WHITE PAPER: THE IMPORTANCE OF CLIMATE TECH FOR EUROPEAN RESILIENCE

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Full White Paper available here.

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Europe stands at a critical juncture, facing unprecedented challenges that require bold action and strategic foresight. The series of shocks that have buffeted the European economy and strategic outlook in recent years - from the Covid-19 pandemic to the energy crisis and Trump administrations in the US - have tested Europe’s resilience, and exposed its dependencies and vulnerabilities.

Yet, these tests have also illuminated a path forward towards a resilient, decarbonised and more digitised economy - a path that requires sustained investment, innovation, and unwavering commitment to long-term goals.

The transition to this more resilient economy will demand financial resources and a concerted effort to address regulatory obstacles. Significant hurdles to overcome include heightened uncertainty, tightening financial conditions, and diverging capacities among European Union (EU) members to respond to shocks. Europe’s ability to successfully navigate this challenge hinges on its ability to create the right framework conditions to protect and stimulate critical investments by private asset owners. This presents opportunities for coordinated action and policy innovation.

This White Paper explores the multifaceted nature of European resilience and its profound implications for the investment landscape, offering insights and recommendations for policy action during this transformative period. The authors bring together the unique perspectives of three organisations: World Fund, a European climate tech venture capital firm; Kaya Partners, a political consultancy providing strategic advice on green transition policy; and Worthwhile Capital Partners, an advisory firm specialising in thematic investment strategies through funds and direct investment opportunities.

World Fund brings extensive experience in identifying and nurturing high-potential startups across Europe’s diverse economic landscape. The firm is driven by tackling the climate crisis and only invests in technologies with scalable businesses and significant emissions savings potential. With a track record of successful investments in sectors ranging from energy and industry to food and agriculture, World Fund offers invaluable insights into the investment climate and the challenges faced by enterprises seeking to scale in the current economic environment.

Kaya Partners, in turn, contributes its deep understanding of the European and global political landscape and its implications for green transition policy. Their expertise in analysing regulatory trends, geopolitical risks, and policy shifts provides a crucial context for understanding the broader forces shaping European resilience. Kaya’s insights are particularly valuable in assessing the impact of EU initiatives and the potential for policy innovations to address investment gaps.

Worthwhile Capital Partners is a specialist European placement agent focused exclusively on strategic investment themes that combine resilience and returns. In this endeavour, the firm facilitates large-scale institutional capital deployment into areas such as clean energy, sustainable critical mineral supply chains, clean tech and deep tech venture capital, defence and dual-use technologies, natural climate solutions, and the reconstruction of Ukraine. Supporting this mission, the firm actively engages with institutional asset owners, governments, the EU, and NATO. Its thematic approach emphasises strategic asset allocation, sustainability, economics, and geopolitics. In this capacity, Worthwhile Capital Partners advises the US-EU Trade and Technology Council and the Ukrainian government as members of relevant advisory and working groups.

“This collaboration ensures that the paper provides a nuanced analysis of current challenges and forward-looking strategies for fostering a more resilient and competitive European economy.”

Together, the three organisations offer a comprehensive view that bridges the gap between on-the-ground investment realities and the macro-level policy environment. This collaboration ensures that the paper provides a nuanced analysis of current challenges and forward-looking strategies for fostering a more resilient and competitive European economy. In this paper, the three entities set out their joint understanding and ideas on where Europe is coming from and where it needs to go in terms of policy frameworks that draw in private investment capital necessary to become resilient.

Executive Summary

For too long, Europe has depended on China for trade, Russia for energy, and the US for security. As the global geopolitical landscape undergoes profound shifts, Europe must reassert itself and establish resilience as a cornerstone of policy and strategy. The landmark 2024 Draghi Report highlighted the potential Europe has to adapt and thrive amid security, economic, and technological challenges. The interplay between the US, the EU, and China highlights an intensifying global competition for economic leadership, where industrial capacity, innovation, and strategic alliances are key determinants of influence. This competition underscores the urgent need for Europe to bolster its resilience through deliberate focus on both policy and investment.

The heart of this challenge lies at the intersection of national security and industrial capacity. A robust industrial base is not only critical for sustaining economic growth but also for ensuring autonomy in the face of geopolitical pressures. However, achieving this requires cohesive policy frameworks that can unlock investment at scale. Strategic policy, as a driver of confidence and derisking instrument, sets the stage for long-term investment flows, enabling the private sector to align with strategic national priorities.

