EUROPEAN INVESTMENT BANK INVESTMENT REPORT
2020/2021
Building a smart
and green Europe
in the COVID-19 era
About the European Investment Bank
The European Investment Bank is the world’s biggest multilateral lender. The only bank owned by and representing the interests of the EU countries, the EIB finances Europe’s economic growth. Over six decades the Bank has backed start-ups like Skype and massive schemes like the Øresund Bridge linking Sweden and Denmark. Headquartered in Luxembourg, the EIB Group includes the European Investment Fund, a specialist financer of small and medium-sized enterprises.
About the Report
The EIB annual report on Investment and Investment Finance is a product of the EIB Economics Department, providing a comprehensive overview of the developments and drivers of investment and its finance in the European Union. It combines an analysis and understanding of key market trends and developments with a more in-depth thematic focus, which this year is devoted to European progress towards a smart and green future in a post-COVID-19 world. The report draws extensively on the results of the annual EIB Investment Survey (EIBIS) and the EIB Municipality Survey. It complements internal EIB analysis with contributions from leading experts in the field.
About the Economics Department of the EIB
The mission of the EIB Economics Department is to provide economic analyses and studies to support the Bank in its operations and in the definition of its positioning, strategy and policy. The Department, a team of 40 economists, is headed by Debora Revoltella, Director of Economics.
Main contributors to this year’s report
Report Director: Debora Revoltella
Report Coordinators and Reviewers: Pedro de Lima and Atanas Kolev
Disclaimer
The views expressed in this publication are those of the authors and do not necessarily reflect the position of the EIB.
Table of contents
Part I Investment and investment finance
1. The macroeconomic environment
2. Gross fixed capital formation
3. Financing corporate investment
Part II Investing in the transition to a green and smart economy
4. Tackling climate change: Investment trends and policy challenges
5. Climate change risks: Firms’ perceptions and responses
6. Leveraging the financial system to green the European economy
7. Intangible investment, innovation and digitalisation
8. Innovating for climate change: The green and digital twin transition
9. Infrastructure investment in the face of digital, climate and cohesion challenges
10. The impact of digitalisation and climate change policies on social cohesion
Glossary of terms and acronyms
Executive summary
Post-pandemic: Stagnation or transformation?
Europe faces a choice. The recovery from the coronavirus pandemic provides a unique opportunity for transformation – the innovative retooling needed to thrive in the new, more digital world created by the pandemic, while also limiting climate change and preparing for its impact. It is an opportunity to set Europe firmly on a path to carbon neutrality by 2050 and shore up its global leadership in smart-green technology. It is an opportunity to repair the damage wrought by the pandemic and to strengthen social cohesion.
Yet there is also a serious risk. The uncertainties and financial strains created by the pandemic could keep the EU economy from embarking on the necessary transformation. The dangers are numerous: massive public spending is too untargeted; Europe falls behind the new wave of digitalisation; it fails to make the transition fast enough; and it loses the advantages of its leadership in green technology. Failing to live up to these challenges means more than just a longer recovery. It means that Europe’s sustainability, competitiveness and prosperity might be impaired for decades to come.
This report is about the investment needed to achieve the smart and green transformation of the European economy. It is about progress so far – the fallout from the pandemic and what is needed to get back on track. It examines the state of investment and investment finance for climate change mitigation and for the adoption of digital technologies. It looks at how Europe is positioned at the critical intersection of green and digital innovation, the role of investment by municipalities, and the risks and opportunities of the twin digital and green transition[1] for social cohesion. Throughout, the report examines the latest impact of the coronavirus pandemic and the urgent policy response needed.
Investing for the climate transition
In 2019, European investment in climate change mitigation increased gradually. In the EU27, this investment grew 2.7% from a year earlier to EUR 175 billion. The strongest growth was recorded in renewable energy generation, while investments in energy efficiency appeared to stagnate.
European investment in climate change mitigation is well behind that of China, but ahead of the United States – although the contexts are very different. China invested 2.7% of gross domestic product (GDP) in climate change projects, ahead of 1.3% in the European Union and 0.8% in the United States. However, the European Union has already gone much further in reducing emissions per unit of GDP. In a sense, Europe has already picked much of the “low-hanging fruit,” and its efforts increasingly have to focus on harder-to-reduce emissions.
The gap between Europe’s climate objectives and realised climate investment is growing. Since 2016, climate change mitigation investment has declined marginally as a percentage of GDP and overall investment, a trend that is likely to continue in 2021. According to the European Commission’s latest impact assessment, investments in the continent’s energy system would need to rise from an average of 1.3% of GDP per year over the last decade, to 2.8% of GDP over the next