Paolo Angelini: The financial risks posed by climate change - information gaps and transition plans

Speech by Mr Paolo Angelini, Deputy Governor of the Bank of Italy, at the Associazione Nazionale per lo Studio dei Problemi del Credito, Milan, 15 November 2022.

Central bank speech  | 
28 November 2022
PDF full text
 |  16 pages

1. Introduction

The consequences of climate change affect the financial system in several ways. The materialisation of the related risks – physical and transitional – can cause damage to buildings and companies, and the obsolescence of entire production chains. The potential negative effects on the stability of individual intermediaries and of the financial system are the main reason why central banks and supervisory authorities have long included environmental sustainability in their work programmes. Furthermore, ensuring the adequate management of these risks is instrumental to allocate the resources for the transition towards a sustainable economy.

Awareness of the importance of climate-related and environmental risks is growing among the banks in the Single Supervisory Mechanism (SSM); all significant banks have begun to consider how to integrate these risks into their activities. The progresses of the works are heterogeneous. While no bank is fully in line with the ECB's expectations on this matter, progress is ongoing on several fronts. Banks have so far mainly worked on data collection and exercises to assess transition risks. Physical risk management practices instead are generally less advanced. Only few intermediaries have started to consider other environmental risks, such as biodiversity loss and pollution. Overall, Italian banks seem to be moving in step with those of other European countries.