stem from global warming are referred to as physical risks. in a recent survey by the european investment bank, 58 % of eu firms reported that their business is already being affected by physical risks. there is another category of risk associated with climate change – these are called transition risks. these can occur as our economies move towards net zero. carbon - intensive industries in particular may face the risk of their assets becoming stranded. to reduce these risks, the eu is committed to reaching net zero emissions by 2050. to achieve this target, climate policies will be put in place that will inevitably trigger substantial changes to existing business models – across all industries. firms must prepare and adapt their business models. the aviation industry is no exception here, as extreme weather events can affect its business operations. but aviation itself also has an impact on the climate. carbon emissions from fossil fuels are a major driver of global warming. the aviation industry ’ s contribution to global co2 emissions is around 2. 5 %. [ 3 ] moreover, emissions from flying have risen by more than 2 % per year over the last two decades. so it ’ s high time for the aviation industry to step up its climate action. but some action is already underway. the international air transport association has committed to achieving net zero carbon emissions by 2050. [ 5 ] the international civil aviation organisation ’ s carbon offsetting and reduction scheme, corsia, is an important step towards reaching this goal. in addition, technological improvements and the usage use of sustainable aviation fuels will play a central role. sustainable aviation fuels are available today but demand is far outstripping supply. it is important to scale up sustainable aviation fuels. this requires a favourable policy environment with a mix of smart regulation and incentives. one year ago, the european commission adopted the ‘ fit for 55 ’ package to underpin the eu climate targets. this package includes the refueleu proposal, which aims to boost the production and uptake of sustainable aviation fuels. the proposal puts forward obligations for fuel suppliers to gradually increase the share of sustainable aviation fuels in fuels blends. this share should rise from 2 % in 2025 to 63 % by 2050. [ 6 ] the european parliament is even pushing for a share of 85 % by 2050. [ 7 ] in any case, by mandating the uptake of sustainable aviation fuels, the eu is creating a platform for long - term planning and setting incentives to boost sustainable aviation fuel production. this is a good example of how smart

at promoting the safety and soundness of the banking system. one aspect of this is already in place in the form of a policy statement issued by the hkma in june of last year on its role as lender of last resort to authorised institutions. the major safety and soundness issues however lie ahead. the first is whether we should introduce a commercial credit reference agency in hong kong which would gather and collate information from participating institutions about the indebtedness and credit record of their corporate borrowers. this would enable lenders to obtain a more complete picture of the financial position of their customers, and thus improve their credit assessment and perhaps make them willing to lend. that is the theory, which seems to be supported by both academic research and the experience of overseas countries. we are currently nearing the end of a consultation period and will consider the way forward in the light of the comments received. as this consultation ends, we are about to embark on another that may be more contentious. i am referring to the possible enhancement of the deposit protection arrangements in hong kong. in their consultancy study, kpmg / barents identified this as an important issue as the banking sector becomes more competitive and the level of risk possibly increases. they also considered that the current arrangements, which give priority to small depositors, did not appear to have sufficiently raised the crisis of confidence threshold to avoid bank runs. they therefore recommended that the issue of deposit protection should be looked at again. this we have done in the form of a new consultancy study by arthur andersen that was completed in july of this year. this has looked at various options for deposit protection, including maintenance of the status quo at one extreme and the introduction of an explicit scheme for deposit insurance at the other. such schemes are increasingly being introduced around the world and are advocated by a number of international standard setting bodies. the drawbacks of deposit insurance are however well known, including the risk of increased systemic instability due to moral hazard. the costs of such a scheme would also need to be carefully considered. this is a controversial issue that will need to be fully debated. subject to views of exco, it is our intention to undertake a consultation on the various options for deposit protection at the beginning of october. if it is eventually decided to introduce one of these options, further consultation would then be required on the detailed arrangements. risk - based supervision of course, the best thing would be for the safety net not to be actually used. in other words, we should