raising the bar on climate ambition : road to cop 26 remarks by ignazio visco governor of the bank of italy asian development bank – 54th annual meeting of the board of governors virtual event, 4 may 2021 • climate change and the pandemic are the most important global problems of our times. the two phenomena are related, as many of the root causes of climate change, such as deforestation and the loss of habitat, by increasing the chance of contact between people and wildlife, also amplify the risk of new pandemics. • arresting climate change requires achieving net - zero greenhouse gas emissions at a global scale by mid - century. it is an urgent task : acting later can be extremely costly and may turn out to be ineffective. but shifting economic development towards a sustainable path is a difficult process and all human activities have to facilitate it. a successful transition requires, therefore, strong global cooperation. • this transformation is more demanding for emerging and developing economies, characterised by an increasing thirst for energy driven by industrialisation and rising consumption. many of them are still heavily reliant on coal to produce energy. in addition, they still need to provide energy access to almost one billion people living without electricity – a daunting task to undertake while at the same time decarbonising the economy. • the current economic recovery provides a one - time chance to foster the necessary changes. as the g20 finance ministers and central bank governors recently recognised, we need to shape the recovery by investing in innovative technologies and promoting just transitions toward more sustainable economies and societies. • in this perspective, multilateral development banks can provide a key contribution. since 2017, they have been granting developing countries almost 200 billion dollars per year, partly going to climate mitigation and adaptation projects. within the g20 sustainable finance working group, a work stream has been created to enhance the alignment of this contribution with the goals of the paris agreement. • sharing best practices for classifying and monitoring sustainable investments will help to identify how they can effectively catalyse private resources and support climate finance. indeed, most investment will necessarily be privately financed, and this will require putting in place adequate institutional and regulatory frameworks, as well as appropriate and predictable carbon prices. • multilateral development banks can also play a pivotal role in further expanding the use of debt - for - nature swaps. these can improve biodiversity and the provision of ecosystem services, while increasing carbon dioxide natural removals, which are strongly needed to achieve net -

during the most acute phase of the pandemic crisis. in the eu, an unprecedented joint response of member states will contribute significantly to the recovery in the years to come. in the current circumstances, a sizeable fiscal stimulus is necessary, in order to sustain aggregate demand. however, that very same stimulus raises new challenges, as it will result in a record increase in public debts around the globe. although i firmly dismiss the risks of fiscal dominance, nevertheless monetary policy cannot ignore the impact of fiscal policy, as is made clear by the second paper of the session. these considerations take me to tomorrow ’ s first session, which will focus on ‘ structural changes ’ in monetary policy transmission. indeed, the historically high levels of public and private debt may well have an impact on the transmission of monetary policy through channels such as the interest rate exposure, 2 which in the current environment may lead to significant wealth and income effects. one could argue that high levels of debt boost the monetary policy transmission mechanism via a ‘ leverage ’ effect, but at the same time generate the risk of higher volatility and, ultimately, may have financial stability implications. the repayment of this high debt burden is currently being made easier by the low nominal interest rates regime, an aspect emphasized by olivier blanchard in his aea presidential lecture last year. 3 however, the persistence of low medium - and long - term interest rates cannot be taken for granted. moreover, episodes of financial turmoil, due to market perceptions or to a change in fundamentals, can happen, creating a negative feedback loop between market expectations and macroeconomic fundamentals. this allows me to touch upon the topic of the instruments of monetary policy, which will be the focus of the concluding session of the workshop. the unconventional policies adopted by central banks around the world in the last decade have proved effective, as a copious amount of evidence suggests. 4 the experience gained with the new monetary policy tools in the last decade must guide our choice of the unconventional instruments that central banks should retain in their toolbox. auclert, a. ( 2019 ) ‘ monetary policy and the redistribution channel ’. american economic review, 109 ( 6 ) : 2333 - 67. blanchard, o. ( 2019 ) ‘ public debt and low interest rates ’. american economic review, 109 ( 4 ) : 1197 - 1229. for a review of the research on unconventional monetary policies carried out at the bank of italy, see neri, s. and s. siviero