European Court of Auditors (2023), “EU supervision of banks’ credit risk – The ECB stepped up its efforts but more is needed to increase assurance that credit risk is properly managed and covered”, Special  Report, No 12/2023. 4. Born, A., Bremus, F., Kastelein, W., Lambert, C. and Martín Fuentes, N. (2022), “A deep dive into risk sharing through the capital channel in the euro area – inter- versus intra-regional risk sharing”, Financial Integration and Structure in the Euro Area, ECB, April. 5. The European Commission estimates that an additional € billion per year of investment (in 2021 prices) is needed on average from 2021 to 2030 for EU Member States to reach their climate objectives. See European Commission (2021), “Impact assessment report accompanying the Proposal for a Renewable Energy Directive II”, Staff Working Document, Brussels, July. 6. See De Haas, R. and Popov, A. (2019), “Finance and carbon emissions”, Working Paper Series, No 2318, ECB, September; and Popov, A. (2020), “Does financial structure affect the carbon footprint of the economy?”, Financial Integration and Structure in the Euro Area, ECB, March. 7. Assets under management of environmental, social and governance funds represent around 10% of the euro area investment fund sector, while the amount of outstanding green bonds constitutes around 3% of outstanding bonds. 8. Born, A., Giuzio, M., Lambert, C., Salakhova, D., Schölermann, H. and Tamburrini, F. (2021), “Towards a green capital markets union: developing sustainable, integrated and resilient European capital markets”, ECB Macroprudential Bulletin, Issue 15, October. 9.

Promisingly, green bonds are roughly twice as likely as other European bonds to be held cross-border[8], and investments in environmental, social and governance funds appear to be more stable than those in conventional funds. [9] This incipient evidence suggests that, with the right regulatory framework in place, scaling up green finance will be beneficial in supporting both the low-carbon transition and financial integration in the euro area. Third, the capital markets union and the banking union are intrinsically linked. More integrated capital markets support cross-border banking activities, while more cross-border holdings would allow banks to diversify, making them more resilient. From issuance to underwriting, banks provide essential services for capital markets. Therefore, a more resilient and integrated banking system also supports the smooth functioning and further integration of capital markets. Key legislative initiatives to advance capital markets integration To move forward on the legislative front, we need to finalise the implementation of the Commission’s capital markets union action plan – without compromising on its ambition. This includes implementing proposals such as the consolidated tape, the targeted harmonisation of insolvency rules and the upcoming initiative on the withholding tax framework. We welcome the recent statement made by the co-legislators in April, in which they committed to finalising CMU legislative initiatives during the current institutional cycle, and the recent agreement on the European Single Access Point. The ESAP will help to mobilise and allocate capital by making it easier for investors to identify suitable firms and projects to invest in.