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 €60, 976 million since 1980. 4 the https : / / www. ipcc. ch / report / sixth - assessment - report - cycle /. strategy for financing the transition to a sustainable economy, european commission, july 2021. plan nacional de adaptacion al cambio climatico ( pnacc ) 2021 - 2030, ministerio para la transicion ecologica y el reto demografico, september 2020. economic losses from climate - related extremes in europe, european environment agency, february 2022. european commission estimates, in its 2020 report, 5 that a global temperature increase of 3°c could result in an annual welfare loss of around 1. 4 % of gdp in europe, with the greatest impact arising in southern europe. meanwhile, transition risks relate to the costs that may arise during the transformation of the economy needed to mitigate climate change and minimise the impact of the physical risks. the implementation of public policies necessary to achieve these objectives, the development of less contaminating technological innovations and changes in consumer preferences in favour of lower - emission goods and services will lead to a reallocation of resources between sectors. if this is not a sufficiently smooth process there could be significant economic disruption. channels of transmission to financial institutions financial institutions are exposed to the above - mentioned risks both directly and indirectly. this issue has been addressed by various studies and institutions. for example, in the banking field, the basel committee on banking supervision ( bcbs ) published a paper in april 20216 dividing transmission channels into two groups : microeconomic and macroeconomic. microeconomic channels refer to the effect that the above - mentioned risk factors may have on institutions ’ counterparts ( borrowers ). macroeconomic channels refer to the negative effect that physical and transition risks may have on economic growth, which would also affect financial institutions. to illustrate these channels, transition risks may, for instance, arise from the introduction of green taxes, which would raise energy costs. this increase in costs may, in turn, drive up the prices of those goods whose production requires more energy and, subsequently, a decrease in the demand for them, affecting firms

is part of the minimum capital pillar 1, and is directly reflected in the solvency ratio. elsewhere, reputational aspects, which are very important for the banking sector, are also evaluated as part of pillar 2. both pillars of the capital framework repeatedly mention the concept of “ risk ”. a quick search of the text of the european solvency regulation will bear this out : the word risk appears no fewer than 1, 500 times. however, there are clear differences between so - called financial risks ( such as credit and market risk ) and non - financial risks, which by their nature are more difficult for credit institutions and supervisors to address. non - financial risk is directly related to malpractice or non - compliance proper to conduct risk ; but going beyond this conference ’ s theme, it also refers to it events, reputation, governance and cyber security. unlike credit or market risks, non - financial risk is unconnected to specific financial decisions, is much more difficult to quantify than traditional risks and can only be reduced or mitigated. despite all these difficulties, or perhaps precisely because of them, non - financial risk has been firmly on regulators ’ and supervisors ’ radar screen since at least 2004. this followed the approval of basel ii which, as i indicated earlier, included a capital requirement for operational risk. today, the measurement and management of these risks remains equally complicated, but their importance for banking business has in fact increased. evidence of this is the map of risks and vulnerabilities annually published by the single supervisory mechanism ( ssm ). viewing the snapshot for 2021, we can see how a large portion of the sector ’ s weaknesses are related to non - financial risk. this is not really anything new. in previous exercises the ssm has also included these components. and logically so. allow me a few examples : ( i ) reporting systems and technological platforms have become essential, and as any banker can confirm, they have become a key component of any viable business model ; ( ii ) the prevention of money laundering has taken on a most significant dimension in europe, following various scandals and cases of fraud. indeed, an overhaul of the attendant regulatory and supervisory framework is on the table ; ( iii ) finally, given what has been discussed in this conference, i need not convince you that the nature of the retail banking business calls for great care as regards conduct towards customers. on this last point, there have been many scandals in recent years. in fact, calculating all