ltcm episode. the approach the basel committee has taken with respect to highly leveraged institutions mirrors its efforts in addressing other risk management issues. a primary aim of the committee is to describe and promote prudent risk assessment and control practices by banks. by setting out the current state of the art in key areas, the committee provides banks and their supervisors worldwide with the tools to measure industry progress toward the goal of effective risk management. in recent years, the basel committee has engaged in a sustained effort to develop and publicize sound practices in a variety of areas. these have included papers on such topics as : • the management of credit risk ; • loan accounting and credit risk disclosure ; • guidance for managing foreign exchange settlement risk ; • enhancing corporate governance in banking organizations ; • a framework for internal control systems in banking organizations ; • operational risk management ; and • risk management for electronic banking and electronic money activities. for anyone interested, the details of these reports are available on the website of the bis. before turning to capital adequacy issues, i would like to highlight some key elements from two recent papers on sound practice. in july, the basel committee issued for comment a report on the management of credit risk. this is a particularly important topic since the major cause of serious banking problems continues to be directly related to poor practices regarding credit risk management. a key focus of the report is on the need for banking organizations to develop an overall business strategy for credit risk that incorporates the tolerance for risk and the level of profitability the bank expects to achieve from incurring various credit risks. a strategic approach to credit risk provides a coherent framework for practices in such areas as credit - granting criteria, credit limits, and credit risk monitoring. the basel committee issued a second paper in september that addresses the subject of corporate governance in banking organizations. as you know, corporate governance, especially the role of boards of directors, is of particular interest in this country. more intense competition, rapid change, and increased complexity in many business activities mean that responsible and independent oversight by boards of directors plays a more crucial role in ensuring that the firm ’ s business strategy is sound and its leadership effective. i am convinced that the need for strong corporate governance is equally great in emerging market countries, where banks and other financial institutions face comparable pressures. the basel committee ’ s september paper outlines several elements that are critical to a sound corporate governance process. these elements include the installation of qualified boards of directors with clearly defined responsibilities, the importance of

, such as agriculture or tourism. capital destruction could also be very important. furthermore, since not all geographies would be equally affected, the migration of activities and of the population in some areas might increase, generating an impact on the financial sector as well. moreover, uncertainty over see the financial stability board ( november 2020 ) : the implications of climate change for financial stability these processes could undoubtedly have a profound impact on the financial sector in the medium to long run. in parallel with physical risks, the transition towards an environmentally sustainable economy entails a sweeping change in production technologies and a reallocation of activity across sectors and companies. actually, such restructuring will mean that, in the short run, some sectors will increase their profits while others will incur losses, with obvious implications for the financial system and its stability. these changes in profits may come from the need to adapt towards greener ways of producing, owing to shifts in consumer and investor sentiment, from public regulation or taxation. in this case, for estimating transition risks, the most relevant factors are the carbon footprint and the environmental impact of the sectors and companies to which financial firms are exposed. the impact of climate change on inflation beyond its effect on the financial sector, climate change could have a fairly direct impact on central banks ’ ability to stabilise inflation. policies aimed at promoting the transition towards a carbon - neutral economy – such as carbon taxes – are likely to affect the volatility of headline inflation, which includes energy prices. most inflation - targeting central banks, including the ecb, target headline inflation, because it is more representative of the citizens'consumer basket than other notions of inflation. in any case, the ecb ’ s medium - term orientation of our price stability objective provides us with some leeway to see through transitory energy - driven increases in headline inflation. beyond energy prices, non - energy prices – and hence core inflation – would not be isolated from the impact of climate policies either. to the extent that carbon - intense producers of non - energy goods and services pass the costs of rising carbon taxes and other interventions on to their consumers, we could also see sizeable upward pressure in core inflation. all in all, persistent upward pressure on, or substantial volatility in, headline inflation stemming from sustained climate policies could lead us to rethink how we formulate our policies in pursuit of price stability over the medium - term horizon. climate change and the natural interest rate more indirectly, but no less importantly,