What Europe’s Rightward Shift Means for Investors
The EU has engaged in a flurry of sustainable lawmaking in the past five years, but right-wing groups’ growing influence in parliament may imperil the achievements of its Green Deal.
As the European parliamentary election results trickled in on Sunday evening, it quickly became clear that the polls were correct: Europe had lurched to the right.
Greens and liberals lost seats. Climate-sceptic far-right parties gained them, most dramatically in France and Germany. And while across Europe the dominant alliance between the centre-right European People’s Party (EPP) and centre-left Socialists and Democrats (S&D) looked like it would hold, the balance tipped firmly in the centre-right’s favour.
Parliamentarians will now set formal alliances and prepare to vote for the next European Commission president on July 18. Whether incumbent President Ursula von der Leyen or someone else is successful, the centre of gravity of Europe’s executive power will surely be pulled further to the right.
So where does this leave the European Green Deal?
ESG Investor put this question to a range of investment groups, policy experts, NGOs, think tanks, and – importantly in this context – farmers. While most predict less active environmental policymaking over the next five years, they agree the last five were groundbreaking, and are optimistic that the achievements of the Green Deal will stand.
As lawmakers focus on issues like industrial policy and defence, they say investors will likely be able to take a breath and focus on implementing requirements under the swathe of new laws already on the books. Focus will also be on how member states implement Brussels’ directives.
But several sources also warn that while climate legislation may be safe, unfinished business on biodiversity and land use is a lingering concern. A question mark also hangs over the bloc’s 2040 emissions target, which must be set during this parliamentary term and will determine the trajectory of Europe’s road to climate neutrality by 2050.
What the Green Deal achieved
Today, the European Green Deal is widely seen as the most comprehensive set of environmental reforms in history. But when President von der Leyen stood up to unveil the plan in a speech on December 11, 2019, few had an inkling of what was coming.
“This is a very special day,” she said at the time. “I am convinced that the old growth model that is based on fossil fuels and pollution is out of date, and it is out of touch with our planet.”
The Green Deal would be Europe’s new growth strategy, von der Leyen said, a “strategy for growth that would give more back than it would take away”.
What followed was a dizzying array of measures that tackled everything from vehicle emissions to the circular economy to ocean health. In a report in January this year, HSBC counted 74 separate pieces of legislation formed in the aftermath of the Green Deal – 60 of which had either been passed into law or agreed upon by the parliament and Council of the EU.
Four-and-a-half years on from von der Leyen’s speech, measures now safely on the statute book include the Climate Law, which makes the EU’s 2030 and 2050 emissions targets legally binding; a revision of the EU Emissions Trading System that includes a new scheme for transport and building emissions; and the Carbon Border Adjustment Mechanism – which imposes a carbon levy on emissions-intensive imports into the world’s largest trading bloc.
There is also the Corporate Sustainability Reporting Directive (CSRD), which requires companies to publish detailed information on sustainability-related risks; the Corporate Sustainability Due Diligence Directive (CSDDD), which requires large companies to conduct much more detailed due diligence on their supply chain; and the Taxonomy on sustainable investments, which determines what does and does not count as a sustainable investment.
Items not yet legislated include rules for pesticide and fertiliser use, as well as the Nature Restoration Law, which was designed to protect and recover Europe’s biodiversity but was derailed by a series of farmer-led protests early this year.
Notwithstanding some late hiccups, the Green Deal has led the world in its holistic approach, argues Hans Bruyninckx, Professor of Environmental Governance at the University of Antwerp and former executive director of the European Environment Agency.
“If you read EU legislation on climate, you will find links to biodiversity, to water, the food system, to mobility,” he tells ESG Investor. “So the integration is definitely there.”
Tycho Vandermaesen, Policy and Strategy Director for EU Affairs at the World Wide Fund for Nature (WWF), also lauds the Green Deal as “a really broad package”, and verges on disbelief that something so radical received unanimous support across EU institutions.
“In 2019, we weren’t expecting the European Green Deal,” he recalls. “If anybody says that they were, I think they are lying.”
Others also describe the last five years as an “intense” period of policymaking.
“Overall, it’s been a successful drive to set up a sustainable finance policy in Europe that gets the information from companies to investors on what drives sustainable finance decisions,” says Jurei Yada, Programme Lead for EU Sustainable Finance at climate think tank E3G.
