But in some circumstances one can do better to approach things the other way round, starting with general credit conditions, examining the interactions of non-bank and bank lending, and then broad money as a (partial) counterpart to M4L. My remarks today will follow that structure, which will provide a framework for some observations about the current tightening in credit conditions, as well as about the preceding expansion. 1  “The transmission mechanism of monetary policy”, a paper by the Monetary Policy Committee at the Bank of England, April 1999 and Harrison R., K. Nikolov, M. Quinn, G. Ramsay, A Scott and R. Thomas, “The Bank of England Quarterly Model”, Bank of England 2005. The Bank’s wider “suite of models” does include richer asset price channels. BIS Review 149/2007  1  Credit Credit is, of course, vital to any economy, enabling households and firms to make choices about whether to bring forward or defer spending from income. There are conditions in which it would play no active role, passively reflecting cyclical fluctuations in output, employment and inflation. In a world of more or less complete transparency between borrowers and lenders, very low transactions costs, and very low risk aversion, access to credit would not be rationed; and ex ante yields on financial assets, including loans and bonds, would not embody risk premia. So if households and firms wanted to bring forward spending in the face of shocks to the economy, they would be able to do so restricted only by their need to remain solvent.

HOW MIGHT CLIMATE RISKS AFFECT INVESTOR PORTFOLIOS? Perhaps the most challenging, pervasive, and enduring of all the risks that the global economy is confronting is climate change. Climate change poses two key risks to investors’ portfolios: First, physical risks arise from the impact of climate hazards on a company’s operations, supply chains and consumer markets. Companies can mitigate this by putting in place adaptation measures through de-risking, re-shoring, and diversification. Second, transition risks arise from the impact of higher carbon prices, stricter environmental standards, shifts in consumer preferences, and advances in lowemissions technologies. This will require transforming carbon-intensive business activities and processes — before regulation bites, competitiveness suffers, and assets become stranded. Assessing portfolio companies’ vulnerabilities to climate change is becoming an integral part of business planning and shareholder engagement. Climate change is already happening. It is no longer a question of ‘whether it will happen’ but ‘how much’ and ‘how fast’. The trajectory of both physical and transition risks is highly uncertain. Global carbon emissions have not peaked. At the same time, commitments towards achieving netzero have never been stronger, foreshadowing stronger policy actions and growing clean energy investments. It is within this wide spectrum of possible outcomes that investors will need to make portfolio allocation decisions. INVESTMENT PIVOTS FOR PORTFOLIO RESILIENCE  Against the backdrop of these four short-term to long-term uncertainties, the overall investment environment has deteriorated. Return prospects are lower, and risks are higher.