In the “year of elections”, making the economic case for sustainability has never been such a high-stakes game
The placards may remain in place on lampposts across the continent, but the European elections are over. And while it would be an exaggeration to state that Europe has lurched to the right (the centre largely held) it is true that Parliament will see an influx of new far-right and populist members. ?
As the French results in particular (and President Macron’s subsequent decision to call snap elections) have once again underlined, the EU body politic is consistently used as a proxy playfield upon which national and regional grievances emerge. And given that 2024 is the year where half the world’s population has been to or is going to the polls, there may be further challenges ahead for sustainability policies at national level. Notably, ascendant populist and far-right parties will play a bigger role in setting the agenda.
In the EU, the new political majority needs to continue to support the European Commission’s sustainability goals, especially the underlying target of being carbon-neutral by 2050. The real question in front of us is: how will Europe need to change its approach be able to achieve this? I will therefore use this month’s article to scrutinize the European election results and reflect on the way forward to ensure the continuity of the sustainability agenda in the EU. This agenda relies to a significant extent on private investment - and therefore on thriving and competitive businesses.
News about weather extremes including flooding and extreme heat events have been an ever-present staple in the information we consume for some time now. They should be alarming enough in and of themselves. But let me add to them, as in recent weeks (partly during the push to finalize Bayer’s climate transition plan ) I spent considerable time thinking about how global temperature scenarios will affect agricultural yields, given that they project a 3 degrees Celsius increase by 2100 compared to pre-industrial levels. Spoiler: it’s not going to be pretty. We know Europe will be disproportionately affected by both temperature increases and their subsequent impact on agriculture, and this is particularly concerning as Europe is by far the world’s largest exporter of wheat, a crop that is especially heat sensitive.
What really shocked me when diving into the data is this: while in my lifetime agricultural yields have grown steadily at around two percent – even 2.7% in the first decade of the new millennium – leading to an overall tripling of production volume, the last ten years saw increases of just 1.1% (figures from chapter 3 of Superconvergence by Jamie Metzl). In other words, the changing climate is already affecting our food system much more dramatically than we care to notice. This will lead to significant disruption.
Many of the farmers I talk to are aware of the changes and, according to our polls , fully aware of the connection with climate change. This is one of the reasons why farmers’ protests should not be seen simplistically as blanket opposition to Europe taking action, rather as fierce objections to proposals that would further reduce their ability to produce what the world needs.
Talk about the end of the EU Green Deal is overdone?
The outcome of the European elections was to a certain extent influenced by a “green backlash ”, although we should not overstate this effect: polls conducted at national level still demonstrate widespread support for environmental policy – if done right. The fundamental driver of the Green Deal (the transition away from fossil fuels) remains intact: climate change is accelerating, and the deployment of renewable energies is surging, simply because it makes economic sense. ?
Another important factor in the election results was the fact that Europe’s mainstream parties generally accept the reality of climate change and have incorporated this stance into their own policies, meaning the Greens no longer have a significant USP in the eyes of many voters.
And significantly contributing to the outcome were voters’ concerns over other dynamics like immigration, ongoing conflicts, and persistently high inflation – concerns which many feel centrist and green parties do not or cannot address, alienating a growing part of the electorate. Although ironically, our changing climate is becoming an ever-greater driver of migration as populated parts of the world become inhabitable.
Europe is rediscovering the need for industrial competitiveness? ?
I remain optimistic that Europe will not see its environmental ambitions watered down too drastically – not least because many fundamental pieces of EU legislation are already well into the implementation phase.
However, I recognise it is likely that politicians across Europe will have to make adjustments to the scope and direction of climate policy in the coming legislative period. And in some areas, adjustments are overdue.
For instance, across Europe, large companies are currently implementing the new sustainability reporting guidelines outlined in the Corporate Sustainability Reporting Directive (CSRD). This is a tedious process, requiring resources to be allocated in the wrong places, and might even lead to companies shying away from making bold voluntary commitments. In many ways, the CSRD is emblematic of what went wrong with the Green Deal in Europe and why Brussels is dubbed the “Silicon Valley of Regulation” – because while the goal of curbing green washing and achieving standardized transparency on key sustainability indicators is laudable, we need to learn from the implementation phase and simplify the path to achieving it.
This kind of policymaking will require environmental considerations to be balanced with economic growth, an approach that is in line with existing calls from corporate and industry players (including Bayer) for an “Industrial Deal”. Such calls note that while Europe has rightly advanced its Green Deal agenda in recent years, it has neglected its strategy on industrial competitiveness, undermining the EU’s position in many global races, most notably tech, clean energy, and electric vehicles. Competitiveness in biotechnology is also at risk, depending on decisions the EU will take during the next few years.
EU companies with reduced competitiveness tend, consequently, to suffer from reduced trust from shareholders, reduced R&D, and reduced workforces, harming their ability to push forward on their sustainability initiatives. European industry needs to see real political commitment to its changing needs if it is to contribute to Europe’s sustainability agenda and economic success.
