Time is running out for car makers in Europe. Just six months out from stiff new emissions rules, the industry is facing up to an estimated €34bn ($39bn) in penal- ties as well as eroding profits from selling more electric cars. Starting in 2020, car fleets in Europe will need to meet more stringent regulations on how much carbon dioxide they’re allowed to release. The industry is ill prepared for the looming change, and the huge fines pending for subverting the new rules could prompt some brands to abandon the European market and test the mettle of those that remain. The threat is part of a broader pileup: vehicle sales are falling in key markets around the world, and the US is exchang- ing blows on trade with China and the European Union, threatening to raise costs and rattle the global economy. Worse yet, automakers have been unable to pry buyers from the highest-emission cars, such as the Mercedes-AMG GLE 63 S sport utility vehicle that spouts more than three times the car maker’s targeted CO2 fleet level from 2020. “In an industry that is already suff ering from global trade issues, from Brexit, from peaking sales, that’s a very, very danger- ous cocktail,” Evercore IS auto analyst Arndt Ellinghorst said on a call earlier this month regarding the EU emissions issue.

Fines could mount to €34bn through 2021, according to research firm Jato Dynamics, whose projection tracks with other indus- try estimates. While the new regulations are expected to be painful for the industry to adjust to, past precedent suggests the EU is unlikely to allow Europe-based carmakers to be driven to ruin. Volkswagen AG, the world’s biggest car- maker, faces the largest penalty at about €9bn based on 2018 reported emissions, followed by Peugeot maker PSA Group and Fiat Chrysler Automobiles NV — the company with the single largest gap between actual performance and the new targets. BMW AGand Daimler AG could see earnings drop sharply due to their heavy reliance on high-emission SUVs. Toyota Motor Corp, maker of the Prius and several other hybrids, was the only automaker to see its emissions fall last year in Europe, according to Jato. While its calculation doesn’t take into account a blitz of upcoming electric models like Volkswa- gen’s ID.3 hatchback and Porsche Taycan, European Environment Agency data show emissions rising — not falling — for the past two years to a four-year high in 2018. Fumes are emitted from the exhaust pipe of an Audi in London. A Volkswagen spokesman reiterated recent comments by off icials including chief executive of- ficer Herbert Diess that it’s the company’s goal to meet European emission limits. A spokesman for BMW said paying fines wasn’t a strategic option, and the company on Tuesday brought forward its planned rollout of electric cars by two years. Daim- ler said its plan to reach the targets also depended on customer decisions. “It’s not quite an existential problem yet, but there are going to be questions of how do you explain to shareholders that I’m losing so much money, and it’s going to create immense pressure,” Michael Schweikl, managing consultant responsi- ble for automotive at PA Consulting Group, said in an interview. Starting January 1, all but 5% of the EU’s car fleet can emit no more than 95 grams of carbon dioxide per kilometre driven. One year later, no new vehicle can exceed that level.

Fines of 95 euros per gram for each car over the target will add up quickly, driving automakers to speed up the electrification of their lineups by of- fering more gasoline-electric hybrids and cars fully powered by batteries. “I have never seen such a material event risk in my career,” Evercore’s Ellinghorst warned in a research note to clients last month under the subject line “The 2020 CO2 cliff .” Automakers aren’t panicking — yet. PSA expects to be compliant from day one and won’t pay any fines, a spokesman said. However, in 2018, sales of EVs and hybrid vehicles accounted for less than 1% of PSA’s registered sales. The quandary on CO2 doesn’t end there, because in addition to being less popular, low-emission cars are much less profitable than the rest of automakers’ fleets. At Volkswagen, less than 1% of sales were plug-ins or battery cars last year, and about 6% at BMW. An analysis by UBS last year estimated Ebit margins on Tesla Inc’s Model 3 sedan were, at best, half those of BMW’s gasoline-powered 330i model.

