An economic activity qualifies as sustainable when it contributes to one of these objectives without causing significant harm to the others, and complies with certain minimum social safeguards. For example, economic activities with low CO2 emissions (such as solar power production) qualify as sustainable as they contribute to mitigating climate change, as do activities that have no viable low emissions alternative but support the transition by gradually eliminating CO2 emissions. This classification is the cornerstone of the European sustainable finance agenda and provides the basis for all sustainability regulation. The European Commission is currently working on completing this taxonomy, extending it to so-called “brown” and “neutral” activities. 11  Public consultation on principles for the effective management and supervision of climate-related financial risks, BCBS, November 2021. 12  Progress report on bridging data gaps, NGFS, May 2021. 13  Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088). 4  Disclosure In November 2021, during the COP26, a decisive step forward was taken at international level on disclosure. The IFRS Foundation announced the creation of the International Sustainability Standards Board (ISSB), to establish global sustainability-related disclosure standards. This initiative could be of comparable importance to the creation of the International Financial Reporting Standards 20 years ago.

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.