The European Commission President delivers her first state of the union address, covering a number of issues, in particular a number of ESG matters.
On 16 September 2020, Ursula von der Leyen, delivered her first state of the union address since taking over the presidency of the European Commission (EC) in December 2019. The speech covered numerous topics and presented specific proposals addressing some of the most pressing issues the EU faces today, including ESG topics such as climate change, sustainable finance, and social matters. Throughout the address, the EC President called for change by design, not by destruction.
Climate change and sustainable finance
The EC President unequivocally identified climate change as one of the EU’s biggest challenges. In her view, the current environmental targets are not enough for Member States (MS) to uphold the Paris Agreement, namely to keep global warming below 2 degrees Celsius for 2030. In this respect, she announced a new greenhouse gas emission target of at least a 55% reduction by 2030, compared to 1990. This target is significantly higher than the previous target of a 40% reduction by 2030. In the President’s view, this would be the only way to ensure that the EU is carbon neutral by 2050. She also highlighted the carbon Border Adjustment mechanism, which will help ensure that other countries follow the EU’s lead. Recognising the challenge of reaching this target, the President also promised support for regions that have a bigger and more costly change to make in order to meet the higher 55% reduction target. However, it remains to be seen the form that this help will take.
In line with the new carbon emission reduction goal, the EC also seeks to enhance emission trading, boost renewable energy, improve energy efficiency, and reform energy taxation. Another ambition in this respect is for the EU to become the largest issuer of green bonds: the EU seeks to finance 30% of the EU Next Generation (a temporary recovery instrument of €750 billion), through the issuance of green bonds. 37% of the Next Generation funding will be further invested in Europe Green Deal objectives, including what the EC has termed lighthouse European projects: hydrogen, green building, and 1 million electric charging points.
Social and economic issues
The EC President highlighted how the COVID-19 pandemic gravely affected workers across the EU, with many going on furlough or becoming unemployed in the last few months. 16 countries are already set to receive €90 billion to support workers and companies. However, the EC President also called for systemic change and the reinforcement of the social market economy. To this end, the EC will put forward a legal proposal to support minimum wages in all MS, either though statutory minimum wages or collective bargaining power.
Further, given the impact of COVID-19 on the economies of MS; the EC President called for a stronger union, able to weather difficult times and fully support all its MS. Specifically, the President promised to take forward the plans for a Capital Markets Union and for a Banking Union. Additionally, the President pledged action to boost the single market, reinforce the Economic and Social union and adapt the EU competition framework.
Latham & Watkins will continue to monitor developments in this area.
This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.