Europe’s Economy and Green Transition Demand a New Approach to Investment 

Europe and Denmark can certainly compete in research and venture capital. But we must invest differently and far more aggressively, so companies with critical new technology don’t move across the Atlantic when it’s time to commercialize and scale, argues Rolf Kjærgaard. 

What good is it to have a sensible pension savings if you live in a country and a region of the world where the economy has fallen behind, with all that this implies for welfare and job opportunities, and where, right outside your door, you can clearly see the results of unresolved climate and environmental crises? 

This is the stark perspective set by Rolf Kjærgaard, chair of the partnership Invest for Impact Denmark and CEO of Vækstfonden until 2022. Kjærgaard’s central point is that Denmark and Europe must radically change their approach to investments. This is crucial, both to solve the economic challenges facing Europe and to develop companies with new circular and sustainable technologies. 

“We have plenty of relevant research in Europe, which forms the basis for growth companies. The problem arises further along the ecosystem. When ideas need to be developed, commercialized, and scaled, it requires large investments. Here, Europe falls short, and technology growth companies are increasingly moving to the USA,” he says. 

This comes at a cost. It’s only when companies become large that they deliver societal value through growth, jobs, and income for employees, shareholders, and the state. 

A European Challenge 

Rolf Kjærgaard points to three crucial elements in the ecosystem for growth companies, which he believes are essential for society to foster companies with groundbreaking technologies and reap the socioeconomic benefits: research, access to capital, and the existing industry. 

“When it comes to research, we are very strong in Europe. This is evident in both the number of patents and scientific articles. In biotech, pharma, climate, and environmental technologies, we are on par with the USA, and in some areas even better. The venture capital to support companies in the initial phase is also present, with both business angels and funds,” he says. 

Kjærgaard continues: 

“The challenge is capital when ideas really need to be commercialized and scaled. Here, we’re talking about amounts of 100 million euros or more in each investment round. When you look at the funds capable of this, there are two in Europe and 45 in the USA,” he says. 

Regarding the existing industry, Kjærgaard believes that Europe’s large, established companies should, like their American counterparts, lean further into the ecosystem for new companies and technologies. 

“It’s about the leadership of large companies deciding to strategically prioritize venture investments in new companies—and sticking with it over time, because it takes up to ten years to build competence and credibility as a corporate venture investor and to deliver results,” he says. 

A Mental Block 

The Draghi report from autumn 2024 has, in many ways, been a wake-up call. The report pointed out that Europe was becoming the old, tired man of the world economy, while the USA and Asia were leading with the technologies of the future. 

As in so many other contexts, the saying “follow the money” applies here too. In Europe, we must become much better at investing in ourselves, says Kjærgaard. 

Here we return to the pensioner with a well-padded pension savings, who may still end up somewhat depressed. 

“If your return is generated by investments in American and Asian technology and global dominance that has weakened Europe, where are your children and grandchildren supposed to find jobs?” Kjærgaard asks rhetorically. 

He calls for a break with habitual thinking. Just as it was once said that no IT manager ever lost their job by buying IBM, there is a conservatism among investment managers in the large pension funds, where the dominant approach is to spread investments across a large portfolio of global equities. 

“Pension companies must take care of everyone’s money, and they shouldn’t compromise on returns, but there is a mental brake. When you look at the risk-adjusted return, there is plenty of untapped potential in investing in technology and innovation in European companies,” says Kjærgaard. 

With a greater appetite for investments in Europe, pension companies will still fulfill what’s called fiduciary duty, which also includes consideration for the long-term interests of pension savers, beyond short-term returns. 

“A director of a Dutch pension company put it very aptly: What good is it if savers get a nice return if they can barely breathe because of polluted air,” says Kjærgaard. 

Wind Energy Showed the Way 

He calls for new investment tools, and here the state and both commercial and charitable foundations must take on a special role. 

“The state and the foundations can take a more long-term approach, and they can live with greater risks in individual investment cases. That’s why we need to think in models where you combine the state’s and foundations’ long-term investments and risk appetite with capital on entirely ordinary terms, where there is typically a much shorter horizon,” he says. 

A good example is the investment by the Novo Nordisk Foundation and EIFO in the Greenlandic company Rock Flour Company, which aims to exploit the potential of so-called glacier flour. This is finely ground rock that lies at the bottom of the ice sheet and is carried out with the meltwater. Glacier flour can both bind nitrogen and reduce climate emissions when spread on ordinary fields. 

Kjærgaard also mentions the development of the Danish wind turbine industry as a good example of how the state, through support schemes and guaranteed prices in the 1990s and 2000s, created the foundation for a wind turbine industry with developers, manufacturers, and a wealth of subcontractors in everything from logistics to components. 

Foundations Can Play a New Role 

He has a particular focus on foundations, both commercial and charitable. Here, too, he calls for a paradigm shift. 

Typically, foundations have an investment policy similar to pension funds and banks. It is especially through philanthropic grants that foundations support their purpose. Kjærgaard would like to see a bridge built over the divide between investment and philanthropy. 

“Foundations can become an even more important player because they can act as long-term investors and because they have a strong purpose. If they work even more purposefully and ambitiously with so-called mission-driven investments, it will have a much greater impact than what foundations can achieve with their grants alone,” he says. 

Seeing Opportunities in the USA 

Climate and environmental technology is one of the areas where Europe is leading. Therefore, we should also see the opportunities when the Trump administration pulls back from expanding renewable energy and the US moves backward on the entire sustainability agenda, Kjærgaard believes. 

Europe already has strong positions, in areas such as energy and water technology and the foods of the future, which require a shift away from traditional animal products. 

“At the same time, there are currently hundreds of American companies that have seen their financing opportunities, needed to commercialize and scale their technologies, fall apart. There is momentum to create a flow in the opposite direction, so a number of innovative American companies move to Europe,” says Kjærgaard.