One important channel is the exchange rate channel. Changes in the krone exchange rate affect economic activity in some business sectors and prices for imported goods and services. The krone exchange rate has acted as a shock absorber, as it did in 2014. A sharp depreciation of the krone dampened the negative effects of the fall in oil prices on the real economy. A low key policy rate contributed to underpinning a weak krone. At the same time, the responsible actions of the social partners restrained domestic cost inflation. The exchange rate and the interest rate differential will continue to be important factors ahead. The key policy rate also has a direct impact on household and corporate demand. The rate reduction in 2014 stimulated consumption and investment. Now that growth has gained a foothold, we can take our foot off the pedal a little. Gradually higher interest rates will reduce the pressure that would otherwise have been generated by higher activity, higher employment and higher wage growth. A third channel is often referred to as the expectations channel. For monetary policy to be effective, changes in the key policy rate must pass through to market rates. Monetary policy effectiveness increases if changes in the key policy rate influence expectations of future interest rate levels. An investment is made to provide a profit over a number of years, and mortgage payments have to be met throughout the term of the loan. So today’s interest rate level is not the only important factor.
In this regard, the main challenges facing us all (including the financial sector) when it comes to managing these risks are plain to see. Among others, I would single out a lack of harmonised definitions, ESG data gaps and the ability to measure impacts. With this in mind, I will now address certain key aspects that concern all sectors, and not just the financial sector. Main regulatory initiatives  We authorities, regulators and supervisors have been shaping the regulatory framework for appropriate management of this risk. This is still an ongoing task, but important progress has been made. At the European level, I would highlight the following: first, the EU Taxonomy Regulation,13 which establishes the bases for determining when an investment or economic activity may be considered environmentally sustainable, and lays the groundwork for other European sustainable finance regulations; and second, Directive (EU) 2022/2464 (CSRD)14 on corporate sustainability reporting, published on 14 December 2022, which updates and reinforces the rules on environmental and social reporting by the companies concerned, which are large undertakings (defined as those that meet at least two of the following requisites: balance sheet total over € million, net turnover over € million or average number of employees over 250), along with listed small and mediumsized undertakings.15  13  Regulation (EU) 2020/852  14  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464  15  Article 19 bis of Directive 2013/34/EU amended by the CSRD.