Sustainability vs competitiveness, Europe’s key to a prosperous future

The recent European elections have shifted the political dynamics of Europe. There are now a growing number of political parties questioning the need for more sustainability measures at the European level.

For those of us committed to seeing the EU lead in protecting people and the planet, this political repositioning raises serious concerns about how the EU will meet its critical emissions reduction targets, achieve climate neutrality by 2050, and tackle ongoing economic and social challenges.

Stakes are particularly high if the ambition for sustainable finance wanes, jeopardizing progress made so far.

During the previous legislative term, EU legislators took decisive steps to embed sustainability into its regulatory framework. The adoption of the European Climate Law in 2021 was pivotal, legally binding the goal of achieving net-zero greenhouse gas emissions by 2050 and setting ambitious emissions targets for 2030.

This placed the green transition at the forefront of the EU’s agenda. And the proof of its success can be seen in the 24% reduction in emissions from 1990 levels.

Simultaneously, new legislation such as the Corporate Sustainability Reporting Directive, the Sustainable Finance Disclosure Regulation and the Corporate Sustainability Due Diligence Directive, and updated provisions within Solvency II and the Capital Requirements Directive and Regulation recognised and strengthened the role played by the financial sector in facilitating the green transition and protecting financial stability.

These measures aren’t just beneficial for the environment and our society — they are vital for enhancing the resilience and performance of companies, fostering transparency, adequate risk assessment, and long-term thinking.

More power to those reverting progress

The new political landscape gives more power to those who want to turn the clock back on the progress made in favour of more business-friendly rules, ostensibly to boost European competitiveness globally.

This is a false contradiction: sustainability and economic competitiveness are not mutually exclusive.

Sustainability is essential if European businesses are to remain resilient, prosperous and internationally competitive. At the same time, maintaining a commitment to sustainability will preserve the progress already achieved and ensure the EU meets its climate targets on time.

The stakes are too high to pause or backtrack. Europe faces escalating threats from climate change: soaring temperatures, vanishing ecosystems, and rising sea levels. These environmental crises exacerbate socio-economic challenges like exploitative working conditions, poverty, and inequality.

The financial sector, often driven by its profitability, frequently ignores the long-term sustainability needed to address these intertwined issues.

The upcoming legislative term is a critical period for the EU to cement its leadership in the transition to a sustainable economy while improving its resilience and competitiveness.

Among other initiatives, this demands setting high standards for the financial sector, ensuring regulatory coherence when it comes to sustainability requirements, and taking a firm stance against harmful practices.

Deceptive practices need to end

First and foremost, the EU should enable the financial sector to support a just, inclusive and zero-carbon economic model.

By clearly defining which activities drive positive change and which harmful activities need to stop, investors can direct funds towards projects that better protect both people and the planet, such as renewable energy, sustainable infrastructure, and social inclusion programs.

At the same time, combating greenwashing and social washing is key to enabling investors and consumers to make better-informed decisions. These deceptive practices misrepresent investment products as more sustainable than they are, eroding trust and delaying necessary actions.

EU policymakers must combat this with strict criteria defining sustainable investments, effective supervision, and severe penalties for violations.

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In addition, providing more and better information about sustainable investment options will empower consumers to avoid deception and drive a broader shift towards responsible investment practices.

Finally, to ensure financial stability and discourage support for harmful projects, it is crucial to reduce their profitability, making them less attractive. Banks and insurance companies should allocate more funds to cover risks from investments harming the environment and society.

Not just a moral imperative

The ball is now in the European policymakers’ court. Last week, EU leaders made crucial decisions about the leadership and strategic direction of the EU for the next five years.

Despite acknowledging the catastrophic consequences of climate change and reiterating the commitment to climate neutrality, the new Strategic Agenda falls short of making the green transition a standalone priority, focusing instead on competitiveness and defence.

As new MEPs prepare to embark on this new term, and with the new European Commission and Parliament presidents awaiting formal nomination in July at the Parliament’s first plenary session, it’s key to emphasise the imperative for more specific initiatives and a steadfast commitment to sustainability, which is not just a moral imperative but also an economic necessity.

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Europe cannot afford to falter in its pursuit of a safer, more sustainable future for all.

Maria van der Heide is Head of EU policy at ShareAction.

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