Philippe Van Loock holds a Master's degree in Applied Economics (Katholieke Universiteit Leuven). He also holds the Belgian ABAF-BVFA Financial Analyst accreditation and is a certified European Financial Analyst (CEFA). After his studies, Philippe gained 20 years of experience at a large Belgian Private Bank as Financial Analyst and more recently as Portfolio Manager of an impact fund. Philippe joined Econopolis Wealth Management on April 1st, 2022.
The impact of the European elections on climate investments
The Green Transition has made remarkable strides and has become a central component of Europe's strategy to combat climate change and reduce its high energy dependency, which was highlighted by the Russian invasion of Ukraine. According to consultant FleishmanHillard, 45% of the Green Deal initiatives have already been implemented, with an additional 15% nearing adoption.
In the most recent European Elections, two major proponents of the Green Deal, Renew Europe and the Greens/EFA, lost approximately 20 seats each. This loss has weakened political support for the European project, raising concerns about the potential threat to the progress of the Green Transition and its impact on climate investments.
The case for climate investment is still compelling. Several factors, including the decreasing costs of green technologies, increased public awareness of extreme weather events, and initiatives to reduce energy dependence on authoritarian regimes, could bolster further climate action in the coming years. However, the EU is likely to face significant challenges in advancing climate action over the next five years.
The election results
First of all, it's important to emphasize that climate change affects everyone, regardless of their political stance, and those who are most vulnerable bear the greatest impact. Therefore, solutions to address climate change should be a priority for all.
Despite parties that have criticized and undermined the EU Green Deal achieving success in the recent European elections, the overall outcome did not indicate a widespread surge for far-right parties across Europe. While these parties performed well in France, Germany, Belgium, the Netherlands, and Austria, the situation was different in the Nordic countries, where such trends were not observed.
As Ursula von der Leyen was quoted saying: “The centre is holding”.
The key question is what kind of center the European People’s Party (EPP) will form and how this will affect future EU climate policies. While we don't anticipate a rollback of climate policies, there may be increased challenges in implementing new initiatives going forward. This could potentially impact the EU's 2040 climate target, which aims for a substantial 90% reduction in emissions, pending approval from EU member states and the Parliament.
Given the EPP's central role, it is likely that they will lead again in a large coalition government.
Given the reduced influence of left and center parties, including the Greens, Left, and Renew, the EPP's shift towards right-leaning climate policies ahead of the election appears to be a lasting change.
Complete adherence to the green agenda is thus unlikely, signaling a decreased urgency in implementing the Green Deal. Instead, EU priorities are shifting towards economic competitiveness, digitalization, security, and immigration.
A shift in priorities or adjustments however in our view isn’t the biggest challenge, the real danger here is a gridlock, indecision and inaction at a crucial time for Europe.
While Europe has taken a leading role in combating climate change, it currently trails behind China and the U.S. in the global race towards achieving net-zero industrialization. Moreover, the threat of de-industrialization posed by China and the U.S. remains persistent and shows no signs of abating in the near future.
To boost the EU's competitiveness and strengthen energy security, we must intensify our focus on renewable energy solutions and the deployment of clean energy. This involves expanding electricity grids and interconnections, implementing flexibility solutions, adopting a value chain approach to our goals, and enhancing coordination of national energy policies.
The challenge the EU faces will be to deliver and finance on these tasks while also demonstrating its social benefits and fairness.
Immediate implications
One of the biggest political implications of the recent European elections is the snap election announcement by President Macron in France. Remember that the first round is already set for June 30th and the final vote is set for July 7th.
If National Rally emerges as the leading party in France's lower house post-election, we may anticipate several substantial changes ahead. These could include the retention of ICE cars without phasing them out, maintaining current policies on boiler programs and scaling back on renovation projects. Additionally, there could be a shift towards prioritizing nuclear and hydroelectric energy over solar and wind power in the renewable energy sector.
That being said, the French long-term interest rate remained relatively stable, suggesting that investors are looking beyond short-term concerns. While the interest rate spread compared to certain other European countries did widen slightly, overall there were no significant fluctuations observed.
The bigger picture
Now let’s take a step back and look at the bigger picture.
What are the real drivers of sustained renewable and cleantech investments.
The real drivers of change
- Renewable energy stands out due to its superior efficiency, local availability and cost-effectiveness. Ultimately, these economic advantages are the primary catalyst for change. Many examples illustrate this: solar costs have plummeted by over 80% in the last decade, and battery costs have similarly dropped by 80% more recently. Consequently, it's not surprising to witness rapid growth in the electricity sector (with solar named the new King of electricity by the IEA), the swift transition of the transportation sector toward electrification (using cheaper and cheaper batteries even in subsegments such as electric excavators like the Komatsu PC8000-11), and other industries following the same trajectory.
