Europe is a major investor in renewable energy across wind, hydro, and solar power, and spends 10 times more money investing in clean energy than it does in fossil fuels.
The continent intends to be the first region to become climate neutral, and intends to achieve this goal by 2050 as part of the 2019 European Green Deal.
To support this widespread push towards sustainability, the European Commission has pledged to mobilize at least €1 trillion in sustainable investments over the coming decade, announcing in 2024 a €7 billion investment into sustainable, safe, and smart transport infrastructure.
Foreign investors may be fixated on the clean energy developments emerging in Asia, but Europe is proving that it isn’t simply here to take part when it comes to meeting its sustainability commitments.
With the future holding plenty of potential for continental collaborations and innovation among emerging energy markets, let’s take a deeper look at the role that Europe will play in becoming a key global sustainability leader:
Opportunities in Sustainability
Recent data suggests that European investors have demonstrated a level of resilience towards ESG investing at a time when Wall Street appears to be cooling on environmental, social, and governance initiatives.
“The recent decision of State Street to pull its US business out of the climate-focused investment coalition, the Net Zero Asset Managers (NZAM) initiative, highlights that perceptions surrounding sustainability aren’t shared globally,” said Iván Marchena, Senior Economist at global brokerage brand Just2Trade.
“State Street’s European and UK offices remain within the coalition, showing that a regional ESG divide is forming on either side of the Atlantic, which could draw more sustainability-focused investors towards European markets.”
This appears to be strengthening the opportunity for Europe to compete with China’s sustainability initiatives, and inflows suggest that many are aware of the growth potential that European ESG stocks hold.
Funds that fall under Articles 8 and 9 in Europe’s Sustainable Finance Disclosure Regulation (SFDR), where Article 8 refers to those that promote environmental and social characteristics and Article 9 focuses on sustainable investment as an objective, have experienced mixed fortunes in 2025.
Fund flows have diverged, with Article 9 funds experiencing outflows of €7.9bn ($9.1bn) in Q1 2025, while Article 8 funds attracted €52bn in their strongest quarter since 2021.
The reason for this divergence stems from more redemptions in a narrow group of equity categories, driving outflows for Article 9 funds. The outperformance of Article 8 funds shows that investors are still prioritizing sustainability and are scrutinizing products more closely to build portfolios around those that offer the best resilience.
We only have to look at the performance of European sustainability-focused funds like the Xtrackers MSCI Europe ESG UCITS ETF 1C (XZEU.L) and its 61% growth over the past five years, compared to the US-focused iShares ESG Aware MSCI USA ETF (ESGU), which has mustered closer to 15% over the same period, to see the size of the opportunity that Europe holds today.
But whether European sustainability initiatives can truly compete with China and the momentum being generated in the Asia-Pacific region is another matter entirely.
Competing With China
One of the biggest challenges that Europe faces in becoming a sustainability leader is the sheer scale of China’s manufacturing capabilities. To date, China controls over 80% of the global solar panel supply chain and almost 85% of battery cell manufacturing capacity.
This allows the Asian powerhouse to produce green technologies at a considerably lower cost than its European counterparts.
According to Javier Cavada, the CEO of Mitsubishi Power for Europe, the Middle East, and Africa, the continent will struggle to compete with China’s strength in cost-efficient manufacturing.
Specifically, Cavada pointed to products like electrolyzers and batteries, which would be difficult to produce in Europe at a cheaper price than in China, as well as the Republic of Korea.
European Sustainability is Collaborative
The future of European sustainability will be collaborative, and would rely on cooperation just as much as competition between itself and the Asia-Pacific region.
China’s manufacturing strength means that Europe will face challenges based on risk dependency on Chinese supply chains, meaning that striking a balance where mutually beneficial and shared technical standards foster innovation can be most advantageous.
In emerging industries like clean energy, a little competition can go a long way, and it’s important for Europe to maintain a competitive element when boosting its sustainability credentials.
By actively managing the competitive aspects of its own green technology markets, the region can thrive in attracting more foreign investment, particularly at a time when US firms are continuing to roll back their sustainability commitments.
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