Hopes that green capital markets could quickly close Europe’s green investment gap are overblown

The Jacques Delors Centre recently published a policy brief by Sebastian Mack. He argues that with key reforms of the Capital Markets Union stalled, the European Green Deal will rely mainly on bank lending. EU policymakers should acknowledge this and shift the focus to greening banks. The Jacques Delors Centre, founded by Jacques Delors in 1996 at the end of his presidency of the European Commission, aims to produce analyses and proposals targeting European decision-makers and a wider audience, and to contribute to the debate on the European Union.

Get your priorities right – Europe must not underestimate the role of banks for the green transition

EU policymakers and the financial sector have placed high hopes in forging a green capital markets union. However, the idea that capital markets could swiftly close the green investment gap ignores underlying financing structures. In Europe, the areas with the biggest funding needs rely on bank loans rather than financial markets and the recent banking turmoil is unlikely to change this. The reliance on banks will not abate any time soon as EU governments are dragging their heels on completing the capital markets union despite repeated promises. Since banks will largely finance the European green deal, the EU should step up its efforts to green the banking system and systematically make climate risks a core element of banking supervision, prudential regulation, and monetary policy.

The full policy brief is available here.

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