How will climate change, increased regulation and Brexit shape Europe’s political and financial landscape? These were the insights at the third of our Private Funds Industry Live series.
Huge quantities of private capital are needed to match public funding for Green Deal projects that aim to take Europe to carbon neutrality by 2050, according to political analyst and former politician Lucinda Creighton.
A large proportion of that investment would come from the US, she said. “It’s a huge opportunity – an ocean of it – that I think inevitably US investors will seize and pursue with great vigour.”
CEO of Dublin and Brussels-based government relations and public affairs firm Vulcan Consulting and a barrister, Lucinda is a former European Minister, a member of the European Council on Foreign Relations and a Member of Ireland’s Parliament. She joined the panel for the third of four LinkedIn broadcasts curated by Intertrust Group under the #PrivateFundsIndustryLIVE brand.
Europe has a “new sense of vitality” in its regulatory and policy-making process, she said. Recent elections to the European Parliament and the appointment of new European Commissioners is injecting urgency into policy debates on financial services regulation.
Further change is likely, Lucinda said, with Germany going to the polls in September and the French presidential elections in 2022. It is possible, she added, that Annalena Baerbock, the German Greens candidate, could become Chancellor and one of Europe’s most powerful politicians.
“The green agenda is here to stay whatever the outcome and Germany will lead the charge,” she said. If Baerbock wins, “progress could be much more rapid, much more radical and potentially quite disruptive”. However, Baerbock’s popularity has waned somewhat, Lucinda added, with her policies seen as heralding higher taxes.
On financial regulation, Lucinda noted that the European Securities and Markets Authority (ESMA) and national regulators are becoming more demanding, with “significant implications, including on cost”.
She emphasised that European regulatory authorities welcomed engagement with market participants, including those in the Alternative Investment Funds (AIF) sector. “The great thing about the European process is that it is always open… There is a heavy emphasis on public consultation and industry engagement. Getting stuck into that, getting under the bonnet, is really important.”
The EU’s Alternative Investment Fund Managers Directive (AIFMD) and its Markets in Financial Instruments Directive (MiFID) are among the statutes reviewed regularly.
Ian Lynch, Chief Commercial Officer at Intertrust Group, also on the panel, considered how this would affect US investors, highlighting the importance of Luxembourg and Ireland as domiciles.
Both speakers agreed that the political mood in Europe was cautiously optimistic, with Lucinda predicting “some sort of resumption of normality” towards the end of 2021.
“The vaccination programme perhaps got off to a rocky start but over the last couple of months it has accelerated fairly significantly across the EU,” she said. She noted that about two-thirds of European citizens have had at least one dose and about 45% two, although take-up varies across member states.
Business and industry have been re-opening, with travel resuming since early June, but the Delta variant is causing concern, she added.
Both speakers were clear that Europe’s high-level policymakers are determined to achieve carbon neutrality by 2050.
Lucinda characterised Europe’s environmental targets as a “hugely ambitious investment programme, roughly to the tune of €1trn”: a clear sign that authorities want to drive capital towards green investment.
“It’s almost like a public/private partnership approach,” she said. “The intention is that huge public expenditure will be matched by very attractive conditions for private investment.”
Meanwhile, Ian observed that Europe wants to reduce emissions by 55% by 2030 and become the first carbon-neutral continent in 2050. The sheer scale of ambition, he said, is illustrated by the plan to retrofit 220 million homes to deal with climate change.
“Three-quarters of emissions come from energy creation so there are going to be huge opportunities in renewable energy,” he said. This is not a “nice-to-do” it is a “have-to-do”, with many carbon initiatives legally binding, he added.
“There’s going to be a requirement for capital providers to be next to governments in private-public partnerships,” Ian continued. He expects opportunities to be vast – and coming “very, very quickly”.
Europe’s approach differs from the US, Lucinda said. While Europe tends to focus on regulation, the US is driven by investors. Outcomes are, however, largely the same, she added: “This is a really big priority for the US President and government.”
Finally, the discussion turned to relations between Europe and the post- Brexit UK – the panellists saw these as challenging. The issue of regulatory equivalence had “yet to be ironed out”, Ian noted.
Lucinda agreed that much was still to be determined about the completion of the Brexit process and how a future trade agreement might be written. “Until the exiting issues are resolved it’s going to be very difficult to build out the future relationship,” she said, noting an absence of “any clarity” in financial services.
For anyone hoping for greater certainty or predictability in the relationship, she sounded cautious. “Sadly, I think that will be absent for quite some time. We will see temporary arrangements and transitional sticking plaster solutions but the resolution of issues including equivalence are unlikely in the medium term.”