• MUFG's inaugural Europe ESG Report states that realising the EU's REPowerEU strategy – introduced in 2022 to end Europe's dependence on Russian oil and gas by transferring to low-emission energy – will reduce direct energy costs for the average European consumer by around 60% from 2022 levels, and around 40% against 2021 levels.
  • Renewable energy – comprising renewable power, hydrogen and bioenergy – set to become >75% of total gross available energy mix for Europe by 2050.
  • Spikes in energy prices mean fossil fuels and renewables will continue to co-exist near-term, until engineering challenges around the long-term energy transition can be solved.

As the Ukraine war and the energy crunch ramp up the urgency around achieving the energy transition and Sustainable Development Goals (SDGs), MUFG estimates cumulative infrastructure investments of more than EUR10 trillion will be needed by 2050 for Europe's energy transformation in a net-zero 2050 scenario. This will reach the equivalent of more than 2% of GDP by 2030. Realising these investments and implementing the European Union's REPowerEU strategy will result in a 60% direct energy-cost reduction for European consumers.

These are some of the main findings of a new study published today by MUFG titled 'ESG in the EMEA region: The corporate and investor guide to the pillars for the next phase'.

Ehsan Khoman, Head of Commodities, ESG and Emerging Markets Research (EMEA) and co-author of the report, says:

"Europe's energy system is at an inflection point. As a result of the war in Ukraine, energy security has returned to the fore, and is now on an equal footing with the energy transition as a top-of-mind consideration for policymakers.

"Together, these dual priorities are poised to reshape national energy planning, energy trade flows, and the broader economic direction of the continent. We're entering a new ESG-stage."

Through its report, MUFG seeks to provide a clearer picture of how ESG fits into the broader scope of corporate strategies and active asset management, and ultimately help guide companies and governments in their ESG journeys.

Balancing energy transition and energy security – from aspiration to action in ESG
In line with RePowerEU, natural gas will remain crucial to Europe's energy supply for the next two decades, says the report. This will likely see Europe sign new long-term liquefied natural gas (LNG) contracts to improve supply security. MUFG forecasts that renewable energy – comprising renewable power, hydrogen and bioenergy – is set to become >75% of total gross available energy mix for Europe by 2050.

Should Europe stand by its REPowerEU strategy, MUFG believes that direct-energy cost to the average European consumer will be reduced by around 40% against 2021 levels, and around 60% from 2022 levels (marking the peak). This is down to improved energy efficiency, lower-cost LNG, cheaper renewable power, and better regional connectivity through batteries and hydrogen.

“We believe we are entering a phase of ESG marked by greater penetration, rising focus on product impact, and increasing scrutiny of both corporates and investors,"

MUFG's researchers say in the report. MUFG expects ESG approaches to enter the “measurement" phase, where competition and demand for detailed measurement processes are to increase, with opportunities to prepare for the “refinement" phase, where measurement of outcomes takes centre stage.

Looking ahead to the new round of climate talks at COP27
MUFG expects few major decisions to come out of this year's COP27 summit. Yet it believes that corporates and investors will be watching for signs of recalibration through an inclusive approach to accelerating the energy transition and safeguarding energy security.

Khoman says:

"COP27 will indicate whether the various global shocks of 2022, such as the Ukraine war, the European energy crunch and the cost-of-living crisis, have distracted governments, corporates, investors and the public from pursuing continued near-term climate action. Concurrently, the extreme weather events serve as a reminder of the urgency to act."

In October 2022, the Net-Zero Banking Alliance's (NZBA) Financing & Engagement Work Track Group – which MUFG has been chairing this year – published a transition finance guide, after consultation with external stakeholders and members of the working group.

The guide advocates that to facilitate a client's transition, banks should ask two questions:

  • Does the client have a credible, feasible and sufficiently ambitious net zero-aligned transition plan (and how can “credibility" be verified)?
  • Will the financing in question meaningfully advance a client's or the wider economy's net-zero journey (and how can this be assessed and reported)?

Download the full report here.