What is certainly true, as I’ve argued throughout this speech, is that such tradeoffs should not exist when the costs of emissions have been effectively internalised, and capital market structures have fully matured. That must be our ultimate goal. The choice of potential investment strategies is a live issue for the Bank of England too, as a market participant in our own right. Most of our asset holdings consist of UK government securities. But 2% of the Bank’s Asset Purchase Facility consists of sterling corporate bonds, acquired as part of the MPC’s quantitative easing programme. As we stated in our TCFD disclosure, the framework for the MPC’s asset purchases is determined by the Committee’s remit given to it by the Chancellor. But, subject to the Government indicating a willingness to update this remit, we will over the coming year be considering how to incorporate climate factors into decisions on the mix of financial assets, whilst still achieving our policy aims. We will have much to learn from the range of approaches already adopted in the private sector. Conclusions So where does this all leave us? One thing is clear: there is a lot to be positive about – capital markets are innovating, and rapidly, in response to the very real rise in demand from clients, businesses, investors and public authorities to take 20  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  20  climate risk and return seriously. And that innovation is beginning to drive some hard-edged price discrimination based on climate risks.

Detailed and standardised reference scenarios are needed for this kind of assessment, such as those being developed by the Network of Central Banks and Supervisors for Greening the Financial system.27  26 27  https://www.bankofengland.co.uk/-/media/boe/files/annual-report/2020/climate-related-financial-disclosure-report-2019-20.pdf https://www.ngfs.net/sites/default/files/medias/documents/820184_ngfs_scenarios_final_version_v6.pdf 11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  Chart 5: Estimate of APF corporate  Chart 6: Alternative warming potential metrics for same  holdings ‘portfolio warming potential’  portfolio  Source: see footnote 26. Source: see footnote 26. Building block 2: capital instruments The second key building block for an effective capital markets infrastructure for trading climate risk is a set of viable capital instruments. As I mentioned earlier, it is not clear a separate climate asset class is needed in steady state: dedicated ‘IT investment bonds’ or ‘physical buildings equity’ are for example pretty rare! But climate-linked instruments can be very helpful on the transition path, to give focus to the need for change, help meet specific investor needs, and provide a credible ‘put your money where your mouth is’ commitment from issuers to deliver on specific projects until more robust and consistent decision useful metrics can be developed. A wide variety of new climate-linked markets have begun or are under discussion, including for example Voluntary Carbon Offsets,28 derivatives products to manage risks in renewable energy29 or green mortgage-backed securities.30 But I want to focus my remarks today on the most prominent example: that of climate-linked, or ‘green’ bonds.