Europe: A global leader in sustainable investment opportunities

For years Europe has been the indomitable epicentre in the battle against climate change. Thanks to its solid, long-term commitments, today it is an international hive of innovation and investment opportunity – and one which could hugely benefit given that globally annual clean energy investment needs to more than triple by 2030 to $4trn to reach net zero by 2050.¹

It was in Europe - a decade ago – where the Paris Agreement, a legally binding international treaty on climate change, was adopted by 196 parties at the 2015 United Nations Climate Change Conference (COP21). Its goal is to limit global warming to well below 2°C, but preferably to 1.5°C, compared to pre-industrial levels.

Progress has been made in the ensuing 10 years, but the fight against global warming is far from over. Temperatures continue to rise - 2024 was the hottest year on record².

But while Europe is a leader in the environmental, social and governance (ESG) arena, in contrast the new US administration’s stance towards sustainability has been the source of much concern. President Donald Trump has once again withdrawn from the Paris Agreement and continues to encourage fossil fuel production, while the US Environmental Protection Agency is reviewing regulations on climate, air and water pollution.

Robust international commitment to net zero remains

However, global commitments to the transition remain very strong, and especially so in Europe.

Russia’s invasion of Ukraine reshaped perceptions of energy security and forced the continent to speed up the energy transition. In 2023, European Union (EU) countries invested almost €110bn in renewable energy projects in 2023.³

Europe is a huge investor in renewable energy, across wind, hydro and solar power. The EU spends 10 times more money investing in clean energy than it does in fossil fuels – all of which means it represents a truly vast hub of potential for investors.³

This pace of investment is supported by the considerable foundations of the 2019 European Green Deal, which consists of over 175 directives - all of which aim to make Europe the first climate-neutral continent by 2050.

The initiative focuses on multiple areas, from boosting clean energy investment to climate technology innovation, to the oceans, agriculture, transport as well as finance and regional development through sustainable investments.

And while the recent ESG backlash has been well-documented, Europe’s commitment to net zero continues to accelerate.   

For example, to achieve the European Green Deal’s goals, the European Commission has pledged to mobilise at least €1trn in sustainable investments over the next decade⁴ and in 2024, it announced it would invest a record €7bn into sustainable, safe and smart transport infrastructure.⁵

Among many other targets, the EU has set a goal to ensure that by 2035 all new car and van sales will be zero-emission electric vehicles.⁶ And to boost the continent’s electric vehicle infrastructure the EU has brought in a law requiring fast-charging stations to be put in place every 60 kilometres along highways by the end of 2025.⁷

We are witnessing an ever-rising number of European companies who are not only incorporating environmental commitments into their reporting but also into their business strategies. We see this reflected in industry standards such as the Science Based Targets initiative (SBTi), a global body that enables companies to set greenhouse gas reduction targets in line with climate science, aiming to limit global warming to 1.5°C above pre-industrial levels.

This process involves a structured five-step approach, including committing to targets, developing them, submitting for validation, and disclosing progress. Validation ensures that the targets are credible and measurable, helping companies demonstrate their commitment to sustainability and align with the goals of the Paris Agreement. Presently 65% of the MSCI Europe index, by market cap, has an SBTi-validated target versus 47% of S&P 500.⁸

A flourishing investment landscape

The momentum has created myriad opportunities for investors - from carbon transition strategies that invest in companies on the path to net zero, to impact portfolios that invest in firms and projects offering specific solutions to risks such as climate change and biodiversity loss, e.g. renewable energy, water and waste management, or sustainable forestry. 

Green bonds – the funds of which are earmarked for projects that help achieve environmental and climate objectives - have experienced very strong growth, something which is very much expected to continue. This growth should come as little surprise given that today, green bonds are entrenched in the mainstream – and have been for some time – typically offering a comparable yield to conventional bonds.

Driven partly by the European Green Deal and the need to fund the transition to a low-carbon, green economy, green bond issuance has risen significantly in Europe where corporation issuance increased rapidly, from 5.6% of total corporate bonds issued in 2020 to a new high of 13% in 2024⁹.  

And while those issued by governments jumped from 3% in 2020 to 4% in 2024, corporations made up almost 60% of the total value of corporate and government green bonds issued in the EU during 2024, reaching €33.6bn⁹. 

Commitment from European asset owners and asset managers also remains very high. One survey found that despite the rhetoric coming from the US, there is a growing commitment among UK and European institutional investors and asset managers to sustainable investing. Specifically, more than half, at 58%, of respondents plan to increase their impact allocations over the next 12 months, while notably, no respondents intend to decrease allocations¹⁰. 

A clear direction of travel

Ultimately, despite the US government’s decision to roll back on its climate pledges, European government, corporate and investor commitments to sustainable investing and allocating capital to support the transition remain strong.

Fundamentally, when it comes to sustainability initiatives and investment potential, we believe Europe is leading the way; here we continue to see a robust pipeline of sustainable investment opportunities with attractive risk/return profiles that have the potential to deliver long-term value to investors.