EU Green Deal to depend on government incentive - Moody's

The success of the European Green Deal will likely be determined by government incentives, actions taken by member states and industries' ability to adapt to the green transition, Moody's Investors Service says in a report today.

The impact and the implications of the European Green Deal 

The Green Deal will have far-reaching implications for energy-intensive sectors and for companies that provide renewable energy. Financial institutions, structured finance, sovereigns and sub-sovereigns will also be impacted, depending on their level of exposure to the green transition. 

Moody’s believes that the ultimate credit effects across sectors will hinge on:

• Policy implementation
• Individual companies' strategic actions
• Execution risks

"The private sector will need incentives to fund the significant investment required under the EU Green Deal", said Laura Perez Martinez, Associate Managing Director at Moody's Investors Service. “The effectiveness of member states' actions and use of EU funds will also be critical to meeting the EU's climate targets.”

The energy sectors

The Green Deal will mostly impact energy intensive sectors such as coal, integrated oil, utilities, automobile manufacturing and steel. 

It will also bring opportunities to companies in the renewables, batteries and construction sectors.

Shifts in financial institutions' business models and capital allocation toward green assets will also be sped up. While the Green Deal will affect many of the companies and sectors that financial institutions are exposed to, it will also create opportunities for those sectors already well placed for the green transition.

Sovereign and sub-sovereign credit implications will likely be limited, despite varying exposure to energy-intensive sectors. 

While some member states will be more affected by the green transition, EU funds will enable them to adapt and mitigate the risk.