 Welcome, everyone. My name is Minou Shafiq and I'm the director of the London School of Economics and Political Science, and I'm going to chair this event today that's hosted by LSE's Grantham Research Institute on climate change and the environment. We're very pleased to be launching a new report called Net Zero Central Banking, a new phase in greening the financial system, and to welcome an excellent panel of speakers to the LSE who will be discussing the content of that report. We'll hear first from Nick Robbins, who's professor in sustainable finance at the LSE's Grantham Research Institute. Nick leads the sustainable finance research theme and the focus of his work is how to mobilize finance for a just transition, the role of central banks and regulators, and how the financial system can support the restoration of nature. Nick is one of the authors of the report and he'll provide us with a short presentation and overview of its findings. We'll then turn to our panel. First we'll hear from Luis Herrera de Silva, who is the deputy general manager of the Bank for International Settlements. Before being at the BIS, Luis was deputy governor of the Central Bank of Brazil where we worked together for several years and he was there since 2020. Prior to that he had various positions at the World Bank and he also served as chief economist for the Brazilian Ministry of Budget and Planning and as Brazil's deputy finance minister for international affairs. We'll then turn to Sarah Breeden, who's the executive director of the UK deposit taker supervision at the Bank of England. She is responsible for the supervision of the UK's banks, building societies and credit unions, someone else who I had the pleasure of working with before, and she has oversight of the bank's work enhancing the financial systems resilience to climate change, and is leading to the financial work stream for the network of central banks and supervisors for greening the financial system. And then finally, we'll hear from Ulrich Volts, who is one of the authors of the report, and who's a reader of economics at SOAS, the University of London, and director of SOAS Center for Sustainable Finance. He's also a senior research fellow at the German Development Institute and honorary professor at Leipzig. He's worked extensively on central banking and climate change, including on questions of sovereign debt and risk. The report that Nick and Ulrich are presenting today comes at a critical time, obviously in the run up to COP26 and the climate summit summit, which will happen this November. The moment when many of the major central banks are thinking about how to embark on a new stage of greening the financial system and thinking through what their role should be in that. A good example of that is in the UK, where for the first time, the government included the net zero transition as a government priority in the remit letters for the Bank of England's financial and monetary policy committees. And that of course resulted in the bank responding that it would try to take action in its corporate bond purchase scheme to account for the impact of climate. So action is already being taken on many fronts and it provides an important example of how monetary authorities are beginning to think about net zero policies. Today, we'll discuss these issues, as well as the implications for other central banks around the world, drawing on the findings of the report. But first, let's hear from Nick on the report. Just a small footnote for those who are Twitter users. The hashtag for today's event is hashtag LLC biodiversity. This event is being recorded and will be made available as a podcast. So let me now turn to Nick and just a reminder. If you have questions will be using the Q&A function at the bottom of your screen. Questions will be submitted. And I will ask them on your behalf. Please do tell us your name, affiliation and location since we've got participants from all over the world. And now I'm delighted to hand over to Nick. Well, thank you so much, Manush. Thank you so much for sharing this and thanks for the introduction and thanks to all of you who are joining us today. I'm going to share a few slides, so please bear with me while I share my screen. Right. So, thank you so much, Manush, again, and I'm really pleased to be able to give you some of the highlights from this report, which I co-authored with my colleague at Grantham, Simon Dickhauer and also with Ulrich Volts, who you'll hear from in a few minutes. What I'm going to do in the next few moments is just set out the key findings and our recommendations. So here we go. Our key finding from this report is that as guardians of the financial system, central banks and financial supervisors need to introduce explicit strategies to support net zero. So how did we come to this conclusion? We know that there is a race to net zero finance going on. We started first with the science and the recommendation from the international panel climate change that to limit global warming to 25 degrees Celsius above pre-industrial levels. We need to cut greenhouse gas that's happened outside emissions by about 45% from 2010 levels by the end of this decade, 2030, and then reach net zero around 2550. Clearly, this will require huge policy action to achieve. And we're seeing a number of countries taking the lead. The UK was the first G20 country to set a net zero target for 2050. Many others are following around 127 countries responsible about 60% of emissions have now adopted or planning to adopt net zero targets. China has come through with the 2060 targets. President Biden is indicating he will adopt that as well, and also indications and only the last few days from India as well. So policy signals clearly have to be translated into into action. So those those policy signals are now coming. We're going to need to mobilize huge amounts of finance to this reallocate capital from high carbon to net zero investments. So we have movement as well within the financial sector. We have