Sectors and companies that will get a boost from the European Green Deal…

Alain PITOUS, Head of Responsible Finance - OFI AM
Head of Responsible Finance

Announced in late 2019 by the European Commission, the European Green Deal is a set of measures aiming to make Europe “climate-neutral” by switching to a clean and circular economy, restoring biodiversity and reducing pollution.

A 750 billion euro stimulus plan

Riding real political will and solid citizen support for sustainable and fair growth, the European Commission has taken on the environment as a key issue. The Green Deal, in which Europe pledges to achieve climate neutrality by 2050, was a natural extension of this.
This stimulus plan addresses all the current challenges and priorities and lays out all possible interactions, a framework that many previous plans had not had. It will come with a bold funding plan of 750 billion euros, equivalent to 3.5% of European GDP, and regulatory and tax disincentives to dissuade certain actors from persisting in their poor ESG practices.

The European Green Deal addresses all types of actors – companies as much as citizens.

Regarding the financial sector, the European Commission has committed firmly to drawing up a strict and solid regulatory framework for channelling investments into a green transition and thus supporting the transition towards a more sustainable financial system. This will direct savings towards “clean” activities.
Europe has also pledged to conduct suitable controls, thus giving savers the confidence they need for investing in tomorrow’s economy.

Better long-term visibility

Investors are seldom fond of regulations, but in the current environment, regulations will provide some long-term stability. On the one hand, they will force asset managers to adapt their investment processes. On the other hand, they will force companies to divulge more data on their impacts so that investors are better informed of the sustainability of their investments. Compiling extra-financial data and information will shed light on risky companies – an advantage for investors, who will thus be able to react on a far more rational basis.

Europe’s fiscal investments will target in particular those sectors that are the biggest greenhouse gases emitters and hence, some long-term thematics, including energy, transport, and waste recycling. This context therefore offers lots of visibility to investors and, unlike other, highly aggressive stimulus plans targeting a single type of activity – plans that tend to fade away rather quickly – the European Green Deal should be with us for some time to come.

Sectors and stocks that are the best placed to benefit from the Green Deal

Many top-tier companies are likely to benefit from the European Green Deal, including Schneider Electric (a supplier of electrical equipment and components) in green energy; Air Liquide (hydrogen production); Alstom (equipment and services) in clean transport; Saint-Gobain (building materials); Kingspan (advanced insulation and construction solutions) in construction; and Suez and Veolia in the circular economy, waste management and water treatment.

Time to get in on the ground floor by investing in these stocks?
Despite doubts surrounding the approval of the European budget prior to the second Covid-19 wave, the regulatory environment is in place, with an established timetable. This provides investors with long-term visibility. At OFI AM, we believe that, once the pandemic is over, the aforementioned well-positioned companies are likely to benefit from this medium- and long-term context.
In the short term, we recommend relative caution in the current environment. In any case, investors should think about diversifying into several sectors that complement one another. The challenge resides in sectors that are now big greenhouse gases emitters and that tomorrow will have to change radically.

This content was originally published in French on the Boursorama website as part of the program "Ça vaut le coup !"