What Will the New European Parliament do to Sustainable Finance?

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    Stockholm (NordSIP) – Although the EU’s political landscape may appear unchanged following last weekend’s general rejection of extreme right-wing eurosceptic and climate sceptic parties at the European Parliament (EP) elections, the political winds seem to be blowing against further climate initiatives and sustainable finance.

    Although the centre parties (S&D, Renew and EPP) still have a (56%) majority of the seats in the parliament, it should be noted that members of the European Parliament (MEPs) from the centre-right EPP have recently expressed resistance to climate initiatives, which is now expected to increase.

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    Moreover, although (on average) extreme climate sceptic right-wing parties made no significant gains across the continent, and significantly underperformed in many countries, including the Nordics, they won outright majorities in France and Germany, the two countries generally understood to be the engines of Europe.

    Going forward, the expectation is that the EU’s legislative body is likely to become less welcoming to further climate reforms. However, the EP is a slow moving machine, particularly after elections. With holidays and committees to be attended to, very little should happen before 2025.

    The Results

    Despite concerns that the EP election would lead to a rise in the share of Eurosceptic and climate sceptic parties, the results suggest that most of the changes occurred within the blocs. Among the extreme right parties, ECR won 10.5% of the seats in the EP, up from 8.2% at the previous election, whilst ID won 8.1% of the seats , down from 10.8% at the previous election.

    Meanwhile, the share of the Social Democrats remained almost constant (18.4% vis-à-vis 18.5% previously), while the EPP main gained 2 more seats to increase its share of MEPs to 26% from 21%, while the Federalist Renew Europe party won 11% of the seats, down 11.7% previously. The greens won 7.4% down from 11.7% at the previous election.

    The Devil is in the Detail

    In most recent legislative initiatives, the EPP has been seen to distance or even oppose further climate reforms. In October 2023, EPP MEPs led the opposition to the European Sustainability Reporting Standards (ESRS). It also argued it sided with farmers and forest owners when it opposed the Nature Restauration Law. As such, even though the EPP remains the leading political bloc in the EP, this is an increasingly less climate-enthusiastic leadership.

    While Nordic countries saw an electoral pushback against climate sceptic parties, Germany and France saw an onslaught of support for the extreme right. In France, with Marine LePen’s Rassemblement National (RN) (a member of the ECR), winning 31% of France’s seats, to President Macron’s Besoin d’Europe (Renew Europe) 14.6%. Even if the centre still holds 35.7% of France’s seats thanks to the votes of France’s centre right Les Républicains and the Socialist Party, RN’s 8% gain and the poor performance of his party were taken as enough of a blow to Macron’s leadership for him to call a snap national parliamentary election.

    In Germany, the very euro/ and climatesceptic alternative for Germany (AfD) went from fourth place at the 2019 election to second, increasing from 11% of the votes to 16%. There, the main losers were the centre left SPD (from 15.8% to 13.9%) and the Greens (from 20.5% to 11.9%), whilst the centre right CDU made some marginal gains (from 29% to 30%).

    Sweden, Denmark and Finland saw no significant rises in climate sceptic parties. On the contrary, these parties appear to have underperformed expectations.

    The Way Forward

    Given these dynamics, the expectation is for the EP to start being less enthusiastic about climate reform and sustainable finance, although it seems unlikely it will outright oppose such measures. It’s likely that a lot of measures will be more watered down to take into account business and agricultural pressures. This may undermine the blocs ability to meet its own goals, not least its intention to cut 90% of net emissions by 2040.

    However, nothing should happen for most of 2024. With the summer break upon us, the EP is not expected to convene until September. MEPs are then expected to spend the next two months getting their sailing shoes one and organising EP committees. By the time everything is organised, the EP will be getting ready to preparing for the Christmas holiday. Any initiative is likely to have to wait for 2025.

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