asset owners pension funds, insurance firms without five trillion assets, setting net zero targets, banks with a further 15 trillion in assets also setting net zero in 2050, and then asset managers as well with around nine trillion in assets also committing to net zero by 2050. So the question we were trying to ask in this report is, we're seeing movement from market players, what is the role then for financial and monetary authorities. So clearly central banks and supervisors over the last few years have increasingly incorporated climate change into their prudential are now into monetary policies. So why do we suggest that a more explicit stunts on net zero is now required, and we identified a dual rationale for taking action. The core financial stability mandate for central banks and supervisors, and that's net zero is really the best way of minimizing risks of climate change to the stability of the system and the macro economy. As we go beyond 1.5 degrees Celsius of warming, the ability of authorities to keep the stability of the system will be impaired, and that could threaten the functioning of the financial system systems and clearly financial stability is the core rationale, but then there's also this the second rationale, which is policy coherence and the importance to ensure that their activities as central banks and supervisors are consistent with government net zero policy that which is increasing around the world, particularly in those countries where there is an explicit secondary mandate, for example, within the European Union, where the ECB is required to support the economic policies of the of the European Union, where that doesn't prejudice its primary mandate of price stability. So these are the two core reasons and we believe that taking a clear stance on net zero is important it will provide clarity to the market, predictability to market actors, and also help to ensure integrity across the system, as we see more and more of a net zero and a need to ensure that these commitments are robust. As Manush pointed out earlier, we're starting to see signs of alignment to net zero emerging from central banks and supervisors and a most recent example in the UK was at the time of the budget, the sector sent remit letters both to the monetary and financial policy committees the Bank of England, restating its economic policy, and including that this now incorporated the transition to an environmentally sustainable resilient zero economy, and the response from the Bank of England that it will now be exploring how it will provide more information on adjusting its corporate bond purchase scheme to account for climate impact of the issuers of the bonds it holds. I'm sure Sarah will touch on that in her remarks, this I think is one example, we're seeing other examples and I, we expect more, more statements like this maybe another parts of policy in the coming weeks and months. So those are those are sort of I suppose the first signs of a net zero banking spring central banking spring. What would this look like if this became a reality in terms of core practices by these by these institutions. We believe it's important to take a comprehensive approach we've identified seven recommendations and I'm sure you can't read these in very small types I'm just going to go through the seven recommendations in one by one. The first recommendation is one of strategy important for central banks and supervisors to be clear to the market about their policy, and we recommend that they need to develop a net zero roadmap with both sort of long term expectations, and also near term actions to be close liaison and coordination with policymakers is going to be crucial. And I think an important role here for these central banks to provide independent advice to government policymakers about how best to align the financial system with the net zero market. So strategy is the is the starting point. The second then is is prudential policy both at the micro level looking at particular institutions, but also the macro prudential level looking at the stability of the system as a whole. And here we suggest it's important to align expectations of supervisors, and particularly one recommendation to require all regulated financial institutions to submit net zero transition plans to ensure that they are going to be increasingly aligned with the net zero target to do this will need to upgrade the task force climate related financial disclosures recommendations to give this particular guidance around net zero and that's something that is already underway. So here are scenarios, we need to be forward looking about the way we address climate change. And one suggestion we make is that we need to adjust long term scenarios become more consistent with the net zero pathway 1.5 degrees Celsius, and also complement these with sort of shorter term outlooks, not least because much of the investment to achieve net zero needs to be front loaded, particularly this decade and early the following decade. Another recommendation around monetary policy we we saw an example of that from the UK, just a few moments ago. And here again, the recommendation is to integrate at zero targets into policy frameworks and also into monetary operations, including collateral refinancing and purchase programs, and perhaps that could be done by requiring corporate issues to have credible net zero plans something that shareholders are asking all the companies they own, and this would provide a forward looking signals to companies about access to central bank operations, if they develop these credible plans, fifth area portfolio management which flows from this a number of central banks are now adopting responsible investment policies. And we suggest that these should include a net zero target and plan to achieve it just like other asset owners. And I think the work that the bond to France has been doing here is probably at the leading leading example in terms of portfolio Then the issue of the just transition in terms of ensuring