The president of the European Central Bank (ECB) has called on policymakers to revise the region’s capital markets if they want investors to finance the climate transition.
In a speech on Tuesday, Christine Lagarde claimed that 40% of European companies perceive a lack of investor support as a major barrier to their decarbonisation.
“Debt and – more importantly – equity financing currently rank lowest among the funds that firms expect to use for green investment,” she told an audience at a conference hosted by Norges Bank Investment Management.
She added that “deepening and integrating” EU capital markets would be critical to supporting green investments at scale.
“The missing link, in our view, is a proper functioning capital market.”
“The good news from where I sit, and what I can observe, is that there is political momentum behind the Capital Markets Union (CMU), and it has never been greater.”
Lagarde pointed to comments made by German chancellor Friedrich Merz last week.
He called for the establishment of a single, pan-European stock exchange, in the latest sign of Germany’s support for the EU’s plans to unify the bloc’s capital markets.
“We need a kind of European Stock Exchange so that successful companies like BioNTech from Germany don’t have to go public on the New York Stock Exchange,” he said.
Stéphane Boujnah, the chief executive officer of Euronext was among those to welcome Merz’s comments, saying his firm was “ready to contribute to the next level of consolidation of markets in Europe to create a deeper liquidity pool to finance the growth of European companies”.
In her speech, Lagarde also urged policymakers to create stability for investors.
“Investment will not step forward if the green transition is clouded by uncertainty – especially if there is also growing pushback against green initiatives in other parts of the world,” she said, referring to the current clampdown on sustainable finance in the US.
“So we must reduce uncertainty where it is possible.”
Lagarde said the EU must stick to its climate targets and maintain a stable carbon price, to uphold the bloc’s credibility and retain the trust of the private sector.
In a letter circulated on Monday, European Commission president, Ursula von der Leyen, promised to revise some of the EU’s green laws – including carbon pricing and targets for forests – in a bid to secure backing for its 2040 emissions-reduction target.
EU leaders are expected to meet on Thursday and Friday, where they will discuss the plans.
Lagarde argued that “wavering” on existing green commitments “would risk chilling investment just when we need it the most”.
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