Equities

The European Green Deal and COVID-19 Recovery Package

The European Union is set to officially present a recovery package next week on May 27th, with a focus on the EU Green Deal – an economic rescue plan aimed at generating jobs and private investment across the continent, while also integrating into the package policies geared towards reaching net zero greenhouse gas emissions by 2050.

Prior to the crisis, the European Commission had calculated that EUR 260 billion of additional annual investment was required to reach its 2030 emission goals, on the path to the net zero target.

Despite calls from some leaders to forget the EU Green Deal and focus instead on the virus, the EC has continued to reiterate its commitment to the Green Deal as being central to the recovery and reconstruction package. Earlier this week, a draft, unofficial document detailing the green recovery plan was published.

Considering this level of political support, we wanted to consider which sectors may stand to benefit from such green-focused policies, including renewables, building renovation and clean mobility. You can trade ESG stocks on Marketsx with ESG ETFs, as well as our unique ESG Leaders Blend.

Renewable energy

The goal of reaching net zero greenhouse gas emissions by 2050, as outlined above, could drive earnings growth for those utility companies with existing and scalable exposure to renewables in their power generation mix, and to those that are developing such exposure.

Two key renewable energy sources are wind and solar, which combined (Captain Planet, anyone?) form a complimentary mix: solar generation is largely during the sunnier, longer days in summer, while wind produces most in the winter months and typically peaks at night.

Screening for utilities with strong balance sheets could indicate that they have capacity for additional investment and growth in renewable energy sources.

Apart from decarbonising the power generation mix in a move to renewables, energy demand may also increase because of other measures, further accelerating growth in the sector.

For example, the use of electric heating in buildings is low in Europe, with the majority being gas or oil heated. Switching to electric heating, where electricity production comes from clean sources, could lower emissions while increasing power demand.

Increased use of electric vehicles could also contribute to growing power demand. It may also require the deployment of charging stations to facilitate long distance travel, where utility involvement could come in too.

Furthermore, it is not only utilities that stand to benefit from renewables growth, but also those companies involved in providing the infrastructure for renewable electricity generation and transmission.

Cleaner transport

Automobile manufacturers with a focus on battery electric vehicles (BEV) may stand to benefit from the green recovery plan. For example, consider a situation where public money is spent on subsidies that would reduce the cost for firms, or indeed cities, to cut emissions by converting vehicle fleets from combustion to electric engines.

A boost for public transport investment could have a significant impact on businesses in the sector. The report flags the importance of the European rail supply chain and supporting it and the businesses involved while it faces increased competition from China.

It is also worth noting that Volvo and Daimler recently announced a joint venture to develop and commercialise clean hydrogen technology for the truck market.

Building renovation

According to the leaked report we referenced above, buildings consume the largest amount of energy in the EU and are responsible for 36 percent of EU greenhouse gas emissions.

As previously discussed, a switch to electric heating could help in lowering emissions associated buildings.

Construction exposed companies could also be worth monitoring, such as those related to heating, ventilation and air conditioning, lighting, and electrical, as buildings are targeted for renovation to make them more energy efficient.

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