The writer is CEO of Amundi
The debate around European strategic autonomy normally revolves around geopolitical and security issues, and is driven only by politics. It’s strange, because it’s more of an economic challenge, and a big one.
The Covid-19 pandemic, the climate emergency and the war in Ukraine remind us of the consequences of globalization and dependencies. The EU, as the most open economy in the world, faces significant obstacles in the supply of essential goods and pays the price for the lack of self-sufficiency in many sectors. Six sectors stand out as vital to the EU’s strategic autonomy: agriculture, energy, health, materials, technology and defence.
After the past two years, Europeans agree that economic autonomy is essential, as is a green energy transition. Yet the question – on which there is little agreement – is how to achieve this by the end of the decade?
Unless economic reality becomes the foundation of this political goal of European autonomy – and triggers a new dynamic of investment in Europe – it will not happen.
Strategic autonomy does not mean isolation but less external dependence with selective relocation and diversification of supply. It would be economically detrimental to suppress the benefits of globalisation, but equally myopic to underestimate the costs of Europe’s dependencies.
As investors, there is common ground in the pursuit of economic resilience, a green transition and sustainable investing. Europe’s transition to a low-carbon economy can only be achieved with less dependence on certain critical sectors such as micro-electronics, which requires the production of semiconductors to be built in Europe, in order to avoid a break in the supply chain. To become a reality, this requires hundreds of billions of euros in investments, significant social capital and positive expected returns on investments. The same logic can apply to energy, agriculture, technology, health or defence.
This begs the question of how we can get there – and quickly.
Given the scale of the investments needed, public funds alone will not be enough. But if enough private capital can be mobilized, the goal becomes achievable. To do this, the current EU regulatory framework must evolve and better incentivize long-term investments to support Europe’s strategic ecosystems.
This means a fundamental overhaul of the incentive structure for private investment in key sectors. Public funding guarantees or tax incentives, consistent with EU policies, could limit uncertainty regarding the large investments needed, new technologies and industrial challenges related to the energy transition. Long-term shareholders in these sectors could be granted additional voting rights or increased after-tax dividends. This would reduce the pressure of short-termism on corporate boards.
The current EU regulatory framework also favors investing in public debt over corporate debt or equity. It should be modified to encourage institutional and retail investors to support European champions.
Directives on capital requirements for banks and solvency rules for insurance companies can be better aligned with the objectives described above. The complexity of Mifid regulations for distributors of investment products to retail investors needs to be addressed. Europe does not lack capital and ideas, but is struggling to fill the investment gap in strategic sectors.
Asset managers have an important role to play as a natural link between long-term capital needs and savings as well as educating investors on the benefits of investing in energy transition and strategic sectors .
How we as asset managers deal with our investees is also important. The right to vote and the commitment to management provide significant power of action. We have a duty to use it wisely and with a long-term perspective. This means working with beneficiary companies to support, induce and accelerate a just and socially acceptable transition to a low-carbon economy. This, of course, includes companies in sectors such as oil and gas, as they are the first to need investment to radically adapt and transform their business models. If they don’t quickly invest their investments, industrial intelligence and experience in large-scale renewable energy production, who will?
To enable investors and savers to support a fair green transition and actively contribute to achieving Europe’s strategic autonomy, asset managers have their work cut out for them. Engaging them fully will free up the resources and scale needed to make this a reality.