We have pinpointed four critical sectors: energy, food systems and land use, frontier technologies, and raw materials. Each represents a vital pillar of European security and its green transition. This paper outlines key policy recommendations for each sector most likely to catalyse large-scale investment and actionable investment opportunities with high potential impact. At the same time, the overarching role of defence as a unifying thread cannot be overlooked, as ensuring security and stability amplifies the effectiveness of efforts across these domains.

“We have pinpointed four critical sectors: energy, food systems and land use, frontier technologies, and raw materials. Each represents a vital pillar of European security and its green transition.”

Energy: Decarbonising Europe’s energy sector is essential for reducing emissions, lowering costs, and ending reliance on imported energy while positioning the region as a leader in clean energy innovation and green industries. Key investment areas include grid modernisation to support decentralised renewable energy, scaling battery storage for reliability, advancing microgrids for local energy independence, and developing alternative energy carriers like hydrogen and synthetic fuels for hard-to-electrify sectors. An important measure the EU can take to enable this transition is the establishment of regional platforms for cross- border energy planning and investment, such as multinational grids and interconnectors, supported by collaborative funding mechanisms to ensure efficient energy distribution and sustainable growth.

Food, agriculture, and land use: Strengthening Europe’s food, agriculture, and land use sectors is critical for resilience, given their role in sustaining livelihoods, economic significance, and vulnerabilities to climate change and supply chain disruptions. Strategic investments should focus on reducing reliance on imported agricultural inputs, developing climate-resilient crops, adopting regenerative farming practices, scaling local protein production, and reducing dependence on imports. A vital policy measure that could be implemented to facilitate investment is reforming the Novel Foods Regulation to bolster the uptake of alternative proteins and foster innovation to reduce emissions and ensure long-term food security and sustainability.

FrontierTech: To achieve a decarbonised and digitised Europe, deploying frontier technologies like AI, biotech, fusion, robotics, e-aviation, space, and quantum computing is critical for reducing reliance on external sources and maintaining technological sovereignty and competitiveness. However, innovation is hindered by regulatory burdens, insufficient financing, and competition from foreign-subsidized products, threatening its leadership in emerging sectors. Mandating resilience criteria for strategic technology procurement and aligning trade and industrial policies can level the playing field, protect nascent industries, and attract investment to accelerate the development of strategic technologies like quantum computing, semiconductors, e-aviation, and space tech.

Raw materials: Critical minerals are essential for Europe’s green transition and defence industry, but pose risks due to heavy dependence on imports, particularly from China, which threatens supply chain stability. The Critical Raw Materials Act aims to reduce this dependence by promoting domestic production, recycling, and sustainable sourcing, but challenges remain in achieving the EU’s targets. We recommend implementing market de-risking mechanisms, such as contracts-for-difference, to stabilise the market and incentivise investment in raw material extraction and refinement. Investment opportunities focus on addressing critical raw material dependencies through diversifying supply chains, fostering innovation with regulatory support, and advancing circular economy solutions, including reducing resource usage, extending product life cycles, and developing efficient recycling technologies, with startups leading the way.

A GLOBAL RACE FOR ECONOMIC LEADERSHIP

In the late 2000s, Europe lost out on major opportunities that would have rendered the continent more resilient in the face of current geopolitical tension. Germany losing its early lead in the renewable energy sector is a key example of this. The proportion of electricity generated from renewable sources rose from 6.3% in 2000 to 25.4% in 2013 as a result of the introduction of the German Renewable Energy Law (Erneuerbare-Energien-Gesetz, EEG).¹

The EEG was a huge success and more than 80 countries and regions adopted similar mechanisms, including Spain, Italy, France, the UK, the USA and China.² It primarily relied on a feed-in tariff system to incentivize renewable energy development. Producers were guaranteed a fixed price for the electricity they fed into the grid, typically higher than the market price, for a period of 20 years. New companies like Q-Cells, SolarWorld, Conergy and REpower emerged in the fast-growing German wind and solar sectors employing 400,000 people at the peak in 2012.³ Germany was home to the world’s largest and leading producers of solar cells, modules, panels and wind turbines. The renewable energy producers began to capture a significant portion of the electricity market, reducing the market share of traditional utilities.^{4, 5}

However, in the early 2010s incumbents like RWE, E.ON, and EnBW saw the profitability of their conventional coal, gas and nuclear power plants endangered by this progress (merit- order- effect)⁶. Following intense lobbying efforts from these incumbents, the German government sharply cut the feed-in tariffs and introduced caps on the subsidies. This led to a sudden decline in new capacity added. The annual installed renewable capacity, which peaked at 9.7 gigawatts in 2012, did not exceed that level until a decade later, reaching 9.9 gigawatts in 2022.⁷

Annual Installed Renewable Capacity – Germany

Germany’s world-leading solar companies filed for insolvency (i.e. Q-Cells and Centrotherm in 2012, Conergy in 2013 and SolarWorld in 2017), and most of the tech was sold to South Korean and Chinese companies, including the intellectual property rights.

