Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
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Global | Publication | April 2023
Resources to achieve the objectives of the European Green Deal can come from a combination of EU Member States, the EU itself and private investment.
Funding from the Member States must adhere to the EU State aid rules, and be notified to and approved by the EC before the funding is granted. The State aid General Block Exemption Regulation (GBER) exempts Member States from this notification obligation, if all the GBER criteria are fulfilled.
State aid is, in principle, incompatible with the internal market, but where the relevant requirements are met, certain categories of aid must or may be allowed as compatible. The EC adopted the State aid Temporary Crisis Framework (Framework) in March 2022 to specify the criteria for the assessment of compatibility with the internal market of State aid measures that Member States may take to remedy the direct and indirect economic effects following the aggression against Ukraine by Russia, including the counter measures taken, for example by Russia. In contrast to the GBER, aid granted under this Framework must be notified to the EC, but the EC ensures swift assessment and approval, assuming that all conditions are met.
They revised GBER also:
This revised GBER applies until the end of 2026.
b. Temporary Crisis and Transition Framework
Under the Net Zero Plan, the EC will increase EU funding by redirecting financial resources already available under the REPowerEU, the InvestEU Programme for private investments and the Innovation Fund:
In her initial presentation of the Net Zero Plan, EC President Ursula von der Leyen acknowledged the need to increase the EU's manufacturing capacity for net-zero technologies and products. To this end, the proposal for the NZIA, which follows the model of the EU Chips Act (see our briefing here), and the CRMA, aims to create a predictable and simplified regulatory environment.
The proposed NZIA supports the manufacturing of products that are key to meeting climate neutrality goals, including batteries, turbines, heat pumps, solar, electrolysers, biogas, grid technologies, and carbon capture. Following a significant debate regarding the inclusion of nuclear energy projects, a compromise was reached, including small modular nuclear reactors and nuclear plants producing limited waste in the NZIA (but not as “strategic projects”). Investors in the aforementioned strategic areas will benefit from a shortening and simplification of administrative procedures and the introduction of a “one-stop-shop” single point of contact. Strategic projects, selected by Member States with the EC’s participation, including cross-border initiatives, are encouraged with a view to reaching new industrial benchmarks by 2030, including a target that 40% of all clean technology required to meet the REPowerEU and Green Deal objectives will be manufactured in the EU.
The proposed NZIA has the following pillars:
The CRMA aims to ensure security of supply of raw materials required for the EU net-zero technologies. The EC had included adoption of this legislation in its Work Programme 2023 and has regularly updated its the list of critical raw materials (available here) that it considers are most important economically and have a high supply risk. The proposed CRMA (COM(2023)160) codifies this list and a new list of strategic raw materials used in strategic sectors such as renewable energy, digital, space and defence technologies. The EC will review and, if necessary, update both lists at least every four years. The CRMA will provide a regulatory framework to support the development of EU capacity and the sustainability and circularity of the critical raw material supply chains in the EU. The accompanying Communication (COM(2023)165) proposes measures to diversify supply chains through new international mutually supportive partnerships.
The CRMA has the following key pillars:
The EU’s goal is to be able to extract 10%, process 40% and recycle 15% of its annual consumption of strategic raw materials by 2030. In addition, not more than 65% of annual consumption of each strategic raw material at any stage of processing should be from a single third country by 2030.
In relation to finance, the Communication acknowledges that private investment may need to be supplemented by State aid, noting that the revised State aid rules give Member States more flexibility to grant aid, including for the production and recycling of critical raw materials related to key net-zero technologies.
Notably, the EC proposes as well to set up and supervise a joint purchasing system for strategic raw materials subject to it being compatible with EU public procurement and competition rules.
As part of its effort to secure supply of critical raw materials, the EU will intensify efforts to conclude free trade agreements with Australia, Chile, India, Indonesia, Mexico and New Zealand. It has already established Strategic Partnerships with Canada under the EU–Canada Comprehensive Economic and Trade Agreement (CETA) and Ukraine in 2021 and with Kazakhstan and Namibia in 2022.
It is also negotiating with the US administration over possible changes to the IRA. In October 2022, the US-EU Task Force on the IRA was launched to support these negotiations. As regards export credits, the OECD countries agreed on March 31, 2023, to support an EU initiative to modernise the system and expand the scope for eligible green or climate-friendly projects.
Finally, the EC has reiterated its willingness to use the EU Foreign Subsidies Regulation (FSR) (see our briefing here), the EU FDI screening procedure and other instruments to counter unfair competition. The EC will deploy the International Procurement Instrument (IPI) for the first time in 2023 to promote reciprocity for access to public procurement markets. This will enable the EC to tackle market protection in third country public procurement.
Stakeholders can provide feedback on the NZIA and CRMA proposals until 31 May 2023. The legislation could be finalised before the European Parliament elections in 2024. At the European Council meeting on 23 March 2023, the EC’s plan to propose a European sovereignty fund before summer 2023 was noted.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
Companies have been publicly reporting on their financial performance for over a hundred years. However, they are increasingly having to make public non-financial disclosures relating to sustainability and environmental, social and governance (ESG) matters as a result of rules, laws and regulations issued by stock exchanges, governments and regulators worldwide.
© Norton Rose Fulbright LLP 2023