Europe is in urgent need of transformation. The foundations of its prosperity and security are crumbling under the weight of a geopolitical and geo-economic landscape increasingly defined by crisis.

Introducing the transformation of Europe

Multiple major challenges are exposing the status quo as unfit for the future. They include:

In the face of these and other structural and cyclical factors, the threat of continued decline is significant. The task now is to halt that decline and create a Europe that is truly dynamic, forward-looking and sustainable.

This likely represents the most ambitious and important project of our generation. As such, it also represents a unique opportunity for investors with the potential to deliver positive financial and non-financial outcomes on a far-reaching scale.

The funding gap: a unique opportunity for long-term investors

Capital will clearly be central to the transformation of Europe. The necessary change will require trillions of euros and demands a new level of cooperation and partnership between the public and private sectors.

However, with high debt levels limiting government spending, the funding gap is already significant.

Consider, for example, the European Union’s green and digital transitions. Europe faces at least a EUR 2.5 trillion investment gap for green and digital goals (EU-27)^[1].

Regardless of how urgent these goals might be, governments simply do not have such funds. By the European Commission’s own admission, private funds will account for “the major share of investments”.^[2]

This underlines our belief that the transformation of Europe demands a new level of cooperation and partnership between the public and private sectors. Collective challenges must be met with collective responses. It encompasses how we think about business, regulation, policy, politics, technology, digitisation, nature, the environment and society as a whole.

Harnessing the power of private markets

We believe private markets can serve as a key source of transformative investing that aims to deliver positive financial and non-financial outcomes over the long term.

Unlocking and mobilising private capital now can play a leading role in creating a Europe fit for the future. Public Markets are not the most appropriate to finance long term projects and often geared towards short-term, relative financial performance. At the same time, Europe currently has vast pools of savings that are earning below-inflation returns.

These funds could instead be channelled into transformative investments that aim to deliver positive financial and non-financial outcomes over the long term. In our view, private markets are better suited to achieve such goals.

It is basically a question of dynamism. While Europe may have had the innovation edge, it has failed to capitalise on it. Venture capital has been estimated to be just 0.1% of the European Union’s GDP^[3] – a stark illustration of both the size of the challenge and the scale of the opportunity it presents.

Investing for the transformation of Europe

Building on our experience, our ground-breaking research into the need for European Transformation has identified a number of themes we believe will be crucial to bringing about change on the scale now required.

The Center for European Transformation:

A partnership with Frankfurt School of Finance & Management

The transformation of Europe is a collective challenge that demands a collective response. The Centre for European Transformation represents a groundbreaking effort to both ensure and guide such a response.

A partnership between DWS and the Frankfurt School of Finance & Management, the Centre is dedicated to cutting-edge thinking around the creation of a truly dynamic, forward-looking and sustainable Europe.

It brings together academics, business figures, policymakers and other stakeholders to analyze European Transformation and inform high-level decision-making as this essential shared journey continues to unfold. The research centre actively connects with the public through a variety of engaging activities, including research projects, collaborative working groups, and a diverse range of events such as conferences or workshops.

The Centre’s unique mission is to help clients and investment teams understand an ever-evolving range of risks and opportunities – particularly in relation to sustainability.

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Shaping the era of positive disruption

DWS has a track record of devising and implementing investment solutions. The Frankfurt School of Finance & Management has a history of outstanding research with real-world relevance.By combining these skill sets, the Centre for European Transformation aims to shed new light on the challenges surrounding the way ahead for Europe – as well as the optimum means of delivering positive change.

In addition to facilitating interdisciplinary research and developing collaborative initiatives, the Centre is committed to producing practical responses and recommendations to help shape Europe’s journey.

Professor Nils Stieglitz, President and CEO of the Frankfurt School of Finance & Management, said: “We are proud to partner with DWS in building genuine thought leadership around this hugely important issue.”

Framing the policymaking challenge

Irrespective of investment levels, the transformation of Europe is unlikely to be truly effective if policymakers do not make the right decisions.

This is a key focus of the Centre for European Transformation’s work.

Numerous sustainability-focused policy initiatives were launched in light of COVID-19. What remains to be seen is whether they are sufficiently cohesive, suitably ambitious and even genuinely achievable.

DWS’s own research has already identified various issues that policies on sustainable finance must address. They include reducing confusion around ESG and unifying science-based sustainability standards.

We believe the complexities of the policy landscape underline the multifaceted yet highly interconnected nature of the way ahead. The Centre for European Transformation will explore them in detail.