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Kempen's Commentary: The Green and Digital transition

01 July 2020

 

The Green and Digital transition

Our generation goes through two important transitions, digital and sustainable. These long-term transitions are not merely an economic phenomenon. They affect the whole system and the entire structure of society. In order to be successful companies, regulators and society alike have to be aligned. This is now happening at an accelerated pace as a result of the pandemic.

The European Union (“EU”) already aligned its long-term policy framework to be a carbon neutral economy by 2050. The pandemic has not dampened enthusiasm to achieve this target. The EU has put forward a new Green Recovery plan of €750 billion as well as targeted reinforcements to the long-term EU budget for 2021-2027. This will bring the total green financial firepower of the EU budget to €1.85 trillion: 

“Now is the time for our European Union to get back to its feet and move forward together to repair damage from the crisis and prepare a better future for the next generation. This is why the EU’s recovery plan must guide and build a more sustainable, resilient and fairer Europe for the next generation. Our generational challenges - the green and digital transitions – are even more important now than before the crisis started. Through the recovery, we will press fast-forward on the twin green and digital transitions.1

Long-term transitions require alignment of companies, regulators and society alike. The agenda of the government is therefore an important early indication of the future direction of the economy. Especially during times of crisis, when so many parts of the economy are, in one way or another, relying on state support. The European commission has now put down a marker for the world. 

  • The Green Recovery package focusses on building renovation, renewables and hydrogen and clean mobility. The plan also includes provisions to make the food chain more resilient in Europe and develop rural areas. 
  • The single market and digital ages focusses on rapid deployment of 5G networks, stronger presence in strategic sectors including AI, cybersecurity and cloud and a real data economy as a motor for innovation and job creation.
  • Over the last 40 years capital-income has grown much faster than labour-income. Some mean-reversion is to be expected. The EU aims to promote a fair and equal recovery. It aims to create millions new jobs, will help workers transition to new roles and set a skill agenda and minimum wages. 
  • The EU plan may even have a direct impact on the rest of the world, with on the one hand a border tax on carbon-intensive industrial imports from non-EU nations and on the other hand a revenue-tax on monopolistic profits made by some of the big-tech firms. 

In order to incentivize the private sector to invest in green economic projects the EU has adopted the EU Taxonomy:

“It will help create the world's first-ever “green list” – a classification system for sustainable economic activities – that will create a common language that investors can use everywhere when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. By enabling investors to re-orient investments towards more sustainable technologies and businesses, this piece of legislation will be instrumental for the EU to become climate neutral by 2050. ”

Last week the European Parliament approved the EU Taxonomy which will mean that the taxonomy for climate change mitigation and climate change adaptation should be established by the end of 2020, in order to ensure its full application by end of 2021. The EU expects that in the future especially the credit-markets will start to differentiate much more between companies in a way that should result in ‘green’ companies having lower borrowing costs. 

At Kempen we welcome the European efforts to create a more sustainable economy. We have been a sustainable investor for a long time. Our first sustainable investment fund was launched in 2002. The focus of the EU’s green recovery is overlapping in many area’s with the value propositions and purpose of our investments. Although the EU Taxonomy will only come into force next year we have been working hard over the last few months to set new Climate ambitions for all our investment funds to become aligned with the Paris Agreement  Goals of net zero emissions by 2050 and be an early adaptor of the new Paris-aligned benchmarks.Also we cooperate in several national and international task-forces to make sure that there will be fast convergence to common non-financial metrics. Like we have global international accounting standards we need international standards for non-financial metrics. 

At Kempen we believe the digital and sustainable transitions offer very good investments opportunities going forward. Investment alpha and sustainable alpha will not be traded off against each other but will go hand in hand. That is what we call ‘The Real Active’. 


 

  1. Source: European commission: https://ec.europa.eu/info/sites/info/files/communication-europe-moment-repair-prepare-next-generation.pdf
  2. Source: European commission: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1112

 

The author

Lars Dijkstra

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