Written by Erik Schriemer, investment expert at MeDirect
The time in which we live is characterized by three major transitions: the digital transition, the mobile transition and the energy transition. Every major transition means change, which can also affect investment portfolios. In this article, we discuss the potential impact of five new European climate laws.
Five new climate laws
The European Commissioner, Frans Timmermans is the personification of the European Union’s ‘Fit for 55’ plan. The EU aims to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, in order to become climate neutral by 2050. In mid-April 2023, the European Parliament adopted five new climate laws, which should take the plan a step further. They relate to:
- A greater ambition for emission reduction through the Emissions Trading System (EU ETS)
- Shipping, which for the first time will also be covered by the EU ETS
- A smaller trading system for critical infrastructure such as roads and buildings
- Stricter rules on emissions from aviation
- The import of products with high emissions from outside the EU
Impact for investors
Europe’s direction is clear: the polluter pays. Even though businesses and citizens all have to deal with it, the impact is greater for some than for others. The industrial sector in Europe, with heavy industry leading the way, is the hardest hit. Higher costs from the emissions trading system reduce profitability on the one hand and weaken competitiveness. As an example, the German chemical giant BASF is forced to move part of its production from Germany to China. ‘Law 5’ aims to create a level playing field within the EU, but that does not solve the problem outside the EU for a multinational such as BASF.
There are countless other consequences of the new climate laws. It is going too far to discuss them all here. The message is clear: when investing, think about the impact. An important insight is that in the long term higher prices for certain products and services will lead to a structural change in consumer behavior. That will in turn affect the company’s results in specific sectors, and ultimately affects an investment portfolio.
Disclaimer
The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation, or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness. If you invest in any product, you may lose some or all the money you invest.
MeDirect Bank (Malta) plc, company registration number C34125, is licensed by the MFSA to undertake the business of banking in terms of the Banking Act (Cap. 371) and investment services under the Investment Services Act (Cap. 370).