Climate risks include the impact of climate change, uncertainty surrounding future climate policy and potential disruptive technologies. 3/6  BIS central bankers' speeches  Expected return and risk are influenced by firms’ response to potential structural changes. That is why many investors require companies to report on climate issues, as has the GPFG. Managing climate risk is part of the systematic work in the area of responsible investment. Financial investors must manage climate risk on a par with other risks. Virtually all economic activities lead to emissions, either directly or from complex production chains. Climate risks are therefore difficult to isolate and quantify, both at firm and sector level. Identifying the winners in the green transition is also a demanding exercise. The financial sector has to adapt to climate risk, but does not have effective tools to contribute to solving the climate problem. Also, it is doubtful whether defining emissions from sectors or individual businesses as unethical will make a difference. The responsibility for measures to combat global warming must rest with the authorities. The solution lies in economic instruments that promote structural change. Structural change generates growth A shift in consumption patterns and production methods towards lower emissions will reduce demand for fossil fuels. This can influence oil and gas activities in Norway. We have always known that oil and gas activities will be phased out sooner or later. Oil and gas are nonrenewable resources. A stricter global climate policy may mean that this will occur sooner than foreseen earlier.

Three explanations are particularly relevant for this cyclical development. First, low or negative output growth like that observed in times of recession together with the associated pessimism about future prospects, all have a negative impact on interest rates. Low growth and excess capacities reduce the anticipated return on capital, thus diminishing the incentives to invest and lowering the demand for funds. At the same time, the lack of confidence depresses demand and increases the level of savings. This combination of low demand and a high supply of funds leads to low interest rates. The low interest rates we currently observe are thus, first and foremost, a natural consequence of the current state of the global economy, characterised by a substantial slowdown of economic activity after the financial crisis and a comparatively weak recovery,  1  For a more detailed description of the “Great Moderation” cf., for instance, Bernanke (2004). 2  Cf. Bernanke (2007). 3  Cf., for instance, Gordon (2012) for a provocative thesis on future productivity and GDP growth and Bloom et al. (2001) for an extensive survey of the impact of demographics on growth. 2  BIS central bankers’ speeches  with marked underutilisation of production factors, notably labour, in many advanced economies (chart 7). Second, as mentioned before, the central banks of most mature economies have also contributed to the current environment of low interest rates. They responded swiftly and decisively to the crisis by first lowering short-term rates practically to zero, then exerting direct pressure on longer rates.