Among stocks expected to see gains of 20% or more, based on average analyst price targets, are ITM, Siemens Energy AG and McPhy Energy SA, according to data compiled by Bloomberg.
For those firms left out of the EU’s playbook—currently companies relying on oil and gas—there’s a risk they will find it harder or more costly to access financing.
Bond Greenium
Instead companies are rushing into a burgeoning market for environmental and social bonds, which now make up nearly a quarter of all sales in Europe this year. They can often get cheaper borrowing costs, with a so-called “greenium”—a premium on bond prices.
Telefonica SA saw seven times the demand for its 1 billion euros of sustainable bonds, enabling it to cut pricing by a “staggering” 75 basis points, according to ABN Amro Bank NV analysts. The Spanish telecom firm’s green 2027 bond is trading about 30 basis points tighter than a similar conventional note, showing a “crystal clear pricing benefit,” the analysts said in a note.
ESG Boom
The European Commission has also introduced more detailed and mandatory reporting requirements on sustainability, for some 50,000 companies on the continent. This is set to benefit testing and inspection companies, such as Bureau Veritas SA and Intertek Group Plc, Morgan Stanley strategists including Victoria Irving wrote in a note to clients.
The greater transparency could also give confidence to investors concerned about the potential for greenwashing, or the possibility that governments and companies are misrepresenting their environmental credentials.
Green Politics
Politics may become an even more decisive regional catalyst for green trades in the months ahead. The latest polls in Germany show the Greens have more than a fighting chance to participate or even lead the next government coalition.
“A Green-led government (or one with a heavy Green footprint) could more credibly build trans-Atlantic links on the green transition with the Biden administration,” said Martin Lueck, BlackRock Investment Institute’s chief investment strategist for Germany.
In any case, yet another EU legislative package will follow in June. That’s meant to reinforce carbon pricing, increase renewable energy output and boost sustainable transport. The proposals may include a carbon tax on selected products, or a carbon customs duty.
“Any meaningful change in the regulatory backdrop that drives up scrutiny on carbon-intensive industries and helps fund innovation to reduce emissions can represent an attractive catalyst,” said Luke Barrs, head of fundamental equity client portfolio management in Europe at Goldman Sachs Asset Management.
—With assistance from Sam Unsted, Priscila Azevedo Rocha, Alice Gledhill and Paul Cohen.
This article was provided by Bloomberg News.