BIS central bankers’ speeches  1  We need to build a new system – one that delivers sustainable investment flows, based on both resilient market-based, and robust bank-based, finance. We need finance for the long term. We need a financial system that is F-A-I-R: that is Fair, Aligned, Inclusive and Resilient. Let me expand briefly on each, beginning with fairness itself. (i)  Fair  The twin crises of solvency and legitimacy undermined trust in market mechanisms and the effectiveness of the financial system. Banks were undercapitalised, mismanaged and operated in a privileged heads-I-win-tails-you-lose bubble. In parallel, there was widespread rigging of some markets for personal gain. By replacing such implicit privilege with the full discipline of the market, social capital is now being rebuilt and economic dynamism restored. G20 leaders have endorsed a wide range of measures to end too-big-to-fail in banking. The Financial Stability Board 6 is now working on a series of initiatives to make the system more fair and effective, including examining governance and compensation arrangements to ensure they promote good, and punish bad, behaviour. 7 In the UK, authorities are pursuing reforms that will increase individual accountability, particularly in wholesale financial markets. 8 Such initiatives are beginning to turn the tide of ethical drift which has plagued the system and would hold back the SDGs if left unchecked. (ii)  Aligned  Aligning incentives will increase finance’s potential to support the SDGs. Alignment requires transparency. Consider the example of climate change.

At present, with less than one percent of outstanding bonds globally being “green”, the G20 is considering initiatives to catalyse this market, including: • Developing a “term sheet” of internationally recognised standardised terms and conditions to make issuance more efficient; • Creating voluntary certification and validation frameworks to give certainty to issuers and investors that a project is “green”; • Integrating environmental risk and green certification into credit ratings; • Developing green bond indices to unlock the potential power of passively managed investments; • Standardising and harmonising principles for green bond listings to promote resilient and efficient trading and adequate liquidity; and  10  The IPCC estimates that additional investment of $ is required annually in the energy sector alone if the rise in average global temperature is to be capped at 2C. www.ipcc.ch/report/ar5/ Mercer estimates that additional cumulative investment in efficiency improvements, renewable energy, biofuels and nuclear, and carbon capture and storage could be in the range of $ trillion by 2030. www.mercer.com/insights/point/2014/climate-change-scenarios-implications-for-strategic-asset-allocation.html  11  See the Task Force on Climate-related Financial Disclosures “Phase 1 Report and Public Consultation” available at www.fsb-tcfd.org/phase1report/  BIS central bankers’ speeches  3  Evaluating mechanisms for consistent, transparent dispute resolution processes. •  We all know the paradox that, as climate risks are a function of cumulative emissions, earlier action will mean less costly adjustment. Better climate disclosure and an effective green bond market will mean more investment with foresight and less regret in hindsight.