A decade later, in an effort to wean itself off Russian gas, Europe’s energy sector once again invested heavily in solar power, with a 40% market growth in 2023.⁸ However, instead of being able to rely on domestic champions, Germany is replacing one reliance with another: photovoltaic imports from China. More than 86% of PV systems imported into Germany in 2023 came from the People’s Republic.⁹ Domestic solar production is almost non-existent. Even the imports from other countries contain Chinese components, as China dominates globally all value chain stages with market shares of up to 96%.¹⁰ By oversupplying the European market with subsidised consumer products and restricting the supply of materials critical to European manufacturing, China has been allowed to position itself to undermine European industry.

This example, where Germany recklessly relinquished leadership of an a rapidly growing industry,¹¹ can unfortunately be seen in other sectors, too. As already indicated, a similar development is looming in the wind industry.

Electromobility is another example: German car manufacturers Volkswagen, Daimler, and BMW launched the most advanced EVs on the market in the early 2010s, but slowed down sales and further development to protect their business with ICEs.¹² Meanwhile, Tesla, which had been partially owned by Daimler until 2014, and Chinese carmakers have surpassed Volkswagen, Daimler, BMW, and other European manufacturers in EV technology. This shift is creating serious challenges for the European automotive industry, which contributes about 7% to the EU’s GDP and employs around 13.8 million people.¹³

Given these developments, it seems difficult to see the positives, but it is possible: The technological leadership of European companies in climate-relevant areas still exists thanks to world-leading research and development, and the EU continues to hold this lead, even if it has narrowed.^{14, 15 ,16} These technologies include battery, battery recycling, e-aviation, heat pumps, serial renovation of buildings, energy management systems for buildings, biomethane, direct air capture, and many more.^{17, 18}

“Europe has a second chance to build up resilience, and climate tech must play a crucial role.”

Europe has a second chance to build up resilience, and climate tech must play a crucial role. The EU shouldn’t repeat the mistakes from the early 2010s, as today, even more is at stake due to the rising geopolitical tensions. This second chance even represents an unintended market opportunity: thanks to and based on its lead in climate tech R&D,¹⁹ Europe has more than twice as many climate tech startups and scaleups as the US: nearly 30.000 companies vs. 14.300.²⁰

Cleantech International Patent Families (2017–2021)

However, innovative EU companies are still falling short of the financing needed to scale and commercialise their solutions.²¹ Venture capital financing in Europe has averaged only 0.2% of GDP between 2013-2023, a fraction of the US average of 0.7%.^{22, 23} Currently, limited European funding, for example, pushes e-aviation companies and battery manufacturers to seek support in China.^{24, 25} As geopolitical tensions rise, European manufacturers affiliated with China risk potential sanctions and obstaclesto their production dependent on Chinese-dominated supply chains.²⁶ Robust European funding is therefore essential to secure a resilient, independent alternative.

How to define Resilience

NATO considers resilience to be the ‘individual and collective capacity to prepare for, resist, respond to and quickly recover from shocks and disruptions, and to ensure the continuity of the Alliance’s activities’.²⁷ Amongst EU decision makers, the term resilience gained traction during the COVID-19 pandemic. The EU’s Regulation establishing the Recovery and Resilience Facility defines ‘resilience’ as the ability to face economic, social and environmental shocks or persistent structural changes in a fair, sustainable and inclusive way.²⁸ It considers resilience to be the ability not only to withstand and cope with challenges but also to undergo transitions, in a sustainable, fair, and democratic manner,²⁹ i.e., as an enabler.