The push for electrification in Europe means selling mass-market vehicles there will be unprofitable “for a decade or two,” John Murphy, an auto analyst for Bank of America Merrill Lynch, said during a presentation this month in Detroit. The 2020 limits were agreed to in 2014 after years of back-and-forth on balanc- ing a reduction in emissions while not costing carmakers too much. What no one foresaw was the extent of consumers’ love aff air with gas-guzzling SUVs and Volkswa- gen’s diesel-emissions cheating scandal that surfaced the following year. Diesels, which emit about a fifth less CO2 than equivalent gasoline cars, were a key plank in carmakers meeting the tighter regulation. But some European cities have started to ban diesels, leaving the cars to languish on dealer lots. “The top automakers will face trouble as none of them are currently on track to meet the target,” Jato Dynamics said in an April blog post. “The incoming CO2 targets can be seen as the apocalypse of the car industry in Europe.” The new rules may prompt some brands without a strong presence in Europe to abandon the market altogether, said Ellinghorst, though he declined to specify which might do so. General Motors Co already eff ectively withdrew in 2017 when it sold the Opel brand to PSA. Companies without fully-electric vehicles in Europe such as Ford Motor Co and Japan’s Mazda Motor Corp face steep challenges. Honda Motor Co does too, but it plans to launch a small battery-electric model later this year. Ford said in a statement it expects to meet the 2020-2021 targets, but that its longer- term strategy in Europe through 2030 “assumes a strong uptake of electrified vehicles” by consumers. Representatives for Mazda had no immediate comment. If the industry fails to clear the new bar set by regulators, it won’t be the first time.

When many automakers missed the boat on the switch to new emissions testing in September, it was nearly enough to send Europe’s largest economy into recession. Employees work on BMW i3 electric cars on the assembly line at a factory in Leip- zig, Germany. Simply selling more small cars won’t help, as even the most fuel-eff icient gas-pow- ered vehicles also face tougher mandates. Carmakers aren’t likely to be able to pass along the added costs for equipping those cars with cleaner technology, Bernstein analyst Max Warburton wrote in a recent report. He said that may lead to “the death of the small car” in Europe. The regulations do allow for some creative ways to lower average fleet emissions and mitigate penalties, at least during a phase- in period. Cars that emit less than 50 grams CO2 per kilometre will count for two cars in 2020, and slightly less each year after. Fiat Chrysler has also made use of the op- tion to pool fleets of high-emission autos with low- or zero-polluting cars, pairing up with Tesla Inc in a deal that likely will involve paying the US company several hundred million dollars. Mazda and Toyota are also forming a pool. “I think that 2020 is doable. The concern is about customer acceptance for new technology,” said Antonio Massacesi, head of fuel economy and greenhouse gas compliance for Fiat Chrysler’s European business. “That risk is one of the reasons why we decided to enter into a pool with Tesla.”

(Bloomberg) — One of Britain’s biggest fund managers started selling shares in Exxon Mobil Corp., saying America’s largest oil company isn’t doing enough to address climate change.

Legal & General Investment Management, which oversees about $1.3 trillion and is one of Exxon’s top 20 shareholders, said some of its funds have already divested from the company and will ask its clients if it can withdraw more money.

The global oil industry has become increasingly unfashionable for investors as the transition away from fossil fuels raises doubts about its long-term future. Energy stocks currently make up 5% of the S&P 500 Index, down from 13% a decade ago.

The divestment affects a small portion of Exxon’s equity — Legal & General owns about 0.6% of the company, and the divesting funds hold just a fraction of that — but it intensifies pressure on the Texas firm, once the world’s largest public company. It will also be a fillip for campaigners who want investors to divest from the most polluting companies.

Divestment is a way to “hold Exxon accountable for something that’s really material for their future,” said Meryam Omi, head of sustainability at Legal & General Investment Management. “People in the street who have their own pension that’s going to mature in 30 years time don’t get a chance to talk to Exxon themselves.”

Exxon is the only oil major Legal & General is divesting, as competitors including Chevron Corp. and Royal Dutch Shell Plc meet or exceed the insurer’s basic standards on climate change action. It would also use its remaining shareholding in the company to vote next year against the reappointment of the chairman, a role currently held by Chief Executive Officer Darren Woods.

