In some countries, such as Italy, productivity per employee has even stagnated in the past two decades. Low inflation is a common trait of other advanced economies and a fundamental challenge for most central banks. It therefore continues at present to be one of the central matters for discussion in the academic arena and on the monetary policy boards of the Eurosystem, the Federal Reserve and other central banks. In its latest Annual Report, the Banco de España dedicated special attention to these matters. The report highlights the considerable uncertainty over the factors that may be checking the rise in inflation at the global level. They include most notably structural phenomena, such as population ageing, globalisation, the expansion of value chains and 6  See Chapter 2, “The determinants of low inflation in the euro area and in Spain”, in the Annual Report 2018, Banco de España. 7/16  the attendant increase in competition, along with swift technological progress and the emergence of new forms of marketing and major sales platforms. Moreover, at certain times more transitory factors may have played a part, such as low oil prices and the considerable slack in some labour markets further to strong job destruction during the crisis. The monetary policy response to an extended scenario of slow growth and moderate inflation The complexity this setting poses for economic policies in Europe is most considerable. I shall refer first to monetary policy.
As regards, banks’ securities portfolios, only 1.6% of their holdings stems from sectors characterized by high CO2 emissions, with 5.2% invested in mid CO2 intensive sectors. Insurance companies and investment funds turn out to be more invested in high and mid CO2 intensive sectors, at about 14% and 10% of their securities portfolio respectively. (FSR Interim 2021) Overall, this paints a fairly favourable picture for the Maltese financial system: the potential impact from climate risks is judged as relatively contained, although data limitations and early-stage nature of such exercise caution against an exceedingly benign interpretation. Addressing climate change will require substantial investment, both in shifting away from dependence on fossil fuels and in adapting to higher temperatures, droughts and more extreme weather events. This investment will need to be financed. A growing segment of financial markets relates to “green” instruments, which allocate resources to finance environmentally-friendly investment. Whichever the starting point, the transition to “green finance” is to be supported. The green bond market, for example, has been growing strongly in recent years, reaching a volume of cumulative issuance of about 1.5 trillion USD in 2021. While it remains a niche relative to the overall bond market, there is evidence of investors’ interest for instruments aimed at financing environmental projects. 6  According to the ECB trading in secondary markets bears evidence of a “greenium”, that is a premium that investors are willing to pay to hold green bonds compared to securities with identical characteristics.