to regulatory changes that will affect their supply chains, products, or reputation. Enhancing firms’ awareness of these risks will be as important as reducing uncertainty about regulatory changes. The fit for 55 package has opened the way for fruitful discussion among EU countries about a clear regulatory framework, enhanced climate awareness and proactive public and private investments.” 

John Kennedy
Award-winning ThinkBusiness.ie editor John Kennedy is one of Ireland's most experienced business and technology journalists.