Exxon is the largest of 11 companies that Legal & General said it will exclude from its “Future World” funds because of climate change risk. Others include MetLife Inc., Subaru Corp., Hormel Foods Corp., Sysco Corp. and Rosneft PJSC. Two companies it withdrew capital from last year for the same reason, Occidental Petroleum Corp. and Dominion Energy Inc., will be added back to the funds because they addressed concerns raised by the insurer.

While standards differ by sector, Legal & General said it expects oil and gas companies to set targets to cut pollution in their own operations as a bare minimum. It also wants the company to disclose the volume of greenhouse gas emissions its operations and customers are responsible for each year.

“We’re on track to meet greenhouse gas reduction measures we announced last year which are expected to help significantly to improve emissions performance,” Exxon spokesman Scott Silvestri said in an email. “They include a 15% decrease in methane emissions and a 25% reduction in flaring by 2020.”

Exxon already publishes an annual tally of emissions from its operations and is “providing solutions to consumers to help them reduce their emissions,” Silvestri wrote.

Legal & General declined to disclose the exact value of its divestment from the oil company. At the end of March, the stock made up 0.7% of one of the asset manager’s funds, according to its website. The overall value of that fund at the time was about 4.4 billion pounds ($5.5 billion), suggesting the Exxon stake was worth more than $350 million.

Several other companies are “on the cusp” of divestment when it comes to climate action, according to Sacha Sadan, the director of corporate governance at the insurer’s investment unit, without saying which ones. And even those that were named as particularly strong on sustainability compared to their peers, such as Equinor ASA and French bank BNP Paribas SA, will be expected to continuously move their businesses away from polluting activities or risk being divested.

“This engagement is not about picking up the laggards, it’s about pushing up the whole industry,” said Omi. “We need to keep the pressure on.”

Returns at Legal & General’s Future World funds will suffer very little as a result of the divestments, Omi said. The difference between what the funds would return without divesting and what they will return otherwise, which she called a “tracking error,” will be less than 0.3%.

The insurer is hoping to convince all clients to follow its advice around companies lagging in climate action, partly by demonstrating it doesn’t sacrifice returns. That could lead to further capital outflows.

II. Multiannual financial framework

2. The European Council welcomed the work done under the Romanian Presidency and took note of the various elements of the MFF package. It called on Finland’s Presidency to pursue the work and to develop the Negotiating Box. On that basis the European Council will hold an exchange of views in October 2019, aiming for an agreement before the end of the year.

III. Climate change

3. The European Council emphasises the importance of the United Nations Secretary General’s Climate Action Summit in September for stepping up global climate action so as to achieve the objective of the Paris Agreement, including by pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels. It welcomes the active involvement of Member States and the Commission in the preparations.

4. Following the sectoral discussions held over recent months, the European Council invites the Council and the Commission to advance work on the conditions, the incentives and the enabling framework to be put in place so as to ensure a transition to a climate-neutral EU in line with the Paris Agreement [1] that will preserve European competitiveness, be just and socially balanced, take account of Member States’ national circumstances and respect their right to decide on their own energy mix, while building on the measures already agreed to achieve the 2030 reduction target. The European Council will finalise its guidance before the end of the year with a view to the adoption and submission of the EU’s long-term strategy to the UNFCCC in early 2020. In this context, the European Council invites the European Investment Bank to step up its activities in support of climate action.

5. The EU and its Member States remain committed to scaling up the mobilisation of international climate finance from a wide variety of private and public sources and to working towards a timely, well-managed and successful replenishment process for the Green Climate Fund.

IV. Disinformation and hybrid threats

6. Further to the Presidency report and the contributions from the Commission and the High Representative on lessons learnt with regard to disinformation and securing free and fair elections, the European Council calls for sustained efforts to raise awareness, increase preparedness and strengthen the resilience of our democracies to disinformation. It welcomes the Commission’s intention to conduct an in-depth evaluation of the implementation of commitments undertaken by online platforms and other signatories under the Code of Practice. The evolving nature of the threats and the growing risk of malicious interference and online manipulation associated with the development of Artificial Intelligence and data-gathering techniques require continuous assessment and an appropriate response.

