management. it is well known that the ecological transition process entails two types of risk : ( i ) physical risks, caused by the direct effects of climate change, storms, floods and natural disasters, and ( ii ) transition risks, which refer to the potential effect on specific borrowers of technological changes, changes in customer behaviour and preferences and the regulatory measures taken precisely to prevent physical risks from materialising. the measurement of these risks poses significant challenges. for example, the long time horizon over which the effects of physical risk are observed far exceeds that used to measure conventional banking risks. there is also a lack of information allowing an assessment of the firms that could be most adversely affected by the transition and it is not easy to determine the exact consequences of the different future scenarios. nevertheless, i believe that the banking sector should, to a large extent, already be considering transition risk. we should not forget that analysing the business environment is an essential part of the risk assessment and management that banks must carry out and that, unlike other ‘ transitions ’ prompted by sudden changes in technology or behaviour, the transition to a decarbonised economy has been announced and reported on. in order to foster robust management, a series of expectations from both the single supervisory mechanism and the banco de espana, within the remit of their supervisory competences, on the appropriate measurement and management of these risks within the sector is expected to be published soon. allow me to briefly refer to our work as macroprudential supervisor. i am sure you will agree that, in order to be able to conduct this type of supervision, we need to assess financial institutions ’ exposures to high - carbon emitting activities, perform stress tests for the financial system as a whole and define the scenarios and methodologies that serve as a guide for banks. in this regard, in order to analyse the risks associated with climate change and environmental degradation, we are developing an internal methodology on the basis of the stress tests applied to the spanish banking system every year. this tool has been selected owing to its forward - looking nature and its ability to incorporate alternative scenarios. in an initial stage, the aim is to assess the risks entailed by the environmental transition, leaving physical risks for a second phase. specifically, we need a tool that can analyse the different policies or events for which there is no past experience and whose impact extends over a lengthy timeframe ( around five years ). examples of the type of scenarios would be policies that

internalise the social costs of pollution at emitting agents, technological innovations that further reduce the cost of using renewable energy sources and shifts in agents ’ preferences towards more environmentally sustainable goods and services. given the complexity of this matter, an iterative modular approach has been adopted through which the macroeconomic effect of these shocks and policies can be analysed separately, so as to then calibrate the impact of changes in the macroeconomic environment on banks ’ income statements and solvency. the macroeconomic module includes a general equilibrium model with a substantial sectoral breakdown, in which economic agents interact. in this way it is possible to take account of the changes in the sectoral structure of the economy triggered by the transition, with the least pollutant sectors gaining weight to the detriment of the most pollutant sectors, whose emissions decrease. the banking module models the different credit risk parameters ( pds, lgds, etc. ) on the basis of the sectoral and aggregate macroeconomic variables provided by the macro module, enabling projections of banks'income statements to be obtained. this module needs to allow for a substantial sectoral breakdown so as to be able to reflect both the risks assumed by banks and the opportunities opening up in this process. in this context, i would like to mention a problem facing us all : the lack of reliable information. the fact that this aspect is brought up repeatedly is a reflection of its transcendence. it is not a coincidence that there are various references in the conference agenda to initiatives related to transparency and information on sustainability in general. the topics discussed today and yesterday have covered, for example, the directive on non - financing reporting, the register of sustainable funds, the climate benchmarks and the european taxonomy. in this regard, we are assessing the reporting and data requirements needed to perform the analyses i just mentioned. we are also conducting a pilot programme for collecting data in collaboration with major credit institutions and we have the benefit of our central credit register. we can attempt to exploit to the full the data already available to us, but we need to be aware that, without information, it is impossible to make further headway. we are also taking action in our role as portfolio manager. central banks are important investors in the debt markets, both in respect of monetary policy and reserve management. in this area, we have included environmental responsibility and sustainability criteria in the reserves investment policy and we are progressively increasing our own holdings of green bonds. the environmental factor is also