What drives firms’ investment in climate action? Evidence from the 2022-2023 EIB Investment Survey

Abstract

The European economy is experiencing significant turbulence as recurring crises reverberate across all EU countries, their economies and business operations. Since 2020, shocks ranging from the COVID-19 pandemic to the Russian invasion of Ukraine have disrupted supply chains and destabilised European energy markets. Price volatility and uncertainty have reached multi-decade highs and risk derailing the post-pandemic recovery. At the same time, climate change is still the most pervasive global challenge. Extreme weather events are on the rise. Any delay in tackling the climate issue may trigger sudden and irreversible damage to the planet. Faced with this difficult business environment, firms are constantly called upon to confront new challenges and come up with innovative solutions. The disruption of energy supplies caused by the war in Ukraine has proven particularly challenging for EU firms. Extremely high energy prices significantly alter firms’ costs, particularly for energy-intensive industries such as food, paper, chemicals and metals. Less energy-intensive industries also face hardship, as the increase in prices is not only limited to energy but has rapidly extended to other markets, creating inflationary pressures. Together with these short-term challenges, climate change represents the most significant long-term threat for EU companies. A recently published report by the Intergovernmental Panel on Climate Change (IPCC) points to the “unprecedented scale of recent change across the climate system,” the increasing frequency of extreme climate events, and the necessity of taking immediate action (IPCC, 2021). In Europe alone, extreme weather events caused over €145 billion in economic losses from 2012 to 2022. Over the same period, climate-related economic losses increased by around 2% annually (European Environment Agency, 2022). At the same time, the likelihood of a disorderly transition to green energy is increasing, particularly since the Ukraine war. The two crises – energy and climate – are closely interrelated and highlight the importance of a swift transition to a sustainable European economy. Although energy price spikes may call for short-term support measures, climate change requires the European Union to embrace the green transition in the longer term. The involvement of the European Union and its members in the green transition will be crucial, as they are able to design new policy tools and channel funds appropriately. At the same time, firms are called on to play a pivotal role. By investing in climate adaptation and mitigation measures, especially energy efficiency, firms can protect themselves from the increased frequency of extreme climate events, reduce energy costs and take further action to achieve net-zero emissions. Thus, it is important to take a closer look at how firms are responding to this highly uncertain and rapidly changing business environment. This report draws from data collected for the EIB Investment Survey 2022-2023. It examines the willingness of European firms to address climate change in the current context of the energy crisis. First, it presents the answers provided by firms across the European Union to a set of questions on energy and climate change. Then, it goes more in-depth by providing firms’ answers in each EU country.