this is particularly important in considering monetary policy measures. i will first talk about the basic thinking of market neutrality. central bank operations affect society and the economy in many ways. in conducting operations, central banks should try to affect the overall macroeconomy while avoiding involvement in micro - level resource allocation as much as possible. however, when central banks provide funds by purchasing financial assets, either through conventional or unconventional monetary policies, they not only change the macro interest - rate level but also affect the relative prices of individual financial products. therefore, when considering the impact of central bank policies, i think that market neutrality needs to be interpreted with some latitude. when focusing on climate change issues, there is the question whether the neutrality of resource allocation is ensured simply by treating existing investment or loans equally. if private sector investment or loans are decided without taking into account the “ negative externalities ” caused by greenhouse gases, does this not affect the neutrality of resource allocation? if there were a portfolio comprising private sector investment or loans that took into consideration these 3 / 6 bis central bankers'speeches negative externalities, it may be socially desirable for central banks to provide funds to correspond to such a portfolio. as i mentioned earlier, society as a whole has been tackling the negative externalities by intensifying efforts to address climate change. as this trend is expected to continue, providing support for such society - wide initiatives can be interpreted as falling within the broad definition of market neutrality. that said, it is certainly necessary for central banks to devise ways to avoid involvement in specific resource allocations as much as possible. iv. the bank ’ s measures in formulating the bank of japan ’ s strategy on climate change, the bank examined various measures in view of the aforementioned issues of a central bank ’ s mandate and market neutrality. in what follows, i will explain each measure in detail. monetary policy with regard to monetary policy, the bank decided to introduce a new fund - provisioning measure, through which it provides funds to financial institutions against investment or loans they make to address climate change based on their own decisions. the bank considers this measure as a new approach to support efforts on climate change from the monetary policy side, while giving consideration to the abovementioned market neutrality and avoiding direct involvement in microlevel resource allocation as much as possible. this structure will also enable us to respond flexibly to changes in the situation under the fluid external environment surrounding climate change issues. in recent years, firms and financial institutions have been

and communicating with financial institutions. in addition, the bank has set up an internal network, the climate coordination hub, to enhance bank - wide initiatives on climate change. as i mentioned earlier, various stakeholders across jurisdictions have recently accelerated their efforts concerning climate change. with the intention of furthering its efforts on climate change, on july 16, 2021, the bank released the bank of japan ’ s strategy on climate change and decided to implement a range of measures. i will elaborate on the issues of a central bank ’ s mandate and market neutrality in the context of implementing these measures, and then talk about the measures in detail. responses to climate change and the central bank ’ s mandate from a medium - to long - term perspective, climate change could have an extremely large impact on developments in economic activity and prices as well as financial conditions. from a central bank standpoint, with its mandate of achieving price stability and ensuring the stability of the financial system, supporting the private sector ’ s efforts on climate change will help stabilize the macroeconomy in the long run. now let us look at the effects of climate change in detail, starting from the economic perspective. there has recently been an increase in constraints on economic activity, such as supply chain disruptions caused by natural disasters. in the medium to long run, there is the possibility that a decrease in investment and employment in industries with significant greenhouse gas emissions will exert downward pressure on economy activity. on the other hand, there will be new opportunities, such as an increase in investment related to renewable energy. the future course of economic activity is highly uncertain. prices and wages could be affected by both natural disasters and the various measures introduced for the transition to a carbon - neutral society. on the financial system front, assessment of “ physical risk ” and “ transition risk ” will be important. here, “ physical risks ” refers to the risks that physical phenomena triggered by climate change, such as large - scale disasters and rising sea levels, will have a negative impact on firms and households. “ transition risks ” refers to the risks of an economic impact on firms and households due to changes in policy, technology, or consumer preference as we move toward a carbonneutral society. depending on our responses, both risks could adversely affect the financial system by changing the investment or lending behavior of financial institutions, both qualitatively and quantitatively. responses to climate change and market neutrality let me next look at responses to climate change and the issue of market neutrality.