The green aspects of the EU's €750bn fiscal stimulus package announced in July to address Covid-19 have been widely reported.
Well-functioning carbon emissions trading system
Fourth, the relief package comes as Covid-19 is straining global supply chains.
The pandemic may complicate climate neutrality efforts by creating a 'double pledge': companies' operational footprints need to reflect their geographical presence, and at the same time, their products must have either positive or neutral impact on the environment. One effort cannot offset the other.
A well-functioning carbon emissions trading system scheme that ensures timely access to companies and local governments represents an interim solution between climate-neutrality goals and the environmental redesign of products.
Carbon border adjustment for trade
Lastly, investors need to consider the implications for global trade as the EU remains the world's largest export market for more than 80 countries and the largest exporter of manufactured goods.
Going forward, its climate commitments will undoubtedly affect EU trade policy decisions.
Should trading partners, including the US for exports and China for imports, set a lower bar on environmental practices and hinder cross-border cooperation on climate, a carbon border adjustment would inevitably challenge established trade agreements; a factor that may remain underappreciated by investors.
For instance, the EU remains the largest importer of agricultural commodities from developing countries. An EU carbon levy will most likely create additional hurdles to responsible sourcing of commodities from emerging markets.
According to a recent Eurostat release, while agriculture contributes less than 1% to the bloc's GDP, nearly 40% of the EU's agricultural budget will be dedicated to promoting climate measures and aiding sustainable farming practices in the union.
In summary, despite some caveats, the EU deal marks a positive step toward orienting economic sectors to more sustainable growth paths.
Over the coming years, the operating models for carbon-intensive economic activities such as transport, fossil fuel extraction, and power generation will undergo structural changes that aims to redefine country - as well as company-level financial stability.
While much remains unclear, a global economic recovery appears increasingly dependent on investors and policymakers holistically incorporating into scenario planning factors that exhibit both financial and societal relevance.
Alessia Falsarone is head of sustainable investing at PineBridge Investments