that the transition to a net zero economy does not leave communities behind clearly this is a primary role for government policy, in terms of regional policy training policy etc in But there potentially could be a role for central banks. Also, and we suggest that stress test results potentially could be used to explore the implications of net zero for jobs and regions, particularly to identify concentration risk that might be building up in high sectors. And finally international cooperation net zero is a global goal and global commitment under the Paris agreement, and it is important that not just individual institutions of the national level take account of this, but also this becomes an area for international cooperation within the IMF. For example, the article for process the FSB BIS and I'm sure Luis will give us his his ideas there. Insurance supervisors security supervisors, and also the network for greening the financial system the premium body for encouraging action by by central banks and supervisors. There's a particular need I think for partnerships to support authorities in developing and emerging economies. So those are our recommendations and I'll just close with a few remarks. We're starting to see signals of recognition from central banks and bringing in action to align their activities with net zero clearly each central bank and supervisor needs to develop their own approach based on their mandate. We believe that no formal change in mandates is needed but clarification will obviously be helpful, as has happened in the UK, and also particularly clarification around sort of key principles, such as market neutrality. In terms of our work are we will be applying this framework in a paper in the coming months to the EU and particularly to the euro system. And I think now, as you were suggesting the beginning manouche in the run up to COP26. This is the moment really for central banks and supervisors to start really to set out how they support the transition to a net zero financial system and economy. So I'm going to stop there manouche and stop sharing my screen and hand back to you. Thank you very much. Very good. Thank you very much Nick and now turn to Luis for his reactions. And you're on mute please. Thank you very much. Thank you very much, Nick for this very thoughtful presentation and very comprehensive report. You are absolutely right in saying that the key here is the implementation of policies according to central bank mandates. I just want to say that I'm speaking here on the personal capacity. Of course, the order of implementation depends on the way in which governments commit themselves to a carbon neutral objective. And the good news is that increasingly as you point out, a great number of countries have been embracing the goal actually. It's about the countries you mentioned 113 countries that have committed explicitly represent over 50% of the world's GDP. So my let me make three points on commenting this very thoughtful report about the effectiveness in the implementation of these policies. I think the delicate point is about the political economy of this transition. Obviously, when you embrace an ambitious goal of carbon zero, who is going to be the leading force to transform your financial sector. Actually, many private and private sector entities are leading the path. And in some cases, the official sector is almost lagging behind. So, can central banks contribute to the goal, I think absolutely yes, but there is a delicate balance in terms of the interpretation of some of the current mandates that central banks have. Of course, nobody saying that they are ignorant of the risks related to climate change. I think you pointed out that today in the community, there is almost unanimity to address the risk but the how is is what is still in debate. For example, because of perhaps doing too much being a threat to their current mandates. Now there is many things that, as you point out, in order to reach carbon neutrality central banks can do within their mandates, let me list one that perhaps we at the BIS emphasize in our last publication last year. The book called the Greens one. It's the mindset about risks within their mandates. I think central banks can can show that risks related to climate change are much more complicated than we thought. Even a few years ago, that the approach has to take into account uncertainty has to take into account nonlinearity and there is an intertwin the risks between not only climate change but also biodiversity and the current version of so noses that is hitting us through a pandemic so these these the way in which central banks can lead the idea of changing risk models and changes the perceptions that we have about these global negative externalities would be already a very good contribution to move the financial sector towards impacting on these risks and acting towards carbon neutrality. A second observation that perhaps is in the report when you talk about regions and jobs, but I think could be perhaps emphasize a bit more is the redistributive impact of both climate change and also itself, and also this is to combat the global war. Even if central banks lead the action towards carbon neutrality, and they can certainly influence the financial sector. There will be as we know, heavy costs to adaptation and mitigations. We know that the transition is likely to hit more the poor in rich countries and poor countries in in the world. So if we move to carbon neutrality we also need to have and this has to do with somehow your analysis Nick about jobs and about international cooperation. We need to think about the way in which all these good policies that will be put in place will have redistributive implications, the poor again in rich countries and poor countries so what kind of compensatory transfers what kind of policies we need to think about. Finally, third observation, the growth impact of what these policies will imply in the transition and in the mitigation this has to do also with