7. The EU must ensure a coordinated response to hybrid and cyber threats and strengthen its cooperation with relevant international actors. The European Council welcomes the adoption of a new framework for targeted restrictive measures, and the work on coordinated attribution at EU level in the context of the cyber diplomacy toolbox, to better deter and respond to cyber-attacks. It invites the EU institutions, together with the Member States, to work on measures to enhance the resilience and improve the security culture of the EU against cyber and hybrid threats from outside the EU, and to better protect the EU’s information and communication networks, and its decision-making processes, from malicious activities of all kinds.

V. External relations

8. On the occasion of the Eastern Partnership’s 10th anniversary, the European Council reaffirms the importance of this strategic partnership and invites the Commission and the High Representative to evaluate existing instruments and measures and, on the basis of appropriate consultations, to present by early 2020, with a view to the next Eastern Partnership Summit, a further set of long-term policy objectives.

9. The European Council welcomes the peaceful transfer of power in the Republic of Moldova and invites the European Commission and the High Representative to work on a set of concrete measures to support the Republic of Moldova, based on its sustained implementation of reforms under the Association Agreement / DCFTA.

10. The European Council underlines the crucial importance of the EU’s strategic partnership with Africa. We are committed to developing it further with a shared ambition to face together common and global challenges.

11. The stability, security and prosperity of the countries on the southern shore of the Mediterranean are of crucial importance for the EU. In this context, peace and long-term stability in Libya are a common priority. The EU reiterates its support for the UN-led process for the cessation of hostilities and an inclusive political solution.

12. The European Council welcomes the renewed impetus in EU-Morocco relations and looks forward to the upcoming EU-Morocco Association Council.

13. The European Council reiterates its call on Russia to release the captured Ukrainian sailors unconditionally, return the seized vessels and ensure free passage of all ships through the Kerch Straits, in accordance with international law.

14. The European Council expresses its utmost concern about the Russian presidential decree of 24 April, enabling the simplified issuing of passports in certain areas of Ukraine’s Donetsk and Luhansk regions, which runs counter to the spirit and the objectives of the Minsk agreements.

15. The European Council will continue to monitor the situation in eastern Ukraine and stands ready to consider further options, including non-recognition of Russian passports issued in contradiction to the Minsk agreements, in close coordination with its international partners. The European Council calls for an urgent resumption of negotiating efforts with a view to the implementation of the Minsk agreements and for measures aimed at rebuilding confidence among the parties.

16. 17 July will mark five years since the downing of flight MH17, which claimed 298 lives. The European Council reiterates its full support for all efforts to establish truth, justice and accountability for the victims and their next of kin, in accordance with UNSC Resolution 2166. In this context, it welcomes the announcement by the Joint Investigation Team on 19 June 2019 that criminal charges will be brought in the Netherlands against four individuals, calls on Russia to cooperate fully with the ongoing investigation, and expresses its full confidence in the independence and professionalism of the legal procedures that lie ahead.

17. The European Council recalls and reaffirms previous Council and European Council conclusions, including the European Council conclusions of 22 March 2018 strongly condemning Turkey’s continued illegal actions in the Eastern Mediterranean and the Aegean Sea. The European Council expresses serious concerns over Turkey’s current illegal drilling activities in the Eastern Mediterranean and deplores that Turkey has not yet responded to the EU’s repeated calls to cease such activities. The European Council underlines the serious immediate negative impact that such illegal actions have across the range of EU-Turkey relations. The European Council calls on Turkey to show restraint, respect the sovereign rights of Cyprus and refrain from any such actions. The European Council endorses the invitation to the Commission and the EEAS to submit options for appropriate measures without delay, including targeted measures. The EU will continue to closely monitor developments and stands ready to respond appropriately and in full solidarity with Cyprus. The European Council will remain seized of the matter and will revert accordingly.

VI. Other items

18. The European Council endorses the conclusions on enlargement and stabilisation and association process adopted by the Council on 18 June 2019.

19. In the context of the European Semester, the European Council held a discussion on the basis of a horizontal report on Country-Specific Recommendations.

[1] For a large majority of Member States, climate neutrality must be achieved by 2050.