Sustainable Finance Outlook: European Carbon Policy Balancing Act

The latest issue of SEB's Sustainable Finance Outlook analyses the European Commission's proposed reform of the EU Emissions Trading System (EU ETS). It examines how higher carbon prices could squeeze building-sector margins while encouraging investment in low-carbon steel and cement production. The report also finds that this summer's extreme drought reinforces the case for greater renewable-energy investment. 

"The Commission is trying to reconcile climate ambition with competitiveness with its reform of the EU ETS" says Gregor Vulturius, Lead Scientist and Senior Advisor in Climate & Sustainable Finance at SEB. "While the proposal could moderate carbon prices relative to earlier expectations, we still expect emissions allowance prices to steeply rise to EUR 180-270/t by 2040."  

"Rising carbon costs will likely double cement and steel market prices in Europe over the next decade putting pressure on construction companies, developers and investors" says Gregor Vulturius. "With up to 40% of developers margins at risk, the EU ETS will spur greater demand less carbon intensive buildings, decarbonisation of building material production and low-emission alternatives like timber." 

The report also features an update on global trends in sustainable finance and renewable energy investments.  

"Despite rising geopolitical tensions, global sustainable bond issuance reached USD 1,226 billion in Q1 2026, up 15% year on year," says Samantha Arpas, Sustainable Finance Specialist at SEB. "Most sustainable finance in the building sector currently comes from downstream real estate companies with limited capacity to absorb higher costs. Rising EU ETS costs should drive more upstream investment in low-carbon building materials." 

"As the EU is discussing its future carbon price, Europe has been suffering from one of the worst droughts on record" says Thomas Thygesen, Head of Strategy and ESG in SEB Equity Research at SEB. "Extreme weather events in conjunction with geopolitical disruption, digitalisation and automation will accelerate the transition to a new energy system increasingly powered by non-fossil electricity."  

"Global investment in renewable energy declined in the last 12 months after a change in China's subsidy system, but we are convinced that it will pick up again already in the second half of 2026, with increased investment in Europe as well as developing economies. Fossil energy's share of global energy consumption has peaked, and the decline is set to accelerate" said Thygesen. 

About the Sustainable Finance Outlook  
The Sustainable Finance Outlook delivers insights and market intelligence for navigating the sustainability transition. Issued four times per year, the report engages a readership exceeding 3000, comprising financial institutions, corporates, and decision-makers within SEB's primary markets.