From savings to sustainability: long-term investors and Europe’s green transition

There is significant potential of long-term investors to help in financing the green transition. These investors - including pension funds, but also national promotional banks and institutions - manage vast pools of capital, allowing them to finance the considerable up-front cost of large infrastructure projects. In addition, their long-term investment horizon naturally matches long-term projects such as green energy infrastructure.  Institutional investors are already an important part of the global financial landscape. For example, at the end of 2023, assets in asset-backed pension systems totalled over $53 trillion in OECD countries. This pool of assets is set to grow further as funded pensions are becoming more important in many developed countries.

The European Union has been focusing on the reform of its capital markets since 2014 with a view to improve access to funding, diversify risk and ultimately improve growth and resilience. In April 2024, Enrico Letta proposed in his report to build on the capital markets union reforms since 2014 and put a renewed focus on savings and investment in a so-called Savings and Investment Union. The European Union has €33.5 trillion in household savings, or more than double its collective GDP, yet much of this money remains in banks because households prefer cash over market investments.

This event discussed the role of long-term investors in financing the green transition, drawing on theoretical and empirical insights. A key question was how to make the transition planning framework more fit for purpose.