redistribution. But it's more perhaps about the narrative, the perception that you need to find a way in which the policies that will be putting plates towards carbon neutrality are somehow in a scenario based analysis and I'm sure that Sarah will be talking about that when she talks about maybe scenario analysis, there could be scenarios that are at the same time compatible with carbon neutrality, but could be also gross enhancing. So how could these scenarios be constructed. Well, you have to look at what will be the best set of policies that will combine the incentives to more research the incentives to alternative sources of energies. This is the best studies that we have about, for example, fiscal multipliers associated with green recoveries I'm referring for example to the study by by Nick Stern and Joe Stiglitz precisely listing what are these kinds of policies that can combine past towards carbon neutrality and at the same time, gross enhancing set of policies. So, in other words, and just to finish, I guess, if you combine a good political economy setup for the transition where central banks can certainly play a role. A good analysis of redistributive impacts of these policies and at the same time a good narrative about gross central banks in a coordinating role within their mandates and respecting the the commitments that they have within their jurisdictions can certainly do a lot to sort of make sure that this is clearly set up to societies and that they can then contribute to carbon neutrality with their governments. Thank you. I stop here. Thank you so much, Louise. Let me now turn to Sarah. Thanks. A great presentation and a great report Nick. Some great challenges for us as central banks. And I expect a great debate from here. So thank you very much for inviting me. I'm going to try and cover three things in my brief remarks. Firstly, what I think of your rationale for action. Secondly, my views on the recommendations and a brief canter through some of the work we're doing at the Bank of England. And then thirdly, some challenges as we look ahead on the rationale you won't be surprised to hear that I support the rationale that you set out in your report for central banks to be focused on net zero. Because as you say, the sooner we start the smoother the path to net zero. And so the fewer economic costs and financial risks that we will incur and that we care about as central banks along the way. But it's also because we can act in a way that's coherent with government policy as you said Nick and as Manush you said that's very real for the Bank of England right now as of the budget. So both the FPC and importantly also the NPC our monetary policy committee have been given as part of their remits and expectation to have regard to the transition to net zero. The government has said that it expects to give the prudential regulation committee the same of have regard to. And indeed there's a debate going on in the House of Lords right now as to whether the law to bring in Basel 3.1 in the UK should have regard to net zero as well. So it's clear that we should think about net zero as we go about doing our central banking jobs the interesting questions are then how do we go about doing it. Let me pick up on a couple of your recommendations there. I absolutely agree with the importance of strategy. We published our strategy in the Bank of England's very first TCFD report last year where we became the first central bank ever to cover the entirety of our operations. As a corporate when we print banknotes when we used to fly around the world when we heat our buildings but also our entire balance sheet including our monetary operations. The process to get there was absolutely key because it had the entirety of the institution its most senior individuals talking about what did climate change mean for the entirety of our operations and what we were going what were we going to do on the back of that. And reflecting the innovation in that report I'm thrilled to say that on Monday we won the Central Bank Green Initiative Award for our work, all of which is just to underline the importance of strategy. I wanted to stress to the importance of the prudential regulation measures. As you said Nick transition to net zero is going to require billions in a UK context and trillions globally. And so if we focus on the financial system and ensure the financial system is playing its part in supporting that orderly transition to net zero, that will be a key contribution we can make. In my view if there's a single thing that we can do to support net zero, it's to make sure that the financial system is taking net zero into account and bringing its trillions to the table to support that transition. That's about the safety and soundness of the firms that we supervise we introduced expectations for them back in April 2019. And we set an expectation that those are embedded in all of those firms by the end of this year. But it's also about scenario analysis and what's happening at the level of the system, as we'll be judging through the forthcoming climate best our exploratory scenario which is well in hand and due to be launched in June. That's really tough analytically. We need multiple scenarios because we don't know what will happen. We need to look decades ahead because that's the relevant horizon to drive action today. We need coherent scenarios that describe climate outcomes, policy outcomes, macroeconomic outcomes and financial risk, and we need the outcomes to be modeled granularly bottom up. So that is a really tough ask. We also though need to think about how we manage our own balance sheet and as you said we said that we will set out how we are going to manage our own balance sheet and in particular our corporate bond portfolio, given our new mandate to have regards to net zero in our monetary policy operations. Now let me emphasize that portfolio is small. It's 20 billion pounds. It is the cherry on top of the icing on top of the cake that is the global financial system at best. But