Europe: Fast Track of Capital Markets Union for green finance

Speech by Christine Lagarde, President of the European Central Bank (ECB) highlighting the crucial role of the green and sustainable finance in the transition towards a sustainable economy. In her view “the green transition offers us a unique opportunity to build a truly European capital market”, a catalyst to foster integration and converge in the Euro area. In order to achieve that goal she calls to reinforce the Capital Markets Union (CMU) by supporting the faster development of a “Green Capital Market Union”, prioritizing specific initiatives “even if they are applied only to sustainable finance”.

• The green transition will require major investments in technology, infrastructure... For instance Christine Largarde´s speech states that in order to achieve Europe’s climate and energy targets, “investment of around €330bn every year by 2030” will be needed.
• Banks “should provide a good share of this funding but capital markets are vital to close the remaining investment gap and to finance projects through the development of specific products”. However, as she remind us, “fragmentation between national financial markets might constrain our ability to finance future investments”, bearing in mind that financial markets in the euro area are less integrated than in other large economies such as the United States.
• Green Finance should be part of the solution and a catalyst to foster integration and converge in the Euro area. In her view, Green capital markets are already relatively well integrated, dynamic and high growth market in Europe, which has become a worldwide reference in this field. For instance around half of the green bonds issued worldwide in 2020 were euro denominated and around 60% of all green senior unsecured bonds were issued in the Euro area.
• Accelerating a Green Capital Market Union (GCMU) in the Euro area: Christine Lagarde calls to “reinforce the CMU agenda by supporting the development of GCMU. Specific initiatives under the CMU action plan should be fast-tracked – even if they are applied only to sustainable finance for now”. For that purpose she recommends to take some fundamental reforms:
  - Integrating sustainability disclosures with financial data.
  - Proper European supervision of green financial products with official EU seals such as the forthcoming EU Green Bond Standard.
  - Harmonized tax treatment of investments in sustainable finance products, so as to prevent fragmentation of green investments along national lines.
  - Further convergence in the efficiency of national insolvency frameworks, even carving out special procedures for green investments.