Undoubtedly, the incorporation of these risks into their management decisions will help to change the relative prices of financial instruments in favour of those that fund more sustainable activities, thereby reinforcing the impact of other public policies. Today I wish to take this opportunity to describe the actions we as supervisors and financial regulators are taking at global level for this purpose. I will start by identifying the financial risks associated with climate change and the main channels of transmission to financial institutions, and then analyse the specific features of these risks, as well as the regulatory and supervisory initiatives adopted in the banking field. Risk factors associated with climate change Climate change risks may be divided into two types: physical risks and transition risks. Physical risks are those that arise when climate change materialises, to a greater or lesser extent. This leads to extreme weather events, a rise in sea levels, desertification, greater risk of wildfires, etc. In the case of Spain, the National Plan for Adapting to Climate Change 2021-20303 suggests that these risks have already started to materialise. Also, according to the European Environment Agency, extreme weather and climate events have already caused direct economic losses in Spain totalling more than € million since 1980.4 The 1  https://www.ipcc.ch/report/sixth-assessment-report-cycle/. 2  Strategy for Financing the Transition to a Sustainable Economy, European Commission, July 2021. 3  Plan Nacional de Adaptación al Cambio Climático (PNACC) 2021-2030, Ministerio para la Transición Ecológica y el Reto Demográfico, September 2020.

At global level, the BCBS has published for consultation a paper on principles for the effective management and supervision of these risks.11 In any event, the improvement in banks’ management capability will presumably have to be supplemented by the development of a regulatory and prudential framework that properly takes into account the special features of the risks associated with climate change. There are two preliminary issues here: the existence of information and common taxonomies and the development of measurement methodologies. The need for common definitions and granular data To assess climate risks correctly, first it is necessary to have common definitions and data of sufficient quality and granularity. The Network for Greening the Financial System (NGFS), of which we, among 108 central banks and supervisory authorities from all over the world, are members, published in May 2021 a report12 emphasising the importance of having common worldwide definitions and standards for disclosure of information associated with these risks. Common definitions Owing to the complexity of the matter, the progress made towards establishing a global taxonomy is, unfortunately, still limited. Not only are productive technologies characterised by great heterogeneity at any given moment in time, which affects their environmental classification, but also a dynamic approach, which recognises the progress made in reducing their emissions, needs to be adopted. I would, however, like to stress the impetus the European Union has given to this issue, through the Taxonomy Regulation,13 which sets the foundations for a common European classification of “environmentally sustainable” economic activities. The regulation establishes six environmental objectives.