- Another significant factor influencing the shift towards renewable energy sources is energy security, which has been underscored particularly by recent events such as the conflict in Ukraine. Unlike traditional fossil fuels like coal, oil, and natural gas, renewable energy sources such as solar, wind, biomass, geothermal, and hydropower differ significantly in their geographic and technical characteristics.
Remember that only a small percentage of the global population resides in countries with significant reserves of petroleum or natural gas underground. In contrast, nearly all nations have access to some form of renewable energy, allowing many to increasingly meet their energy needs domestically.
- Global warming and pollution is another driver but even in the absence of climate change, this transition would happen anyway. Maybe it would happen a bit slower as we have seen with other technologies. It is just that we don’t have a century, prompting efforts for a quicker transition.
Policy Support
When assessing the adoption of renewable energy or any new technology, the impact of policy support is complex and multifaceted. Policies play varied roles across different sectors and stages of technological transition. Initially, policy support is crucial to initiate technologies, fund research and development, and discover viable solutions. For instance, countries like Germany, Australia, and the United States provided significant policy backing during the nascent stages of solar energy development some 30 to 40 years ago.
However, as technologies mature, the role of policymakers evolves into that of a referee, ensuring a fair competitive environment by eliminating artificial barriers that hinder progress.
Speed of change
And the speed of change is not linear but exponential, following along the lines of a S-curve.
Anti-electricity cartoon from 1889.
Innovation often proves the tech doubters wrong.
Imagine yourself transported back to 1900, a time when the motor car and electricity were newly invented. Despite widespread belief that horses and gas lighting were the way forward, history would prove otherwise.
And it's exactly the same now. In today's landscape, a clear pattern emerges: companies increasingly recognize the immense potential of renewable energy and clean technologies. They are channeling substantial investments and resources towards dominating these pivotal industries of the future. China set a strategic precedent nearly two decades ago, a move that sparked global attention. Now, the United States, through initiatives like the IRA, and Europe with its ambitious Green Deal, are actively joining this transformative journey. It's evolved into a competitive race among nations and corporations alike, striving for leadership and innovation in the pursuit of higher environmental standards and sustainable achievements.
Renewable energy investment keep on growing, but don’t forget the benefits of energy efficiency and other sectors too.
Meanwhile, investments in renewable energy have continued to rise, while renewable energy sources have become increasingly cost-effective.
According to the latest IEA World Energy Investment report, global energy investments are projected to surpass 3 trillion dollar in 2024, marking a historic milestone. Approximately 2 trillion dollar of this total will be allocated to clean technologies such as renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency enhancements, and heat pumps. Compared to 2020, this means more than a doubling of the investment amount. The direction is clear. Both economically and ecologically, there is no way around renewable energies, which will account for 70% of energy generation by 2050.
Furthermore, the statement "the best energy is the one you don’t use" illustrates the subtle benefit of energy efficiency. Especially in periods where substantial investments are required for developing renewable-based electrified energy systems, energy efficiency offers clear and significant economic value. According to the IEA, investments in energy efficiency have grown by 45% since 2020.
Another example of a sector that sees steady growth, is the sector of waste and recycling.
Currently material inputs in new product development is alarmingly low, with only 7.2% being utilized. This indicates that a significant majority of materials, over 90%, are either wasted, lost, or unavailable. The global market for recycled materials is expected to grow by more than 12% per annum from 2024 to 2030, driven by increasing environmental awareness, supportive government policies, and advancements in recycling technologies. Companies innovating in this space not only contribute to environmental sustainability but are also poised for substantial financial growth.
Conclusion
When investing in the Green Transition, investors should take a broader view instead of focusing exclusively on companies that produce renewable energy. These companies often operate in early stages and specialize heavily, making their stock prices highly volatile and susceptible to fluctuations influenced by current political sentiment.
Nevertheless, the long-term trajectory remains robust. Investors can mitigate this volatility by shifting focus to the broader value chain and solution providers, typically more established companies, while still participating in this enduring trend.
Moreover, the Green Transition extends beyond companies that produce renewable energy. Consider the example of energy efficiency, where companies like Autodesk, Trane Technologies, and Saint-Gobain provide industries and consumers with significant ecological and economic savings throughout the lifecycle of their products. Or the example of companies such as Waste Management or Republic Services active in the waste and recycling sector.
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EU's Green Deal: A set of policy initiatives by the European Commission aimed at making Europe climate neutral by 2050, focusing on reducing greenhouse gas emissions, investing in sustainable industries, and protecting the environment.
About the author
Philippe Van Loock
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