what we're doing as we think about that is trying to develop an approach that if it were applied across the financial system as a whole, if we led by example, it would drive the outcomes that we wish to see. So it's not enough just to buy green. We need to support the economy wide transition to net zero. That of course is easier said than done. Let me end then with three challenges as we look ahead. And it picks up Nick and Lewis on points that you mentioned. We obviously need to liaise closely closely with government policymakers as we plot our course from here. A central bank's work becomes much clearer and much easier if we have sectoral paths for the real economy and forward climate policy. Without that we are in danger of being backseat drivers and that risks undermining the work that we can do in this space and should be avoided at all costs. We must be a compliment, a catalyst and an amplifier and not a substitute for wider policy action. Second challenge, the data and analytical foundations on which we're building this work need strengthening. We don't have a how to guide for modelling and managing this new set of issues. Our models and our methodologies are incomplete and inadequate, the granular and forward looking data we need is missing and yet we need to act now. The authorities have got a role to play in bringing forward that greater solid analytical foundations, but we need everybody's help on that challenge too and I fully expect the LSE to rise to it. And then finally we need to work together internationally if we're to solve this challenge. There's a whole load of activity happening here, the NGFS, the G7, the G20, the FSB, the BCBS, the IAIS, IOSCO and of course COP26. And there's a tough balancing act here between the need for international coordination and the need for urgent action because as we all know international coordination takes time. We'll do our very best to manage that challenge, but it isn't going to be easy. Minouche, back to you. Thank you so much Sarah for sharing the cold face with us and what it looks like actually trying to implement this. Let's turn to Ori. Thank you very much Minouche and it's really a great pleasure and privilege to discuss our new report in such an esteemed company and Sarah and Louise have really made excellent points. I'd like to highlight two issues, two points that we make in the report that I think are really important and that also resonate very well with what Louise and Sarah just said. So the first is the importance of double materiality, which is really gaining a lot of traction now in financial decision making. Double materiality basically means that financial institutions and that has to include central banks need to understand and manage not only the risks that environmental factors pose for for their own balance sheets and operations but also the risk that their activities create in terms of intensifying climate change. And this is highly relevant for the way in which monetary and financial authorities should consider their role in achieving that zero. So clearly in terms of monetary policy operations, central banks need to take care to avoid providing liquidity to sectors that actually have to shrink as part of the transition. This is certainly not easy, but Nick highlighted that one way would be to demand credible net zero transition plans from the various actors and this can then be taken into account by public authorities. And failing to take carbon risk into account on central bank balance sheets is not only then a risk in the balance sheet of the central bank, but it could reverberate back in the future. The second point and very related is the importance of realizing that the actions but also very much the inaction of central banks and supervisors will have very profound implications on the expectations and the behavior of financial markets. By what central banks do or what they don't do, they can and do shape markets. And that is a really important point. Because markets respond to signals from central banks and Lewis I think had a very important point about central banks ability to shape how financial actors think about risk, and that is really crucial. And so, in our net zero context, the seriousness of intent with which central banks pursue net zero targets and set out clear net zero strategies will have very profound impact on how financial markets will will develop. So this will have impact on capital formation, and will actually cause a lot of kind of lock in the facts. So there is a great past dependency on policy signals coming now from central banks from supervisors. We need to make sure that these are the right policy signals so that these incentivize the right kind of behaviors to make sure that we can achieve net zero. And so, I would very much agree that the, what Sarah said, it's the, you know, trying to move financial markets in the right direction. You know, people always like to talk about green QE and all these kind of things. This is not really what what net zero central banking is about. Is it about setting a very clear pass for each and every actor in the financial system to align with net zero transition pass. So, some of the ideas we present in this report are still fairly high level. Nick Simon and I are currently working as Nick mentioned on kind of a deeper analysis for the European context and as you know, the European Central Bank had its strategic review so it is important and a great opportunity to feed into that one. We're also looking at emerging economies developing economies, because they also have to find their pathway to net zero and central banks and supervisors there also have to be part of that story. Let me finish here and thanks a lot. Now the questions are starting to pour in so let me get started. The first one I think I'm going to point in the direction of either Louisa and Nick which is from Tracy Zalk. An issue with net zero is that it's framed from the perspective of in country emissions, and this can lead to offshoring of emissions. On