The European Green Deal: How will the EU meet the objective of carbon-neutrality by 2050?

To address the threats of climate change, carbon neutrality is increasingly seen as a crucial pillar of global strategies to protect the environment. For the European Union, charting a path to becoming the world's first carbon neutral continent by 2050 lies at the heart of the Green Deal. While the challenges will be tough, Europe's Green Deal will also create fresh opportunities for business and investors.

So what is the Green Deal and what measures does it include?

Amid the intensifying climate emergency, the EU launched its blueprint for change in 2019 aimed at achieving carbon neutrality by 2050. Behind this concept of carbon neutrality promoted by the Green Deal is a whole series of measures aimed at reducing greenhouse gas emissions. The deal focuses on: net-zero emissions by balancing CO2 emissions and capture; scaling up use of renewable energies; and shifting to non-fossil, green transport and production. The European Union’s contribution to delivering on the Paris Agreement, the Green Deal is without parallel anywhere in the world. It is underpinned by the conviction that Europe's future depends on a healthy planet, and that increasingly frequent climate events have direct consequences for people’s lives and the economy

Leading the way on climate action, the EU is phasing in a broad regulatory framework to achieve its ambitious objectives. By 2035, the measures aim to increase the share of renewable energies in the European energy mix to 42.5% and to gradually phase out diesel and petrol cars. The Green Deal also seeks create a huge number of natural sinks to capture and store CO2.

Plant 3 billion more trees by 2030

Some measures are more technical. Take the carbon market for example. Set up in 2005, the carbon market is the EU’s emissions trading system where companies buy and sell emissions quotas up to the cap that applies to their sector. The system for taxing energy products, introduced in 2003, is also technical. But all in all, the regulations aim for greater transparency. The Corporate Sustainability Reporting Directive (CSRD) requires companies to publish a “Sustainable Statement”, giving information on their impact as well as disclosures on how they are impacted by a range of environment, social and governance (ESG) issues. The Sustainable Finance Disclosure Regulation (SFDR) meanwhile, provides the framework for comparable disclosures in the financial sector. Finally, the European Taxonomy, first created in 2018, classifies economic activities to identify the most “sustainable”. It aims to be an “environmental compass” to direct private investments towards carbon neutrality.

The challenges are clear, but what are the opportunities for investors and business?

To finance the green transition, the European Union Green Deal seeks to direct financial flows towards more sustainable projects, such as renewable energies and sustainable mobility. It also promotes the development of new financial products, including ESG investment funds, green bonds, green loans and sustainability-linked loans where the yield incentivises borrowers to achieve sustainability-linked targets.
For companies, this transformative policy agenda is a source of strategic opportunity to innovate and develop new products and services in order to cement a competitive advantage in a market that is increasingly sensitive to ESG issues. Far from hindering performance, ESG targets can drive growth, guaranteeing resilience, meeting regulatory requirements and aligning more closely with what consumers – and investors – want. They can also facilitate access to sustainable financing.

Keen to provide greater support and lighten the regulatory burden for business, on 26 February 2025, the European Commission adopted a set of proposals (the “Omnibus” package) with the aim of simplifying the sustainability and investment rules. The EU’s aim is to cut red tape: it wants to lighten the administrative burden for companies by at least 25% and at least 35% for SMEs. Specifically, the Omnibus measures include limiting the CSRD disclosure obligations to companies with more than 1,000 employees; postponing application of the Corporate Sustainability Due Diligence Directive (CS3D) to 2028; and ease the reporting obligations under the EU Taxonomy. Companies should soon benefit from streamlined rules allowing them to balance the twin imperatives of profitability and sustainability.

“Drill baby, drill” vs. the Green Deal: is the Green Deal the global exception?

The opportunities ushered in by the European Green Deal should not distract us from the current geopolitical upheaval and the United States’ withdrawal from the Paris Agreement, announced by President Donald Trump the day after his inauguration. While the US is backtracking, other partnerships can be considered with countries like China, which is consolidating its leadership position in green technologies, as well as India and Brazil in the Global South. Although we may have to navigate more uncertainty in the medium term, the outlook for both innovation and investment remains encouraging.