EIB Investment Report 2020/2021 - Keyfindings

Building a smart and green Europe in the Covid-19 era

European Investment Bank, European Investment Bank

• Publisher: European Investment Bank
• Year: 2021
• ISBN:
  9789286148422
• Topic: Negocios y empresa
• Subtopic: Finanzas corporativas

The Europe Union's massive efforts to rebuild after the coronavirus pandemic present a unique opportunity to transform its economy, making it more green and digital – and ultimately more competitive. The Investment Report 2020-2021 looks at the toll the pandemic took on European firms' investment and future plans, as well as their efforts to meet the demands of climate change and the digital revolution. The report's analysis is based on a unique set of databases and data from a survey of 12 500 firms conducted in the summer of 2020, in the midst of the COVID-19 crisis. While providing a snapshot of the heavy toll the pandemic took on some forms of investment, the report also offers hope by pointing out the economic areas in which Europe remains strong, such as technologies that combine green and digital innovation.This document presents a summary of the key findings of the EIB Investment Report 2020/2021.

Investing for the climate transition

In 2019, European investment in climate change mitigation increased gradually. In the EU27, this investment grew 2.7% from a year earlier to EUR 175 billion. The strongest growth was recorded in renewable energy generation, while investments in energy efficiency appeared to stagnate.

European investment in climate change mitigation is well behind that of China, but ahead of the United States – although the contexts are very different. China invested 2.7% of gross domestic product (GDP) in climate change projects, ahead of 1.3% in the European Union and 0.8% in the United States. However, the European Union has already gone much further in reducing emissions per unit of GDP. In a sense, Europe has already picked much of the “low-hanging fruit,” and its efforts increasingly have to focus on harder-to-reduce emissions.

EU climate change mitigation investment by sector (left axis: € billion; right axis: % of GDP)

Source: International Energy Agency (IEA), Bloomberg New Energy Finance (BNEF), Eurostat, European Investment Bank (EIB) estimates.

The gap between Europe’s climate objectives and realised climate investment is growing. Since 2016, climate change mitigation investment has declined marginally as a percentage of GDP and overall investment, a trend that is likely to continue in 2021. According to the European Commission’s latest impact assessment, investments in the continent’s energy system would need to rise from an average of 1.3% of GDP per year over the last decade, to 2.8% of GDP over the next decade if the European Union is to meet its goal of cutting greenhouse gas emissions by 55% by 2030. Adding investments in transport brings the total over the next decade up to 3.7% of GDP per year. European investment in climate change mitigation is still insufficient.

In the coming decade, the focus has to shift from investment by energy producers to investment by energy consumers, including firms, households and municipal authorities. Of the additional investments needed in the next decade, 65% to 75% are expected to focus on improving building insulation, upgrading industrial processes, purchasing more efficient equipment and investing in new transport technologies.

Annual energy-related investment expenditure, historic levels (2011-2020) and estimated requirements to meet 2030 policy goals (left-axis: € billion; right-axis: % of GDP)

Note: The pattern in the total and demand bars represents the contribution of transport.

Source: European Commission, 2020.

The European Investment Bank Investment Survey (EIBIS) provides a window into climate-related investment by European firms:

• 23% of European firms say that climate change and related weather events have already had a major impact on their business, vs. 14% in the United States. Another 35% of European firms report climate change effects to be minor.

• Just over half of EU firms do not think the transition to a net-zero emission economy will affect their operations over the next five years, and of those that do, the majority see the transition as an opportunity. The firms that expect the transition to have an impact say it could stimulate demand and improve their reputation. Firms are more likely to see the effect on their supply chain as negative, however, and energy-intensive firms expect more negative effects overall.

• 45% of EU firms have invested in climate change mitigation or adaptation measures (vs. 32% in the United States), but fewer plan to do so in the next three years. The investment figure varies from 50% in Western and Northern Europe to 32% in Central and Eastern Europe. A slightly lower 40% of European firms are planning to invest in climate measures in the next three years. A majority of European firms, 75%, say uncertainty about regulation and taxation is impeding climate-related investment.

