Governments and parliaments, as guardians of the public’s trust, have the necessary legitimacy to set the 1  Mark Carney (2015), Breaking the tragedy of the horizon – climate change and financial stability, speech at Lloyd’s of London, London. Available at: https://www.bis.org/review/r151009a.pdf. 2  Real Instituto Elcano (2019), Los españoles ante el cambio climático. Apoyo ciudadano a los elementos, instrumentos y procesos de una Ley de Cambio Climático y Transición Energética. Available at: http://www.realinstitutoelcano.org/wps/wcm/connect/1c5a8ff2-2533-44bf-b2d6-a0c8053b231a/Informe-Espanolesante-cambio-climatico-sept-2019.pdf?MOD=AJPERES&CACHEID=1c5a8ff2-2533-44bf-b2d6-a0c8053b231a. 3 Real Instituto Elcano (2019), Los españoles ante el cambio climático. Apoyo ciudadano a los elementos, instrumentos y procesos de una Ley de Cambio Climático y Transición Energética. Available at: http://www.realinstitutoelcano.org/wps/wcm/connect/1c5a8ff2-2533-44bf-b2d6-a0c8053b231a/Informe-Espanolesante-cambio-climatico-sept-2019.pdf?MOD=AJPERES&CACHEID=1c5a8ff2-2533-44bf-b2d6-a0c8053b231a. 1  path for this transformation process. And, moreover, they have the most appropriate instruments to make it happen. Specifically, within the ambit of public policy, fiscal policy can and should play a leading role in the management of the transition to a more sustainable economy. Indeed, from the standpoint of economic theory, the origin of the problems associated with climate change is clear: economic agents pursue their activity taking into account only their private benefit or cost, while ignoring the social cost (in this case, environmental) that they generate. As a result, the emission into the atmosphere of greenhouse gases exceeds the socially optimal level. This is what is known in the economic system as a negative externality which needs to be internalised.

In this respect, the Banco de España has already approved the incorporation of sustainability and responsibility criteria into its investment policy for the reserve portfolio it manages. As a result, and taking into account our mandate obligations, we are progressively increasing our holdings of green bonds and, for example, we are one of the founder members of the green investment fund set up by the Bank for International Settlements. Conclusions In conclusion, the challenges associated with climate change require coordinated action, both at international level and at the level of the various different economic policies. Allow me to stress that it is governments who have the legitimacy and are best prepared to lead the process of transformation to a more sustainable economy. Thus, fiscal policy should play a leading role in this process, and also in the measures needed to mitigate the social costs of the transition. In any event, the importance of the financial sector in channelling the enormous funds needed to make the investments required by this transition and to identify the opportunities that may arise in this process is unquestionable. We supervisors and  15  https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200123~0bc778277b.en.html. See B. Couré (2018), “Monetary policy and climate change”, speech at the conference Scaling up Green Finance: The Role of Central Banks, Berlin, 8 November. 16  7  central banks must ensure that financial institutions properly incorporate climate change risks and concentrate on creating the appropriate conditions conducive to the capital flows needed for the transition to a sustainable economy.