- return paradigm and value sustainability as a third, independent argument of the investor ’ s objective function, similarly to what is done in certain niche areas such as philanthropic investment, or impact investment? 12 there are reasons to doubt that this willingness would achieve the desired results ( absent regulatory interventions ), as the efforts of the responsible investors could be thwarted by the strategies of arbitrageurs and other traders focused solely on the risk - return paradigm. recent theoretical contributions show that esg investors can partially crowd other private investors out of green assets and into brown assets. 13 such crowding out may create positive alpha for brown portfolios and negative alpha for green ones. to avoid frustrating the efforts of responsible investors, public policies should ensure that in the long - run green investments remain at least as profitable as brown ones on a risk - adjusted basis. one way to do this is to internalize the carbon externality by imposing sufficiently high taxes on carbon emissions, for example, through global carbon pricing, as advocated by nobel - prize winner william nordhaus. an alternative – or complement – could be to provide public subsidies to green firms and investments ; this could be considered if a fast green transition were to generate high social costs – this is probably where the e and the s of the esg acronym are most closely related. 14 be that as it may, esg awareness should not end up in a wealth transfer from sustainabilityconscious investors to other operators ; in such a scenario the global warming problem would not be tackled, while society could be lulled into a deceptive conviction of doing something about it. 3. sustainable investment at the bank of italy the bank of italy has been working on investment sustainability for some time. in 2019 we started to incorporate esg criteria in the selection of our non - monetary policy portfolios ( equity and corporate bonds ), following guidelines later formalized in a sustainable investment charter. 15 last may, we published our first annual report on sustainable investing at the bank, which follows tcfd recommendations. 16 the report also discusses various methodological changes to the portfolio selection process introduced in 2022. a particularly important one is the adoption of forward - looking criteria. so far, the esg indicators used to guide our investment choices ( to ‘ tilt ’ our portfolios towards sustainable firms ) have been backward - looking measures of certain quantities ( esg scores, carbon intensity ) at previous dates. however, as i argued above, if investment strategies are to sustain the green transition, they

remain bright. projections for long - term growth, based on demographic trends and models of capital accumulation and productivity, suggest that the emerging markets are likely to gain in global importance. a number of studies found startling results regarding the growth prospects for emerging markets. according to one study, brazil, russia, india and china ( the so - called bric economies ) could account for over half the size of today ’ s six largest industrialised economies from 2025 onwards. 1 we have to prepare for a very profound structural rebalancing of world output during the next years. the world economy is changing profoundly, as so should its governance. the creation and the recent reinforcement of the g20 and the enlargement to the g20 of the financial stability board are milestones in this respect. the rise of the emerging economies will also be reflected in the reforms of the international financial institutions. what are the specific implications of the growing role of emerging markets for the euro area? the euro area has close links with emerging market economies. in trade terms, the euro area is actually more open than other major economies. our exports and imports of goods and services account for more than 40 % of gdp, significantly more than in the united states or in japan. emerging markets are important in trade : nine of 20 euro area ’ s main trading partners are emerging economies, with a share of more than 18 % of exports and around 31 % of imports in 2008. the brics alone accounted for more than 12 % of extra - euro area exports and more than 22 % of extra - euro area imports in 2008. the growing role of mediterranean economies in the present context, which is very challenging, the mediterranean region is one of the few in the world that will continue to grow this year. the countries in this area have an increasingly important place among the world ’ s emerging markets. moreover, the mediterranean economies, and particularly the maghreb countries, have close links to the euro area. for example, more than 50 % of morocco ’ s imports and exports are with the euro area. within the mediterranean region, labour and product markets have become more flexible, the financial sector is now on a more solid footing and the economy has become more businessfriendly. a continuation of these reforms will help to increase the long - run growth potential of the region. a continued implementation of such reforms would lay the foundation for an increase in the long - run growth potential in the region. central banks and monetary policy frameworks are