A new report sets out seven ways to help boost the investment case for the chemical sector in Europe, key to helping it attract the financing vital for its transition to more sustainable business models.
Chemicalsis the part of the EU's manufacturing sector responsible for the most investment, amounting to 17.7% of the total. But financing a shift away from fossil feedstocks and towards safer, circular, and low-carbon chemical production is going to be very expensive.
The European Commission estimates that, of the investment needed by industry between 2030 and 2050 to meet climate targets, the chemicals sector will account for 37% - €12.95 billion - a year. But other estimates for funding net-zero initiatives in the chemical sector suggest the transition could cost as much as €35 billion a year.
The paper from the United Nations Environment Programme Finance Initiative (UNEP FI) and the European Banking Federation (EBF) aims to share the developments that can support the chemical industry’s sustainable transition and strengthen its investment case. As the report notes: "The transition of Europe’s chemical sector presents both significant challenges and opportunities for financing."
The paper, Transforming the EU Chemical Sector: Policy levers to support viability and increase sustainable finance, notes that the chemicals industry is key to agriculture, construction, energy, health care as well as other areas. It's Europe’s fourth largest manufacturing sector and the second largest global producer of chemicals, but its sustainable transformation is critical to EU’s environmental, circular economy, climate and competitiveness goals.
While the paper highlights the structural problems that Europe’s chemical sector is facing in terms of high energy and feedstock costs, along with weak demand and profitability which have reduced its global market share and limited investment, it also says that the sector’s potential to "contribute to the circular economy and decarbonisation is immense.”
The seven 'levers' identified by the report include:
- Tools such as guarantees, blended finance, and carbon contracts for difference, which can reduce the risk premium of early-stage or low-carbon projects, helping banks finance new technologies with clearer long-term returns. Many projects will struggle to progress beyond demonstration phase without more risk-sharing instruments, it said, warning the gap is especially acute in the chemical sector, where projects at higher technology readiness levels moving from pilot to commercial scale face "steep" capital needs.
- Transitioning to circular models focused on reuse, recycling, and material substitution can create more stable value streams that could improve the attractiveness of chemical-related investments for banks.
- Standardised environmental data can lower due-diligence costs and reduce uncertainty for banks and investors. Limited availability of standardised data on emissions, resource use, and technology performance significantly constrains investment decisions in the chemical sector, it warned.
- Reducing the administrative burden across the value chain, especially for small and medium-sized enterprises can also help. Guarantee schemes, digital one-stop-shops and aggregated project finance platforms can help smaller firms join cleaner value chains and access Clean Industrial Deal-linked incentives and funds, it said.
- Coordinating environmental, industrial, circular and energy policies is critical to ensure consistent and effective incentives the paper said, noting: "Policy coherence can strengthen competitiveness while accelerating the green transition."
- Ensuring a coherent and horizontal policy approach to the chemical sector financing and transition is also key. Stable and predictable frameworks – anchored in the European Climate Law, the Clean Industrial Deal, and Chemicals Package – gives investors confidence to plan multi-decade transformation projects, the briefing notes.
- Encouraging banks to engage with policymakers and clients to support a transition that upholds environmental safeguards is also key, the report said.
The authors highlight a number of upcoming initiatives that will provide opportunities for stakeholders to engage with the EU’s processes. These include participating in related consultations and funding calls. “The European Commission’s forthcoming revision of the REACH regulation will mark a major policy milestone to boost the sector’s competitiveness, sustainability and resilience,” the briefing says.
In addition, the lead up to the Global Framework on Chemicals - First International Conference, which will be held in November 2026, in Geneva, Switzerland, will see a workstream to mobilise the finance sector, under the Global Framework on Chemicals implementation Programmes.
The briefing strikes a positive note for the EU’s chemical sector. “The European Commission's Chemicals Industry Package is set to boost the sector’s competitiveness, sustainability, and resilience. It will include an Action Plan for the Chemicals Industry and a Simplification Package to modernize EU chemical rules, reduce administrative burdens, and streamline REACH and ECHA procedures,” the briefing says.
In addition, key measures will establish a Critical Chemicals Alliance to address the risks of capacity closures in the sector and applying trade defence measures to ensure fair competition; lower energy and feedstock costs through the Affordable Energy Action Plan; and provide stronger incentives for innovation, circularity, and clean technology adoption. A science-based restriction on PFAS and clearer fiscal and regulatory frameworks are also expected to support safer, more sustainable production, the briefing adds.
Further reading:
- Future of the chemicals industry: Europe's action plan
- Europe's chemicals industry is in a worrying situation
- Future of chemicals industry on the agenda in discussion with European Commission
- Chemicals regulation: Scientists call for REACH rethink
- PFAS: Europe updates its proposals for restricting 'forever chemicals'
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