Christine Lagarde, President of the European Central Bank, said today that the development of a green capital markets union (CMU) could offer the European Union the opportunity to build a truly pan-European financial system. Lagarde stated that key tools such as sustainability disclosures and sustainable finance standards would be key to such a system’s establishment.

Lagarde made the remarks in a speech today at the European Commission’s high-level conference on the proposal for a Corporate Sustainability Reporting Directive. The conference was set up to discuss the commission’s proposals released last month strengthening the rules under the Non-Financial Reporting Directive (NFRD), the EU directive requiring companies to disclose information on the way they operate and manage social and environmental challenges.

According to Lagarde, the emergence of green finance to fund the shift to a net zero emissions economy has created the opportunity to foster an integrated capital market for the European Union, helping solve challenges such as making the monetary union more resilient to cyclical shocks, and enabling coordinated economic transformation to deal with structural changes.

Lagarde said:

“The shift to net zero emissions, together with an adequate digital backbone, will require major investments across Europe in technology, infrastructure and networks. Fragmentation between national financial markets might constrain our ability to finance future investments. But if green finance continues to emerge to fund this transition, the consequences for Europe’s financial system could be sweeping.

“In fact, I believe that the green transition offers us a unique opportunity to build a truly European capital market that transcends national borders – or what I would call green capital markets union (CMU).”

Lagarde pointed to the EU’s unique position to take advantage of the emergence of green finance, with 60% of global green bond issuance originating in EU countries.

Outlining the key developments necessary for the development of a green CMU, Lagarde highlighted the need for improved sustainability disclosure, and said that she supported the European Commission’s proposed rules which would extend mandated sustainability reporting requirements to tens of thousands of companies, and ultimately aims to bring sustainability reporting on par with financial reporting.

Lagarde said:

“I strongly welcome this proposal and believe it can finally address the main data gaps currently afflicting the EU’s sustainable finance landscape. It will also be a key pillar of the Commission’s forthcoming proposal for a European single access point. By integrating sustainability disclosures with financial data, we would create a “one-stop shop” for all critical information about a company, including its green credentials, which would be immensely useful for investors.”

Lagarde also called for reforms including proper European supervision of green financial products, and harmonised tax treatment of investments in sustainable finance products.

Lagarde added:

“In short, Green CMU not only gives us a tremendous opportunity to craft something genuinely European and with immediate impact, but it also has the potential to transform the EU as a whole.

“It would allow us to make our economy more resilient to shocks and fit for the future, all while avoiding the worst scenarios for climate change.”