As the European Union grapples with challenges in its Single Market, calls for deeper capital markets integration have intensified. Enrico Letta’s report “Much More than a Market” has gained significant attention, serving as an unofficial blueprint for the proposed Capital Markets Union (CMU), which aims to enhance EU competitiveness and bridge the green funding gap. However, despite its emphasis on green finance, the report lacks concrete mechanisms to channel the increased capital flow towards necessary green and social investments.

This paper, developed by FEBEA, critiques Letta’s proposal and outlines two sets of recommendations aimed at addressing its shortcomings. The first package introduces five potential allocation mechanisms, such as increasing capital requirements for high-emission investments and implementing ESG criteria for initial public offerings (IPOs). The second package suggests improvements to the EU Taxonomy, including the addition of a definition for transition finance and a stronger social component. FEBEA stresses that without these changes, the CMU risks perpetuating the short-termism that has exacerbated climate change and overlooked social impacts in recent decades.