[36] This emission bias appears to be driven by firms’ underlying issuance behaviour: large firms in carbonintensive sectors are more likely to enter the bond market, which results in the ECB’s CSPP portfolio having a relatively high emission intensity. [37] In greening its asset portfolio, the ECB could pursue several alternative strategies. Some have argued that we should implement outright exclusion policies – also known as negative screening policies – by stopping purchases of bonds issued by polluting sectors. [38] Such policies have the drawback that they would eliminate incentives for firms in carbon-intensive sectors to reduce their greenhouse gas emissions. Another possibility would be to pursue a more sophisticated “tilting strategy” under which the ECB could adjust its monetary policy operations more gradually in line with sustainability considerations. [39] The operational implementation of such a tilting strategy also faces hurdles, for both our private and our public sector purchases. [40] For our private sector asset purchases, a tilting of the ECB’s purchases could, in principle, reduce potential mispricing. [41] Given the still nascent state of the green bond market, tilting towards this particular market may, however, adversely affect market liquidity or unduly influence the price discovery mechanism. Therefore, one could consider tilting strategies that also favour issuers that have a clear path and commitment to reducing their greenhouse gas emissions. Tilting strategies could be performed at the level of sectors, firms or bonds. Considering climate-related criteria in our public sector purchases poses even bigger challenges.

(c)  Increased public and investor confidence  Price stability in a country leads to investor and public confidence in the economy and results in increased foreign capital inflows. As alluded to earlier, a relatively stable exchange rate coupled with low inflation facilitates long-term planning for investors. (d)  Improved external competitiveness  In countries were there is low and stable inflation, exports become competitive and this has often led to the increase in export earnings, thereby improving the Balance of Payments (BoP) and ultimately contributing to accelerated economic growth. In this context, the benefits of a stable currency are clear as noted by Jeff Sachs in the UN’s recent report “A Practical Plan to Achieve the Millennium Development Goals” which states that: “The private sector needs a supportive macroeconomic framework. International and domestic macroeconomic stability minimizes uncertainty for businesses. Businesses cannot buy inputs or sell products internationally when the local currency is unstable against other currencies – or if the country is experiencing high inflation with constant readjustment of prices and loss of confidence” 1 . (e)  Sustained economic growth  Mr Chairman, when a country attains price stability, economic growth on sustained basis is likely to follow. Accelerated economic growth, of at least 8% per year, is a sure way of ensuring that most of the MDGs are attained in our developing countries. This has the positive impact of reducing poverty levels of the people as it increases their disposable incomes and eventually improve their standard of living.