a global basis that would likely lead to missing total emissions targets as well as further inequality. The advantage of net zero initiatives in the financial sector is that because it's at a portfolio level. They don't need to be constrained by the framing of in country emissions. Are you highlighting this or agree with this as a need as a need for focus so that global total emissions remain within a sustainable level. I think that's a very good observation and I think that's where I think if you look at the evolution of net zero policies, both coming through the moment on a voluntary basis by by banks, a large international bank registered in the UK will be thinking about net zero not just for its loan book in the UK but also in China in India in the USA, and so on so I think having that global aspect particularly for sort of financial systems which are highly international the UK. And also other other European countries, the US and so on, that will be by nature will have broad international implications so I think that's a very profound point and one worth taking forward and particularly then thinking through what that means for international frameworks as as you start thinking about that coordination across boundaries. Thank you. I think it's a great way to bring in countries who haven't yet made net zero commitments into the frame through through their financial systems. Let me turn to a question, which I think I might start with Nick, but any others can join in my Clark at area advisory, or it says, does net zero place too much focus on mitigation, suggesting we need to start to refer to net zero plus, which is adaptation, very necessary, not a mitigation failure, so that adaptation gets equal attention. The just transition requires net zero plus I suggest. Kate or Ulrich, did you want to come in on that or Sarah wants to kind of do. Maybe I'll take Sarah and all right. So one of the things that we've been really keen to do in the scenario analysis that we've been doing in the NGFS and more broadly is make sure that we don't just focus either on physical risks or transition risks, but that we take both into account because that is the world that we are going to face and therefore the ones that we need to take our decisions in. So our aim in the scenario analysis that we're undertaking that I described earlier is to get the banks and the insurers that participate in it to look at the physical risks and the transition risks in each of the three scenarios so one where we carry on our current emissions curve to where we get to net zero one in an orderly way one where action comes late and in all of those physical risks is key and we will be expecting there to be a focus on what needs to happen to take account of those physical risks as well. So certainly in how we're thinking about it, we're thinking about this whole economy, not just in the UK but more broadly and physical and transition risks together. Alright, you wanted to add something. Yeah, so I very much agree that adaptation is not getting enough attention so adaptation is really a very crucial part and we've actually published in October report on climate change and southern risk where we show how both physical and economic impacts can have quite dramatic impacts on micro financial stability and we have also shown and the RMF has also followed up on that that these risks also increase the cost of capital. And so there's a very strong rationale for governments and certainly also central banks and supervisors to, first of all, identify these risks and really try to push adaptation as much as possible to mitigate and better management. And then there's an important role for finance ministries but certainly also for central banks and supervisors. So yes indeed in net zero there is net. So I think we should pay attention to the fact that by also providing a strategy for adaptation, which for example mean looking at what sort of investment in alternative sources of energy can be be undertaken by by other actors in society what type of research, and this has to do with the capacity also as I was saying previously you can generate a growth pass in the strategy towards net zero so there are a number of things. I think for example of massive research efforts towards carbon capture. We know that the budget is is there by the IPCC 420 gigaton so the efforts towards sticking to this budget has to do with both the strategy for mitigation, which is the example that Nick Sarah and Rick mentioned where central banks can play a very important role, but also towards the having investment strategies that could be public and private sector that would create a new capacities to absorb and also new research and new alternative sources of energy that would transform our environment as well. Thank you. Let me turn to the next question from Hugh Miller who's an LSE msc student and it's for Sarah. You've previously mentioned that any changes to credential measures ought to be risk based in order to be appropriate. However, it's difficult to quantify transition risks based on historical data. Do you think it's most appropriate to incorporate these risks into the prudential regime. Is there any specific policy which in your view is most appropriate to help mitigate these risks and facilitate a smooth transition. And are you in favor of forward looking disclosure over a carbon taxonomy to identify and assess these risks and banks exposure. Great question. And I think you're right to think about the prudential regime operating at different levels. The pillar three regime as we call it is the disclosure regime, disclosing forward looking assessments of the risk in financial transactions portfolios is absolutely key. Certainly think that the prudential regime should bring that in and thinking about transition taxonomies, which firms assets are on the way to net zero which are not is an important part of that regime. The second thing we can look to do is to use our pillar two regime which tries to think about which institutions