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Navigating the EU’s Green Transformation
The European Union leads the global green transition through ambitious legislation aimed at reducing carbon emissions and fostering sustainability. This push is underpinned by three main initiatives:
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Fit for 55 – to reduce EU emissions by 55% by 2030, and make the EU carbon neutral by 2050;
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RePowerEU – to phase out fossil fuel imports by the EU; and
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The Net-Zero Industry Act – to boost industry and technologies crucial for decarbonisation.
Key Directives and Deadlines
One of the most impactful programmes of the EU’s green transition stems from the Energy Performance of Buildings Directive (EPBD) which must be implemented by May 2026. The EPBD aims to renovate the worst-performing buildings in the EU, and, as buildings are the highest single energy consumer in the EU, to achieve the decarbonisation of EU building stock.
Financing the Transition
The European Central Bank (ECB) estimates that the adoption of all three initiatives mentioned above will require approximately EUR 4.3 trillion between 2025 and 2031, of which approximately EUR 1.1 trillion will be publicly funded (including EU funds). However, EUR 0.8 trillion still need to be secured.
To support this initiative, the EU plans to allow structural public deficits of EU members to be at 1.5% of GDP, which is higher than in the past. Still, EUR 3.2 trillion must to be sourced from private sector investment. The scale of private funding needed is immense, almost equal to Germany’s annual GDP, highlighting the opportunity for private investors and banks to play critical roles in financing the transition.
Increasing Role of Financial Institutions
European banks are not waiting for the implementation of EPBD in member states; they are already increasingly aligning their lending and refinancing policies with EU green objectives.
Financial support is often contingent on compliance with an ESG checklist comprising:
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The EU taxonomy on energy efficiency;
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CO2 emissions; and
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On-site renewable energy production, or supply of renewable energy to the site from the grid.
Also, buildings with the highest green certifications like BREEAM and LEED are more likely to receive financing and offer competitive rent premiums.
Rethinking GDP
The substantial costs of the green transition is prompting the EU to explore revolutionary adjustments to GDP by incorporating factors which reflect environmental sustainability and social well-being, and which could better capture the broader impacts of the green transition.
Global Coordination
The EU, responsible for only 6.9% of global greenhouse gas emissions and 5% of the global population, recognises the limitations of its unilateral efforts. Calls for international cooperation are growing, especially as major global players continue to exhibit an inconsistent commitment to green financing. For instance, JP Morgan recently exited the Climate Action 100+ coalition, and the CEOs of BlackRock and HSBC have adopted more cautious approaches to ESG goals. Nonetheless, 99% of insurers surveyed by BlackRock still plan to support low-carbon transitions, and 66% are more committed to this objective than a year ago, focusing on renewable energy infrastructure like wind, solar, and energy storage.
The Road Ahead
The EU’s green agenda demands a comprehensive commitment to sustainability, innovation, and large-scale retrofitting, particularly for Europe’s aging building stock. Approximately 25% of buildings in the EU require immediate renovation, with average costs estimated at an incredible EUR 30,000 per building.
For international legal and financial professionals, these developments signal emerging opportunities in sectors like green financing, sustainable energy, and compliance with evolving environmental, social, and governance (ESG) regulations. As the EU’s green transition accelerates, proactive adaptation to these changes by encouraging private investors will be crucial, not only within Europe but also for those conducting business across international markets influenced by these policies.
Article written by Sebastian Janicki (Real Estate | Construction | ESG), and first published Nov 2024 in GGI Insider
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