The writer is chief executive of Amundi
Debate around European strategic autonomy is normally framed around geopolitics and security issues, and driven by politics only. That is odd, since it is more of an economic challenge, and a big one at that.
The Covid-19 pandemic, the climate emergency and the war in Ukraine remind us of the consequences of globalisation and dependencies. The EU, as the most open economy in the world, faces big hurdles in the supply of critical goods and is paying the price of lack of self-sufficiency in many sectors. Six sectors stand out as vital for EU strategic autonomy: agriculture, energy, healthcare, materials, technology and defence.
After the last 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 can we get there by the end of the decade?
Unless economic reality becomes the bedrock for this political goal of European autonomy — and triggers a new investment momentum in Europe – it will not happen.
Strategic autonomy does not mean isolation but lower external dependency with selective reshoring and diversification of supply. It would be economically damaging to do away with the benefits of globalisation, but equally short-sighted 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 lower dependencies on some critical sectors such as micro-electronics, which demands semiconductor production to be built in Europe, to avoid supply chain disruption. To become reality, this calls for hundreds of billions of euros of capital expenditure, substantial shareholder capital and positive expected returns on investments. The same logic can be applied to energy, agriculture, technology, healthcare or defence.
This begs the question of how we can get there — and quickly.
Given the scale of the investment needed, public funds alone will not be enough. But if sufficient private capital can be harnessed, the goal becomes achievable. To do that, the current EU regulatory framework must evolve and better incentivise long-term investments to support European strategic ecosystems.
That means a fundamental overhaul of the incentive structure of private investment in key sectors. Public funding guarantees or fiscal incentives, consistent with EU policies, could limit uncertainty around the large investments needed, new technologies and the industrial challenges from energy transition. Long-term shareholders in these sectors could be granted additional voting rights or enhanced dividends net of taxes. This would reduce the pressure of short-termism on companies’ boards.
Today’s EU regulatory framework also favours investment into public debt over corporate debt or equity. It should be changed to encourage institutional and retail investors to support European champions.
Capital requirement directives for banks and solvency rules for insurance companies can be better aligned to the objectives described above. The complexity of Mifid regulation for distributors of investment products to retail investors must be tackled. Europe is not short of capital and ideas, but struggles to close the investment gap in strategic sectors.
Asset managers have an important role to play as the natural link between long-term capital needs and savings as well as educating investors on the benefits of investing in the energy transition and in strategic sectors.
How we, asset managers, act with our investee companies matters too. Voting rights and engagement with managements bring significant power of action. We have a duty to use it judiciously and with a long-term mindset. That means working with investee companies to support, induce and accelerate a just and socially acceptable transition to a low-carbon economy. That includes, of course, companies in sectors such as oil and gas because they are the first ones needing investment to adapt and drastically transform their business models. If they do not swiftly invest their capex, industrial intelligence and experience in producing renewable energies at scale, who will?
To enable investors and savers to support a fair green transition and actively contribute to making Europe’s strategic autonomy a reality, asset managers have their work cut out. Getting them fully on board will unleash the resources and the scale to make this a reality.