are doing a good job and a bad job of managing this risk, which institutions are particularly exposed to this risk and we can, if appropriate, introduce extra capital requirements to compensate for that risk. You can work out who is using forward carbon prices in their credit assessment processes and who is not and that'll give you a pretty good sense of who is dealing with this risk in a in a good way and you can think about whose asset portfolios are perhaps particularly exposed to companies or geographies that are susceptible to these risks. But the Nirvana here is if we could incorporate this in our pillar one regime at an individual asset level so that we can have a sense of of using the capital regime as a price incentive to get the right sorts of decisions made in the financial system for that to happen. That's where you need the government policy. If we had sectoral paths for what the real economy transition looks like we could incorporate that into our regime if we have a forward price for carbon, we can incorporate that into our regime. That's where it goes back to the point that I think all of us have made that central banks and the prudential regime have got an important role to play, but it's a compliment not a substitute and it can be a really powerful catalyst and amplifier of the government policy on change in the real economy. The question could be for any of the panel actually but probably possibly Sarah as well from Katie Kedwood at the UCL Institute for innovation and public purpose. And the question is, I'd like to congratulate the BEO Bank of England on taking leading steps to decarbonize. As Sarah noted this, this is a very sorry to decarbonize the corporate bond scheme. I feel a bit proprietary about because it's. You remember that created it. Yeah, as Sarah noted this is a very small portfolio. Will the bank extend the same climate aligned eligibility criteria as it develop it develop it develops for asset purchases to apply also to the collateral framework. The rationale for doing so is identical prudential risk management, but it would have a much bigger impact if it was part of the collateral framework. We're starting to do that, even now. So, in order to borrow from us as minutiae will remember from when she was the deputy governor responsible individual institutions have got to provide relevant information to us about how they risk the collateral that they give to us and already we're asking them to explain to us how they manage the climate risks in their collateral. And that will be something that we will build on from here and gain the same sort of issues arise as I as I talked about in response to the previous question you can relatively easily identify which firms are doing a good job and doing a bad job of managing climate related risks. It's much harder to look at it at the individual level. The individual asset absence, the sectoral and forward climate policy from from government. And that's where again I would hope that working together with finance ministries we may be able to have an even greater impact but it is definitely the case that we're thinking about it in respect of the collateral we take, as well as the assets that we take as part of QE. But just, like I say, let's just remember this is hard to do absent the transition path from government. I mean I guess I just have to ask a question here which is the doctrine of market neutrality, which is so central to central banking, both in terms of asset purchases and collateral, where you don't want to distort the market with other policy priorities. I just would love to hear any of the panel speak to the question how do you get your head around the market neutrality debate. And also the tricky question of our central bank tools the best tools to achieve these objectives. Who would like to take that one Nick do you want to start. So the market neutrality is very useful and necessary guide but clearly we're operating in situation of market failures, we have pervasive market failures and this is the problem of plant chains that market prices aren't reflecting the costs of carbon pollution. Clearly, one way of doing that is we need real economy policy carbon pricing, clean energy policies and all that. And we also know that many of the ways in which asset asset prices are developed to also do not include climate risks and carbon risks. So, so I think market neutrality, yes, but we need to think about how it takes account of that market failure, and how we can sort of address some of the carbon bias that therefore results in a sense, the current sort of traditional interpretation of market neutrality almost automatically generates a carbon bias. And so I think it's reflecting that the sort of the principle is right, but it needs to be updated to take account of that that market failure. You want to come in. Let's just build on that. I think the, the point about missing markets is, is spot on so the challenge that we are trying to set ourselves and will will share as once our thinking is a little bit further developed is how do we create a climate neutral market benchmark climate friendly market neutrality. It's easier said than than done. But we are, we're putting our very best brains to it, but I did want to come back to your point, minutiae about the danger of overreach and being seen to be a backseat driver here and trying to manage that balance between leading by example, in the way that we want the financial system to behave and having a climate friendly approach to investment, whilst at the same time not being accused of being an unelected set of technocrats who are determining the path to net zero, which is rightly the responsibility of elected officials getting that balance right is is going to be tough. We'll try. You wanted to come in. Yeah, market failures are kind of market neutrality is one of my favorite topics. And in that context I always like to quote Nick Stern, who famously called climate change the greatest market failure ever. I think it, you know, it