Fiscal policy has been, and remains, the most appropriate tool to act in this setting, since it has the instruments to achieve this objective with targeted actions that are suited to a shock whose duration is uncertain and heterogeneous. The response of European governments, mainly centred on measures to support the income of households and firms, has generally been very forceful and, on this occasion, was also backed by unprecedented joint action, especially following the approval of the European recovery programme Next Generation EU by the European Council. 1  For its part, monetary policy also needed to act, and has acted, very forcefully. Indeed, the pandemic-induced economic shock was initially accompanied by a sharp tightening of financing conditions in the euro area. As various governments announced plans to contain the virus, financial markets began to factor in heavy declines in economic activity and an increase in public and private debt. This pushed up interest rates in the sovereign and corporate debt markets, a situation which could have amplified the fall in aggregate demand and, therefore, in inflation had it not been addressed in time. Moreover, the initial phase of the COVID-19 crisis did not affect all euro area countries evenly, but asymmetrically. Some countries, such as Italy and Spain, which already had relatively high levels of public debt, were hit harder by the first wave of the virus, both epidemiologically and in terms of their reliance on more vulnerable industries (for example, tourism). As a result, borrowing costs rose much more markedly in these countries.

28  See in particular the recently launched Task Force on Scaling Voluntary Carbon Markets: https://www.iif.com/tsvcm/MainPage/Publications/ID/4061/Private-Sector-Voluntary-Carbon-Markets-Taskforce-Established-to-Help-Meet-Climate-Goals 29 See discussion in the CFTC’s report on Managing Climate Risks in the U.S. Financial System: https://www.cftc.gov/PressRoom/PressReleases/8234-20 30 Fannie Mae is currently the world’s largest issuer of green MBS: https://multifamily.fanniemae.com/media/8616/display 12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  Green bonds come in different flavours, illustrated in Chart 7. The dominant model is the ‘use of proceeds’ bond, designed to raise funds for specific earmarked investment projects that the issuer sees as climate-positive. This earmarking, coupled with regular reporting on project progress, provides debt investors with targeted transparency on the credentials of the projects their funds are supporting. The first such bond, issued in 2007 by the European Investment Bank, coupled the use of proceeds structure with a number of other innovative features, and other supranationals and government agencies helped develop the market further in subsequent years. But the concept only really took off after the agreement of the Green Bond Principles in 2014, which established market-wide standards of transparency, disclosure and reporting.31 There are now approaching $ trillion of such bonds across a wide range of issuers (Chart 8) – and, while that stock is so far just a tiny fraction of the $ trillion global corporate bond market,32 green issuance is growing several times more rapidly than conventional bonds. UK companies currently lie well down the issuance league table (Chart 9), and have primarily issued in euros (Chart 10).