If $A^2 = B,$ then $(-A)^2 = B.$ This only fails when $A=-A,$ so $A=0,$ but $0$ is "far" from $I.$
Now it comes down to showing that there is such an $A.$ The soft solution is that the map $x\to x^2$ is an open map in a neighborhood $V$ of identity, so its image is onto a neighborhood $U$ of identity.
The "hard" solution is to expand $(I+x)^{\frac12}$ in a power series (by the binomial theorem) and note that the series converges for $\rho(x)$ small. The "even harder" solution is to use the Jordan canonical form to note that $B$ is conjugate to either a diagonal matrix (in which case the solution is obvious) or to an upper triangular matrix, in which case a solution is easy to get.