• The proportion of EU firms reporting investment in energy-efficiency measures increased to 47%, up almost 10 percentage points over 2019. The average share of investment devoted to energy efficiency rose from 10% to 12%, with large firms and manufacturing firms more likely to invest.

Firms that say their business activities have already been impacted by physical climate change risks, and that have invested to tackle climate change risks (%)

Source: EIBIS 2020.

While more than half of municipalities have increased climate change mitigation investments over the past three years, two-thirds still consider the level of investment to be inadequate. The EIB Municipality Survey 2020 reveals that 56% of municipalities increased climate investment, but 66% consider their climate investment over the last three years to be inadequate. For investment in climate change adaptation, 44% increased investment and 70% consider investment to still be inadequate. This suggests that climate adaptation investment could be a more pressing issue in the future.

Investing for digital transformation

Europe’s future prosperity depends on leading the next wave of industrial transformation: digitalisation. The digital revolution has already transformed industries, production processes and ways of living and working, but many of these shifts are only just beginning. As with previous technology waves, taking an early lead can be critical for lasting competitiveness. Yet with the global innovation and technology landscape changing rapidly, Europe risks becoming entrenched in its position as a follower on digitalisation.

So far, the impact of digitalisation has been largely benign. Technological waves, like the first industrial revolution, have driven massive changes in the nature of work, its location and the skills people need. Digitalisation has already caused a shift towards high-skilled occupations, with these jobs tending to cluster in favoured urban areas, particularly capital city regions. EIBIS data present interesting evidence. Firms that have adopted digital technologies are also more productive, more innovative and more likely to export. They are creating more employment than non-digital firms and also pay higher wages on average. Digitalisation has provided a strong stabilising effect during the COVID-19 crisis.

But a painful process of re-adjustment awaits firms and regions that lag behind. A trend towards economic and geographical polarisation is emerging, contrasting the digital leadership of some firms and regions with the slow progress of others. Job growth in recent years has been driven by higher-skilled positions. In the near future, the accelerated loss of low and medium-skilled jobs through automation could create a massive need for re-skilling.

The adoption of digital technologies by EU firms is growing, but it has not yet closed the gap with the United States. By 2020, 37% of European firms had still not adopted any new digital technologies, compared with 27% in the United States. Encouragingly, the proportion of digital firms in the European Union grew by nearly 5 percentage points over the 2019 level, but the United States saw a comparable increase. The gap with the United States is particularly marked in the construction and service sectors, and in the adoption of technologies associated with the internet of things.

Adoption of digital technologies (% of firms)

Source: EIBIS 2019, 2020.

Firm size and market fragmentation appear to be holding back digital adoption in Europe. High fixed costs and financing obstacles for intangible assets often make it easier for large firms to invest in digital technologies. Adoption rates for micro and small firms are notably lagging on both sides of the Atlantic. The comparatively small average size of European firms – itself a partial reflection of the continued fragmentation of European markets along national lines, including for digital services – is likely contributing to the continent’s low digital adoption rates.

Digital adoption rates by firms and municipalities (%)

Source: EIBIS 2019, 2020; EIB Municipality Survey 2020.

Municipal investment in digital infrastructure is advancing, but disparities could result in further polarisation. Over the last three years, 70% of European municipalities increased investment in digital infrastructure. Looking forward, municipalities state that digital remains a top priority, alongside social and climate-related investments. But there are strong regional disparities in the perceived adequacy of municipal infrastructure investment. A lack of digital infrastructure is seen as a major obstacle for investment by 16% of EU firms, vs. only 5% in the United States. There is also some evidence that digital adoption by firms is higher in municipalities that have better digital capacities and infrastructure.

Europe is losing ground within a rapidly changing global innovation landscape. While still at the forefront of technology, the European Union is investing less in research and development (R&D...