the world have taken necessary actions based on their own respective mandates. with an intention of furthering its efforts on climate change from a central bank standpoint, the bank last week made public its comprehensive strategy on climate change, which covers a wide range of areas including monetary policy, the financial system, research, and international finance. as monetary policy actions, the bank decided to introduce a new fund - provisioning measure to support private financial institutions in their efforts to address climate change ( chart 8 ). in making its decision, the bank gave consideration to avoiding specific intervention as much as possible in the allocation of resources to certain industries or individual firms. while policy actions to address climate change may include regulation of greenhouse gas emissions and subsidies for the development of new technologies, policies that directly involve micro - level resource allocation should be implemented by governments and legislative bodies. in contrast, central banks'monetary policies essentially target the overall economy and should be conducted while avoiding such involvement as much as possible. from these perspectives, with the new fund - provisioning measure, the bank decided to take the approach of providing funds to financial institutions against investment or loans they make to address climate change based on their own decisions. on this basis, financial institutions that wish to be provided with funds will be asked to disclose a certain level of information on their efforts to address climate change so that discipline can be exercised. the bank's approach of providing funds through this new measure has the advantage of being flexible under the fluid external environment. the criteria and categorization - - so - called taxonomies - - for deciding which efforts would be regarded as contributing to addressing climate change are still under discussion both at home and abroad, and it is possible that they may change in the future. if we wait for these debates to be settled, this will delay the actions on climate change. in this regard, the bank's approach is sufficiently flexible to respond to changes in the situation, allowing it to tackle this important challenge as promptly as possible. the bank presented specific conditions for the fund - provisioning in the preliminary outline. the interest rate of 0 percent will be applied and the implementation period will last until the end of fiscal 2030. through this measure, the bank will support financial institutions'efforts on climate change over a long period. it will work out further details through an exchange of opinions with financial institutions and other entities and will likely start its fund - provisioning within 2021. addressing climate change is becoming an inevitable business challenge for firms and

guarantees when providing loans especially to medium and small firms, and governance after loan provision has not necessarily been sufficient. financial institutions are required to bolster firms ’ growth constantly through deepening the ongoing relationship with them. in complementing such support, lending that uses movable assets, such as inventories, or accounts receivables as collateral – the so - called asset - based lending – or that utilizes covenants for medium and small firms can be useful options. third, it is intrinsically important for financial institutions to play a role in encouraging metabolism, for example, corporate realignment. at the same time, it is also important that financial institutions also aim at metabolizing themselves through mergers, consolidation, or unbundling, in accordance with their own business models. for example, financial institutions that aim to be globally active could pursue the advantage of scale or scope through mergers and acquisitions. by contrast, for financial institutions that aspire to enhance their presence in niche markets, limiting functions and concentrating resources could be an important option. those financial institutions ’ behavior is expected to not only improve management efficiency of individual financial institutions through increased competitiveness but also lead to increased profitability of the financial sector as a whole through efficient resource reallocation. proper risk management the second challenge for japanese financial institutions is proper risk management. in that regard, there is an increasing awareness among financial institutions, including those overseas, of the importance of the following : to gauge risk comprehensively, for example, by way of stress testing, without relying too much on specific quantitative methods such as var, and to share the recognition of risks not only in the risk management section but also including top management. in addition to such general challenge, a reduction in market risk associated with stockholdings, in particular, would be a specific challenge for the future. as for market risk associated with stockholdings, many japanese financial institutions have recognized the magnitude of price volatility associated with stockholdings and have been taking steps to reduce such risk as a management priority. nevertheless, the pace of reduction in stockholdings has somewhat slowed recently due partly to sluggish stock prices and thus the due amount of market risk associated with stockholdings still remains. of course, stockholdings could have implications as a part of corporate governance or could play a role as a tool to gain total profits including fee revenues. even in those cases, however, it is important to firmly identify the risks and returns. on that basis, if it