But as Andrew Crockett of the BIS observed back in 2000, “actions that may seem desirable or reasonable from the perspective of individual institutions may result in unwelcome system outcomes”. 30  That system outcome could be a feedback loop from falling asset prices to pressures on one side of the market to sell and pressures on the other side not to buy; a loop that magnifies asset price falls. Asset prices are not our concern per se. The question for macroprudential policy is whether these loops mean that smaller economic shocks can overwhelm the financial system, amplifying the damage to the real economy. To get at this, macroprudential policy must move – and is moving – beyond the core banking system. Our focus is increasingly on these loops, working in partnership with the LSE Systemic Risk Centre and others. In partnership with other countries, we must – and are – developing system-wide simulations to examine how the different entities – funds, insurers, dealers – combine to shape how the system responds to stresses. And my second call to arms for researchers in academia is to push out the frontiers of knowledge and understanding of these feedback loops. 4) An ounce of prevention can be worth a pound of cure  31  Having calibrated the economic stress and applied it to the system, it’s a question of building the necessary resilience into it. And the guiding principle here is that an ounce of prevention can be worth a pound of cure.
We exercise our voting rights at companies’ annual general meetings, and we engage in dialogue with a large number of portfolio companies. Recurrent topics in our dialogue with banks include financing palm oil producers and following up TCFD recommendations. Topics related to climate change have also been an important part of the dialogue with companies that buy and sell meat in Brazil. The third pillar is related to the composition of the GPFG’s investment portfolio. Our management mandate requires parts of the fund to be invested in environment-related mandates. The environment-related mandates were first introduced in 2011. The purpose of the investments does not differ from that of the rest of the GPFG. The environment-related mandates are required to contribute to diversification and to improving the return on the GPFG. Chart: Environment-related mandates The Ministry of Finance is in the process of adjusting the guidelines for these mandates. Investments are to be focused on climate-friendly energy, improving energy efficiency, carbon capture and storage, water technology and the management of waste and pollution. The upper limit for the environment-related mandates will be increased from NOK 60 billion to NOK 120 billion, as the mandates will be expanded in 2020 to include unlisted renewable energy infrastructure investments. Primarily, these will be investments in wind and solar power production. In the Bank’s strategy for the management of the GPFG in the period to 2022, our target is an allocation of around one percent of the GPFG towards the end of the three-year period.