by Matt Davies
April 5, 2024
A new report, “Get the Money Moving,” unveils a concerning trend among European companies regarding their alignment with the transition toward a net-zero economy: the majority, 70%, allocate less than a quarter of their capital expenditures toward initiatives aimed at achieving a net-zero carbon footprint.
According to the analysis, access to capital presents a “major obstacle” for one-third of European companies and over half of Europe’s high-emitting businesses; more companies are now setting emissions reduction targets and drafting transition plans, but only 20% have made “substantial progress” when it comes to “developing commercially viable green business models for their industries.”
“Sustainable investments are not just a choice, they’re a necessity.”
Published last week by management consulting company Oliver Wyman and CDP, a “global non-profit that runs the world’s environmental disclosure system for companies, cities, states and regions,” the report also looks at sector-specific progress and gaps in industries like automotive, steel, and transport. Of particular concern is the shortfall in capital investment identified in the electric utilities sector, which could potentially hinder the transition to renewable energy sources crucial for decarbonizing transport and heavy industry.
The report estimates that “electric utilities particularly could fall €285 billion short (to reach €1.9 trillion) by 2030 on required CapEx investments to replace conventional generation capacity with renewables.”
Despite the emergence of low-carbon technologies and products, the report underscores the underdevelopment of commercial business models and insufficient government policy support “in many sectors,” which has “not yet shifted the economic landscape decisively enough in favor of greener products and services.”
In the automotive sector, for example, companies will invest 59% of their research and development over the next five years in electric vehicles which account for 13% of sales.
The analysis also points to potential market shifts, with 20% of European businesses anticipating a customer switch to alternative products and suppliers if further investments in sustainable goods are not accelerated. This shift is likely driven by increasing consumer demand for sustainability and the implementation of regulations like the Corporate Sustainability Reporting Directive (CSRD) in the European Union (EU).
In the steel industry, which accounts for about 5% of the EU’s carbon dioxide emissions, current investment levels are insufficient to meet the growing demand for green steel supply. More specifically, the supply of green steel in the EU will be 30% lower than the demand by 2035 under current levels of investments, the report found.
European companies also reported “inadequate development of low-carbon product lines and technologies or decarbonization efforts by suppliers” as factors holding them back from implementing transition plans.
The report emphasizes the role of financial institutions in supporting the transition to a sustainable economy. While many companies require financial support to scale up green initiatives, financial institutions demand proof of sustainability at a commercial scale. However, the report notes that over half of financial institutions in Europe lack plans to address critical environmental issues such as water security and deforestation.
The report urges businesses to reallocate more of their expenditures towards sustainable solutions while calling for policymakers to create an enabling environment for green initiatives to flourish. It advocates for increased collaboration across the financial sector and stresses the importance of transparency and accountability in achieving a sustainable future.
“Sustainable investments are not just a choice, they’re a necessity,” said CEO of CDP Sherry Madera. “With many solutions emerging, this analysis shows significant opportunities for industries to innovate and lead. It uncovers pathways to scale impactful solutions, guiding companies and financial institutions towards a climate safe world. By disclosing high-quality data, companies can better see where to invest to drive their competitiveness, achieve their transition plans and attract capital. Financial institutions can also apply this information to engage and develop funding models that spread risk and enable business innovation, as can policymakers to target improvements for investment conditions in green initiatives.”
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This article was originally published on IMPAKTER. Read the original article.