klaas knot : on financing the energy transition speech ( virtually ) by mr klaas knot, president of the netherlands bank, at the forum analysis, milan, 8 july 2021. * * * it is a pleasure to be back in milan – even if it is only virtually. about 35 kilometres south of milan lies the city of pavia. twenty years ago, i studied there for a semester – so i have very fond memories of that city. one of the most famous people that ever lived in pavia is alessandro volta. in 1799, he invented the battery. this invention would soon lead to the development of the first electric motor – a machine that, in its current form, plays an important role in the transition to a net - zero society. this transition will be hard to achieve. but it is what we will need to do – because climate change is a major threat to societies and economies all over the world, and to the stability of the entire financial system. currently, however, we are still far from achieving the ambitions set out in the paris climate agreement. if we want to achieve these ambitions, we will need large - scale investments in sustainable energy services, in agriculture, in manufacturing, and so on. and these investments will need to be accompanied by increased efforts to reduce greenhouse gas emissions. the lion ’ s share of these investments will have to come from the private sector. but when we look at financing flows, whether in capital markets or bank finance, we see they are mostly directed towards large and often carbon - intensive companies – companies perceived as having low credit risk. the energy transition, however, hinges on successful technological innovations. according to a recent report by the international energy agency, and i quote : “ most of the global reductions in co2 emissions between now and 2030 in the net zero pathway come from technologies readily available today. but in 2050, almost half the reductions come from technologies that are currently only at the demonstration or prototype phase. ” early on, these innovative technologies are often less competitive than fossil alternatives. this makes banks more hesitant to finance these higher risk activities. and innovative start - ups are often too small to attract capital market financing. so currently, innovation investment is best aligned with the risk appetite of private equity firms. but they do not have a large presence around the world. so this is where governments come in. the bulk of the much needed investments will indeed have to come from the private sector – but there is a loud and clear

management, strong supervision and robust liquidity cushions are also critical. the basel committee ’ s work agenda seeks to strengthen practice in these areas. it is in the process of finalising global sound practice standards for liquidity risk management and supervision. these will address many of the lessons learned from the market turmoil. the committee will also work on stress testing, off - balance sheet management, and valuation practices. furthermore it is enhancing market discipline through better disclosure. ensuring effective and efficient cross - border banking supervision let me now turn to two challenges related to the infrastructure of supervision in europe, namely cross - border supervision and the interplay between central banks and supervisors. the former challenge follows from the internationalisation of the banking industry. over the past decades, european banking groups have become increasingly international in character. not only do they move more easily across national boundaries, they also organise themselves accordingly. prompted by these developments, supervision has moved beyond its primarily national orientation. indeed, supervisory rules and regulations are being progressively internationally harmonised – basel ii is in this respect a leading example. nonetheless, internationally active banks are still confronted with a multitude of supervisors and regulators, which may impose their own specific national requirements. as the internationalisation of banks may be presumed to continue in the foreseeable future, further steps are needed to ensure effective and efficient cross - border banking supervision in europe. while a more integrated pan - european supervisory structure is ultimately desirable, how to get there is far from clear. indeed, legal frameworks, deposit guarantee schemes, fiscal regimes and national supervisory arrangements within the european union are still very diverse. the european council agreed in december 2007 on a financial supervision roadmap. important elements of this roadmap are the introduction of a european dimension into the mandates of national supervisors and the improvement of the functioning of eu colleges of supervisors. realistically, to promote more effective and efficient banking supervision in europe in the near term, we should continue to build on the existing institutional structure. accordingly, the challenge of cross - border banking supervision can be addressed in a two - step process. the first step is straightforward and can be taken swiftly. in line with the outcome of the latest informal ecofin and the recommendations by the financial stability forum, so - called colleges of supervisors should be established for all major cross - border groups. these international colleges should include all relevant supervisors and would be created to enhance cooperation on ongoing supervisory issues. existing supervisory committees such as cebs should guard the coherence and consistency between the