Paolo Angelini: Net zero pledges of financial firms - trade-offs and problems

Remarks by Mr Paolo Angelini, Deputy Governor of the Bank of Italy, at the Roundtable on "New Frontiers in Banking and Capital Markets", University La Sapienza, Rome, 15 December 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

1. Introduction

Today I would like to focus on the so-called transition plans. In short, a transition plan is a detailed description of actions that a company commits to implementing over a multi-year horizon in order to comply with a given set of environmental objectives. For instance, adhering to the Paris Agreement implies a commitment to drive net emissio of greenhouse gases down to zero by 2050.

A number of the world's largest companies have voluntarily adopted transition plans enshrining a commitment to reduce their carbon footprint. In the financial sector, probably the best-known initiative is the Glasgow Financial Alliance for Net Zero (GFANZ), which involves sub-alliances for banks, asset managers and insurance companies; for these firms the objective is to reduce the emissions financed by their portfolios of assets.

Following a similar approach, last July the European central bank announced a gradual decarbonization of its corporate bond portfolios, as part of a broader set of measures aimed at mitigating climate-related financial risks on the Eurosystem balance sheet and incentivizing issuers to improve disclosure and reduce future carbon emissions. In parallel, the Single supervisory mechanism is encouraging banks to adopt transition plans consistent with the Paris Agreement and to pressure the companies they finance to meet their transition objectives, up to the last resort of curtailing credit.