is undisputed that climate risks are absolutely insufficiently calculated and priced by the market and so if central banks take current markets as a guide, they are basically just perpetuating this big market failure. And the point that Louise made about you know, people need to get the analysis of these risks right. You know this is so important and therefore the central bank cannot rely on markets which for the time being, by and large don't get it right to do that. So, and I would again like to emphasize the market shaping role of central banks. This is, I think, such a crucial point. So, central banks don't need to undertake industrial policy, there clearly is a very important role for for governments for doing that. They should not be constraining themselves to a concept that are completely out of date in this context. I'm going to throw in a related question and then I'll come to Louise and back to Sarah from Ivan failure senior economist at the Bank of Italy, who argues that monetary and macro prudential policies might indeed play a role in tackling climate change, but it should be clear that they, what they can do with these tools is limited compared to what governments can do with the instruments at their disposal. So monetary policy shouldn't be used as an excuse to justify inaction by governments on climate change. So just to add that to the mix, Louise and Sarah. So indeed, I think what Ulrich was saying is, is very important the risk approach is changing, and it's changing in many dimensions, and it's still in the balance towards carbon neutrality progressively. So it's, it's a long process where you have a combination of changing preferences in civil society, putting pressure on many actors, including central banks, the financial sector, asset managers, the capacity of major actors such as central banks to point to these very different types of risks that climate change bring bring to us is an important contribution to make these changes in relative costs that people perceive are more legitimate when you impose out of the blue a taxation on something that is not environmental friendly. It's different than now being perceived as something that society accepts increasingly because of their perception of the dangers of climate change. We had an illustration of the way in which the pandemic, which people now begin associating to the loss of biodiversity, the relationship with climate change is convincing more and more segments large segments in society of the need to take action on climate change. So I see all this as many changes in perceptions in risk in the dangers that climate change brings to us as contributing factors to these these goals where Ivan is correct. It's not a single actor that has a silver bullet to this process. There are many important contributions that in a coordinated way will progressively move us towards at the same time repricing of this externality, and at the same time, a change in our individual corporate financial behavior, which would enable us to move towards net zero. So it's a combination of these various moves by various actors. And, and to be honest, personally, I think it's going to be a bit messy. But that's the way it is. And you will have back and forth. But if we manage to move in the right direction, even with some of these not necessarily fully perfect behaviors, then we will be making making progress. Sarah, you wanted to come in and then I will turn to Ulrich and Nick just for any final thoughts that they might want to add from based on the report. Sarah. Thanks, Minouche. I really do think that is all about system wide change. We are an important part of that change. We are not the only part of that change that we can catalyze we can amplify, and we can complement. But we need wider policy action to that is not to diminish our role. It is just to set it in context. Very good point. Ulrich, and then I'll give Nick the last word. I actually very much like Sarah's framing of complementing catalyzing and amplifying that change. But also the emphasis that central bank supervisors do have a key role. And by emphasizing that one is in no way diminishing the role that has to be played by governments but central banks alone won't be able to really change things but governments without having central bank policies supervisory policy aligned won't really do the trick either. And this is why in the report we emphasize so much the importance for central banks and supervisors to align their policy their strategies with government let net zero policies. And I'd like to thank everyone so much was really great to have all these great comments and discussion. Thank you, Nick. Well thanks for me and I think we have a sort of not just a double helix but maybe a quadruple helix of these things moving together clearly government policy, financial market operations, civil society, but also central banks and supervisors and if we have those things working together, then I think we're going to get the system back to the human issue we need so thanks again for all the comments. Great thanks so much back to you. Okay, thank you very much. Well we've still got about 38 questions coming in so you can see there's a huge amount of interest but I think it reflects the fact that we are at a big transitional moment. And there's huge interest and curiosity about how to do this. One of those policy lessons that when you want to move big things you have to pull many policy levers, and central banks have an important role to play as part of this big thing that we need to get done. So, thank you so much to this fantastic panel, I really brought insight and and a real sense of issues that are very topical that are being figured out as we speak. And so the report is timely and I hope you all enjoy it it's available on the chat it's available on the LSE website. And I hope you found this event enjoyable and please do come back for other LSE events in future. Thank you to the panel again and thank you to the audience. Thank you. Thank you. Bye bye.