ECB’s Lagarde advocates for green capital market union
Lagarde said the green transition provides “a unique opportunity to build a truly European capital market that transcends national borders.” The ECB’s chair said the integration of green capital markets could play a role in addressing two of the challenges Europe is facing. The former being making its monetary union more resilient to cyclical shocks and the latter being the transformation of European economies as green and digital trends rise.
“Capital markets are also vital to fund the transformation of our economies. We need to see investment of around €330bn every year by 2030 to achieve Europe’s climate and energy targets and around €125bn every year to carry out the digital transformation,” Lagarde recalled.
In her view, green capital markets are dynamic and growing in Europe, and are “already relatively well integrated.” She pinpointed Europe was a location of choice for green bond issuance but also for asset management mandates under environmental, social and corporate governance (ESG) criteria.
Said Lagarde, green capital markets could act as a catalyst for the overall structural transformation of Europe, “ensuring that it happens both quickly and evenly across EU countries.” As an example, she deemed “key” the issuance of green bond govies to fund major infrastructure projects. She cited the future European Commission €225bn green bond issuance as part of the Next Generation EU fund.
However, the ECB president acknowledged that the continued growth of green capital markets will at some point hit the same limits that now restrict the integration of broader capital markets in the EU, citing missing cross-border infrastructures and national constraints.
And the union’s currency is at stake there if integration is not achieved quickly. “If others move faster than we do, the euro’s advantage as the global green currency could fade and be lost. The euro would miss an opportunity to strengthen its international role,” Lagarde said.
‘More reforms will be necessary’
Specific initiatives under the CMU action plan should be fast-tracked, she added, a key component being the commission’s proposal on corporate sustainability disclosures. But she said more fundamental reforms will be necessary.
“We need proper European supervision of green financial products with official EU seals such as the forthcoming EU Green Bond Standard. This is key to ensuring compliance and to identifying systemic links and associated risks within the cross-border market. We also need harmonised tax treatment of investments in sustainable finance products, so as to prevent fragmentation of green investments along national lines. And we need further convergence in the efficiency of national insolvency frameworks, even carving out special procedures for green investments,” Lagarde argued.
She considers these initiatives as an engine for the CMU project and believes that if they are successful, European capital markets will face very positive knock-on effects.