UNEP FI and the European Banking Federation (EBF) have released a new policy brief to help financial institutions and other stakeholders understand how Europe’s chemical sector is developing within the region’s sustainable transformation, including key policies affecting the sector. The brief, “Transforming the EU Chemical Sector”, shares practical policy levers that can support the chemical industry’s sustainable transition and strengthen its investment case.

The European Union’s chemical industry—its fourth-largest manufacturing sector and the second-largest global producer of chemicals—employs over a million people and is central to Europe’s industrial competitiveness. Given its large share of the EU’s pollution output and contribution of 5 percent of the EU’s greenhouse gas emissions, it is also a key hard-to-abate sector for the EU to address as the region advances its sustainability and climate agenda. Highly connected to agriculture, construction, energy, healthcare, and other sectors, the chemical sector’s sustainable transformation is critical for achieving the EU’s environmental, circular economy, climate, and competitiveness goals.

This article shares an overview of the sectoral challenges and key transformative policy levers UNEP FI and EBF have identified in the brief through research and discussions with industry experts from chemical and financial sectors.

A pivotal moment for policy and finance: new measures to advance competitiveness and sustainability

The EU chemical industry faces high energy and feedstock costs, weak demand, and global competition that have reduced its global market share and profitability and limited investment. However, its potential to contribute to the circular economy and decarbonization is immense.

Anchored in the European Green Deal, the 2025 EU Chemicals Industry Package and the 2025 Clean Industrial Deal (CID)—supported by the Industrial Decarbonization Bank (IDB)—aim to create the policy certainty and financing tools needed for large-scale transformation. The EU Chemicals Industry Package will modernize rules, streamline procedures, and promote innovation. By linking industrial modernization with sustainability, it can accelerate Europe’s shift toward safe, circular, and competitive chemical production—with banks as essential partners in financing that transformation.

Over the next two years, European policymakers will refine and further elaborate these initiatives, making this a crucial period for dialogue among banks, industry, and regulators on how to mobilize capital for the chemical transition.

Seven potential policy levers to support sectoral viability and increase sustainable finance

Drawing on joint work by UNEP FI and EBF, as well as feedback from banks and industry leaders, the brief highlights seven potential policy levers across three topics that can help strengthen the investment case for the EU chemical sector and help it attract finance for its transition.

Topic 1: De-risking mechanisms to improve the bankability and investment viability of the EU chemical sector

1. Innovating funding mechanisms, initiatives and tools
Expanding guarantees, blended-finance instruments, and carbon contracts for difference (CCfDs) can bridge financing gaps for capital-intensive projects. The Industrial Decarbonization Bank, the Clean Industrial Deal State Aid Framework and the the Multiannual Financial Framework will be key initiatives.

2. Scaling circular and resource-efficient models to enhance investment viability
Circularity reduces feedstock volatility and creates stable value streams. Integrating circularity criteria into EU public-finance instruments and developing a “Bank for Circularity” could provide off-take guarantees for recycled or bio-based inputs, while integrating circular principles into banks’ strategies and business practices could improve financial schemes.

Topic 2: Enhancing the enabling environment for the chemical sector to transition

3. Enhancing data transparency and standardization for informed investment decisions
Reliable, comparable data can reduce due-diligence costs and improve capital allocation. Standardized environmental and transition data, harmonized under EU standards, are essential for more efficient capital allocation.

4. Reducing administrative burden across the value chain, especially for small- and medium-sized enterprises (SMEs)
SMEs account for over 96 percent of chemical companies. Guarantee schemes, digital one-stop-shops, and aggregated project-finance platforms can help smaller firms join cleaner value chains and access CID-linked incentives and funds.

Topic 3: Ensuring a coherent and horizontal policy approach to the chemical sector transition and financing

5. Integrating policy frameworks for a sustainable and competitive transition
Closer coordination between energy, circular-economy, and industrial policies—including the Affordable Energy Action Plan, European Grids Package, and Renewable Energy Directive—can cut energy costs and restore competitiveness.

6. Ensuring long-term policy stability to drive sustainable transformation
Stable, predictable frameworks—anchored in the European Climate Law, CID, and Chemicals Package—give investors confidence to plan multi-decade transformation projects. Consistent regulation and long-term predictability are essential, as stable and transparent policies enable investors to plan large-scale transformation projects while lowering regulatory risk that impacts the cost of capital.

7. Encouraging banks to engage with policymakers and clients to support a transition that upholds environmental safeguards
Financial institutions can bridge policy ambition and market reality by developing innovative financial products that correspond to the needs of the sector, supporting clients’ transition planning, and contributing to structured policy dialogues that inform de-risking tools under the Chemicals Package and other initiatives under the CID.

Next steps

In the coming months, stakeholders have opportunities to stay abreast of upcoming initiatives, including 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. Leading up to the first Global Framework on Chemicals International Conference in November 2026, a finance workstream will work to mobilize the finance sector under the Global Framework on Chemicals Implementation Programs supported by the Inter-Organization Programme for the Sound Management of Chemicals. The EU Chemicals Industry Package is expected to link closely with the Clean Industrial Deal and Industrial Decarbonization Bank, opening up opportunities for blended finance, guarantees, and de-risking tools to accelerate investment in low-carbon and circular chemistry.

UNEP FI and EBF will continue supporting banks, financial institutions, and policymakers in navigating changes to this and other sectors through initiatives including UNEP FI’s Regulatory Implementation Support Programme; tools such as UNEP FI’s Sectors Mapping, Impact Radar and Human Rights Toolkit for Financial Institutions; EBF initiatives to support ESG risk management; and through this EU Sectoral Policy Brief Series and related dialogues under the Clean Industrial Deal—advancing practical solutions that make Europe’s industrial transition financeable, inclusive, and sustainable.