From a European perspective, external shocks of recent years warrant resilience being put at the heart of policymaking. For 75 years, US hegemony and the principles of democracy and a liberal market were considered the pinnacles of economic development. Contrary to this approach, China spent the past two decades creating a type of war economy in which it did not optimise for price, but for access and control.³⁰ It seized industrial sectors that are vital for decarbonisation, such as the German solar industry mentioned above, and built entire horizontal supply chains around it.³¹ Russia, too, exerted its might by gradually and strategically inducing European dependence on its energy resources, which became an important bargaining chip following its invasion of Ukraine. For both the US and the EU, security or resilience – not economic policy – therefore become the dominating aspects directing other policy fields³² for the foreseeable future. In Europe, this is evidenced by Commission President Ursula von der Leyen’s Political Guidelines for the next European Commission 2024-2029, which mention the words ‘resilience’ and ‘resilient’ thirteen times.³³

Two dynamics stand out in the complex landscape of European resilience:

1. Interplay between national security and underlying industrial capacity.³⁴ This is true for the defence industrial base proper, but also across civil industrial assets within strategic sectors, such as innovation, energy, food, frontier tech, and raw materials.³⁵ It is not by accident that in 1951, the first step towards uniting Europe after World War II was establishing the European coal and steel community, which led to deeper integration. Now, we must reach the next level, notably in strategic sectors such as energy, as recommended in the Draghi Report.³⁶ In an environment where Europe is facing direct military threats, hybrid warfare against critical infrastructure, and predatory trade agendas from some of our major trading partners, resilience increasingly depends on our ability to meet our own strategic requirements across key sectors.
2. Imperative of addressing policy frameworks and investor approaches in tandem. As outlined by the Draghi Report, to attain policy goals, investment needs are higher than ever: To digitalise and decarbonise the economy and increase our defence capacity, the investment share in Europe will have to rise by around 5 percentage points of GDP to levels last seen in the 1960s and 70s.³⁷ While investments are ultimately made in any given political environment, the impact of political action on investment³⁸ outcomes cannot be overstated. As such, governments play a critical role in designing and implementing regulations and institutions that will help attract and establish private investment. This becomes even more acute as we face geoeconomic fragmentation (i.e., the reversal of progress towards global economic and financial integration due to political and military conflict as well as deliberate and strategic policy decisions).³⁹ Political responses across security, trade, competition and decarbonisation set the parameters for investment success – or not.

These dynamics underscore the need for policymakers and investors to align their thinking towards enhancing EU resilience. By fostering a symbiotic relationship and open dialogue, policymakers can create an environment conducive to strategic investments, while investors can provide valuable insights into market trends and economic needs, as stated in the Draghi Report recommendations.⁴⁰ Similarly, the strategic pivot of the new Commission aims not for institutional change but for systematic and efficient operationalisation of existing institutions.⁴¹

“The Draghi Report underscores the critical need for substantial financial investment to bolster European resilience and competitiveness, estimating an additional €800bn annually, equivalent to 5% of EU GDP.”

To achieve resilience across key sectors in the face of climate change and geopolitical tensions, Europe must bridge financing gaps in the European productive ecosystem. As such, investments into critical sectors (outlined below) are vital for the EU to meet strategic objectives, such as those laid out in the Clean Industrial Deal and the Draghi Report. Current levels of private and public funding are insufficient, with estimates suggesting that the EU needs to double its climate spending from EUR 407bn to EUR 813bn to reach EU 2030 targets and deliver on the economic, geopolitical and climate goals to which EU policymakers have committed.⁴²

This shortfall underscores the importance of mobilising private capital and leveraging innovative financial tools to close the gap. Public-private partnerships, green bonds, relaxed regulatory capital requirements for banks, pension funds and insurance companies, and an expanded role in institutions like the European Investment Bank (EIB) are crucial for driving the necessary investments in renewable energy, energy efficiency, and climate technologies. Policy actions will be designed and instated by variable coalitions of the willing and capital will be mobilised not as a mandate but by creating an investment environment in which financing is facilitated. It will be for the EU to fully direct its political attention and its resources into facilitating such investments, which we will look at in more detail below.

The Draghi Report underscores the critical need for substantial financial investment to bolster European resilience and competitiveness, estimating an additional €800bn annually, equivalent to 5% of EU GDP.⁴³ This ambitious target requires a combination of public and private funding mechanisms. Public financing - including the leveraging of public banks, such as the EIB - is essential for de-risking investments in cleantech manufacturing.⁴⁴ The Report also highlights the importance of completing the Capital Markets Union to unlock European savings and attract private capital - for example, by encouraging private pension funds - into strategic sectors. Draghi envisions creating secure European assets to deepen capital markets by drawing inspiration from models like the Next Generation EU Budget. However, achieving these goals will require overcoming political resistance, particularly from fiscally conservative member states, and ensuring that regulatory frameworks are streamlined to facilitate investment flows.