More carrots, fewer sticks
Europe must ensure that climate and environmental measures are targeted and tangible, with clear (and at least some quickly visible) benefits. It must get businesses and voters – citizens and consumers, as well as vocal groups like farmers – on board. In other words, it must use more carrots and fewer sticks to reach net zero, such as:
A pro-industry, pro-climate agenda also needs legislators to adopt a holistic, cross-sector perspective when developing policy – both to support European companies, and to ensure climate goals are aligned with industry targets. In the healthcare sector, for instance, the EU has committed to becoming more self-sufficient in the production of several key medicines. Yet at the same time, it has hampered pharmaceutical companies with multiple, concurrent and costly regulatory challenges: meeting the onerous requirements of the pharmaceutical package, while simultaneously bearing huge costs under the “Urban Waste Water Treatment Directive”.
There is currently a disconnect between the EU’s goals and its regulatory approach. Such inconsistency constrains innovation, disincentivizes sustainability, and ultimately prevents Europe from successfully competing in a global market with Asian and US players. Without jobs, innovation and investment in Europe, sustainability measures rest on shaky ground.
The Antwerp Declaration is guiding the way
Coupling sustainability with economic growth is not a new idea. At Bayer, we are convinced that sustainability will yield value for stakeholders across our value chain. And this year, the business community – including Bayer – put together the Antwerp Declaration , a comprehensive proposal for marrying net zero targets and economic prosperity. Among other things, it calls for: a Clean Tech Deployment Fund to support investment in clean technologies; an energy strategy that prioritizes affordable renewable and low-carbon sources; scaling up the sustainability of the EU’s raw materials; initiatives that boost consumer demand for net-zero and circular products; as well as use of robust data and scientific evidence for effective policymaking and assessment of the cumulative impact of legislation.
These are all measures that incentivize sustainability, in line with the four-dimensional framework put forward by author Andrew McAfee for living within planetary boundaries: participation (to demand change); capital (to fund and adopt change); innovation (to provide change); and regulation (to shape change). I am convinced this framework should guide governments and companies alike in designing systems and processes that contribute to sustainability and economic goals.
Both in the East (China) and in the West (United States), governments have been able to strike a better balance than in Brussels, where regulation might not be a one trick pony but is certainly an overused tactic which the European Union is betting on to achieve their goals.
Energy and agriculture are key sectors for policymakers to deal with ?
Energy and agriculture are two sectors which I believe provide excellent examples of how sustainability and economic goals come hand in hand. And they are also sectors where policymakers can make a real difference: not only are they huge CO2 emitters in and of themselves, but they are major contributors to the indirect scope 2 and 3 emissions of companies across all sectors.
Reducing their carbon emissions will thus help clean up Europe’s act overall. Energy is the sector where quick wins abound – investments in clean energy facilities yield secure jobs and decreased energy costs for companies and consumers alike, while boosting energy security – and are thus perfect case studies of how “good for the climate” can be synonymous with “good for the economy”.
At Bayer we have experienced this first-hand, through our 2023 tie-up with Cat Creek Energy . This agreement secures 40% of Bayer’s global electricity demand out of renewable sources, and reduces our annual carbon emissions by 370,000 tons. What’s more, our partnership helps fund new projects at Cat Creek Energy, providing a boost to the local economy by providing long-term jobs and investments in renewable energy and water-based storage facilities that also benefit farmers.
The same is true for agriculture, where innovations like bioengineering (which I will focus more on next month), digital farming, and regenerative techniques deliver multiple benefits: more food security, less environmental impact, more tangible economic gains and resilience for farmers. For instance, at Bayer we are advancing the transformation of weeds into soil-enhancing cover crops that do not compete but further enrich the food production with the help of gene-editing. Our CoverCress can even provide farmers with an additional stream of income, and can be used as a renewable source of aviation fuel This is a prime example of how European institutions could help reduce carbon emissions – in this case in air travel – by speeding up the approval of new technologies, rather than resorting to outright bans. Gene editing would also help us to allow accelerated breeding of plants to better adapt to weather extremes. ?
European policymakers must take heed of similar economic-sustainability success stories and promote them in the new legislative cycle – and by this I mean they should hand out carrots (participation, enabling innovation, providing capital), not regulatory sticks.
Simplify rules, promote innovation and trade
If EU lawmakers are to salvage the most important elements of the Green Deal, with support from industry, they must recognize that the path towards net zero can take many forms, and is dependent on a complementary, interwoven industrial strategy. With this in mind, the next European Commission must promote technological innovation, simplify the regulatory environment, increase the uptake of digital solutions across the economy and promote a strong trade agenda. In short, they must bring corporate players with them, not work against them.
Some will argue that such an approach panders to populism and will dilute environmental policy. But they are not looking at the full picture: such an approach repackages sustainability legislation, rather than reformulating it. It delivers on the same goals – net zero – but in a way that brings the corporate sector and consumers – and voters – on board.
We do not have time for environmental puritanism to stymy our progress, nor do we have time for infighting to tear apart the community that is committed to achieving climate goals. Now is the time for policy, not politics.
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