End of the honeymoon
Despite an auspicious start, divisions eventually appeared. For Yada, the EU’s green consensus began to fray in 2022, when concerns over energy supply and rising costs, exacerbated by Russia’s war in Ukraine, prompted a successful push to include gas and nuclear power in the Taxonomy, to the horror of many environmentalists.
“There was a general feeling of trauma [among policymakers] after that, because it became so politicised,” Yada recalls.
Vandermaesen also sees Russia’s invasion of Ukraine as a turning point. Opponents of the Green Deal had already tried unsuccessfully to use the pandemic as an argument to scale back the programme, but the war, which put Europe’s energy security at risk, proved a more potent argument for naysayers.
“You saw the topics of competitiveness and energy security being misused as an argument to say that in order to be competitive, the European Green Deal is actually stifling us,” says Vandermaesen. “This was a false narrative that got the upper hand.”
Soon after the invasion, another bombshell was dropped in the form of the US Inflation Reduction Act (IRA). Providing hundreds of billions of dollars in subsidies to clean technologies, it was the biggest climate law in the country’s history, flexing America’s financial muscle in a way that Europe would struggle to compete with – much to the ire of some of its leaders, the most vocal of whom was France’s President Emmanuel Macron.
“It hit Brussels all at once,” says Yada. “Suddenly Europe realised: ‘Oh, actually we do have competitors!’. There’s a geopolitical aspect to the green transition.’”
The European Commission responded with the Net Zero Industry Act – a package of reforms designed to reduce impediments to green innovation. Since the IRA, industrial strategy has also figured more prominently in the Commission’s rhetoric.
Attracting investment for Europe’s green transition was always a challenge, which the IRA further compounded, says Michael Button, Senior Policy Manager for Real Economy at the Institutional Investor Group on Climate Change (IIGCC).
“But the IRA and the Ukraine war added an incentive to speed up the transition,” he adds. “A lot of the arguments that can be made around the green transition can also be used for energy security and competitiveness.”
Farmers on the street
Arguably the Green Deal’s biggest setback came in early 2024, when European farmers came out en masse to protest against a raft of issues – including mounting green regulation. In their crosshairs was the Nature Restoration Law, the EU’s flagship biodiversity protection policy.
Michael Fitzmaurice, an Irish cattle farmer and member of the Oireachtas – the Irish parliament – sees this law as a threat to Ireland’s rural economy, arguing it would require much of Ireland’s cattle pastures to be returned to peatland.
“This isn’t just about farmers, it’s about a thing called community: if you have your land re-wetted, obviously the next generation won’t be farming, so then you will look at abandonment,” he tells ESG Investor. “But the consequence of that is the small shop down the road, or the local football team, or the local school, which won’t have a population to survive in that area. Services will go, and the area will be abandoned. That might be the dream for some environmentalists, but it’s not our dream. We want to stay farming.”
Fitzmaurice’s position, shared by many farmers across Europe, is a reminder that the Green Deal is disruptive of many traditional sectors and ways of life.
So far, EU farmers’ protests and lobbying from agriculture industry associations like Copa-Cogeca have successfully stalled the Nature Restoration Law. The Council of the EU will meet later this month to decide whether or not to adopt it, but at time of writing, enough member states oppose it to prevent its passage.
Looking forward
So how worried should pro-green investors be about the rightward tilt? According to the IIGCC’s Button, not overly.
“You definitely saw a shift to the right [in the parliamentary elections], but it wasn’t a fundamental tectonic shift that throws everything up in the air,” he argues, adding that a victory for Marine le Pen’s far-right National Rally party in the upcoming French National Assembly election may prove more of a threat.
Others, however, concede being worried about the populist turn in European politics.
“It would be bizarre not to be concerned about these voices,” says Bruyninckx. “We live in complex times, and simplistic solutions are not the way forward.”
Europe may be in a strong position after five years of energetic lawmaking, but the climate and environmental crises will not go away simply because lawmakers stop thinking about them, he explains. Catalonia’s drought, Slovenia’s flooding and Greece’s wildfires are just some recent examples of the kind of disasters Europe can expect more of if meaningful change doesn’t occur in the near future.
“You can say this is all climate hysteria and we are pushing too hard and too far, but the reality is what it is,” Bruyninckx adds. “There will be no escape from taking further steps on the agenda of shifting our economy towards fundamentally sustainable solutions on energy, food, mobility, and the built environment.”
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