companies – such as the producers of electricity, currently characterised by extremely high emissions – will be the first to determine the fate of the transition. banks and other intermediaries could decide to achieve the decarbonisation objectives of their assets declared in the transition plans by reducing loans to these companies. however, without huge investments in these sectors it will not be possible to produce electricity mainly from clean sources and to electrify transport and heating. it is therefore desirable that lenders might be able to discriminate between the various companies on the basis of their transition plans, thus allowing companies that carry out investments aimed at this purpose to find the necessary financial resources easily and at low cost. as argued above, european legislation does adopt such a multi - pronged approach. by introducing mandatory transition plans for all companies, financial and non - financial, the csddd aims to bring about a virtuous convergence of the entire economic system towards the principles of the taxonomy and the paris goals. in this context, the problem of the conflict of objectives could be assuaged, but might not disappear. investors interested only in yield could look outside europe ( the aforementioned carbon leakage problem ). also, it remains to be seen whether this virtuous convergence will actually take place. the current energy crisis is resulting in huge profits for energy companies that use fossil fuels, and government subsidies for the consumption of energy. this reminds us that today ’ s technology does not allow an accelerated transition to low - carbon energy sources ; that the investments required are enormous ; that the demand for energy cannot be easily reduced without radical changes in consumption habits and lifestyles which the populations do not seem willing to accept, especially in advanced countries. in such an uncertain framework intermediaries and non - financial companies should liaise to align climate change mitigation policies and climate risk management, with a greater offer of consultancy by intermediaries and greater transparency by companies. initiatives regarding transition plans could be promoted by the sustainability coordination table mentioned in the previous paragraph. in this case as well, the path has been traced by other countries. 30 in the uk an ad hoc task force on transition plans was created recently. it involves representatives of business, financial institutions, regulators, and civil society, and works with international bodies including the gfanz and the issb. 5. conclusions the transition towards a low carbon emissions economy brings risks and opportunities for the financial sector. intermediaries must prepare by accounting for physical and transition risks in their

the financial risks posed by climate change : information gaps and transition plans speech by paolo angelini deputy governor of the bank of italy associazione nazionale per lo studio dei problemi del credito milan, 15 november 2022 1. introduction the consequences of climate change affect the financial system in several ways. the materialisation of the related risks – physical and transitional – can cause damage to buildings and companies, and the obsolescence of entire production chains. the potential negative effects on the stability of individual intermediaries and of the financial system are the main reason why central banks and supervisory authorities have long included environmental sustainability in their work programmes. 1 furthermore, ensuring the adequate management of these risks is instrumental to allocate the resources for the transition towards a sustainable economy. awareness of the importance of climate - related and environmental risks is growing among the banks in the single supervisory mechanism ( ssm ) ; all significant banks have begun to consider how to integrate these risks into their activities. the progresses of the works are heterogeneous. while no bank is fully in line with the ecb ’ s expectations on this matter, 2 progress is ongoing on several fronts. banks have so far mainly worked on data collection and exercises to assess transition risks. physical risk management practices instead are generally less advanced. only few intermediaries have started to consider other environmental risks, such as biodiversity loss and pollution. overall, italian banks seem to be moving in step with those of other european countries. 3 in my remarks i will briefly survey some key elements of the legal and regulatory framework on esg practices and risks which have a bearing on intermediaries and the concept of sustainability in finance conventionally includes the three dimensions of environmental, social and corporate governance ( esg ). although the three aspects are closely connected, this speech focuses mainly on the environment. ecb ( 2022 ), “ supervisory assessment of institutions ’ climate - related and environmental risks disclosures ”, march. angelico, faiella and michelangeli ( 2022 ), “ climate risk for italian banks : an update based on the regional bank lending survey ”, bank of italy, notes on financial stability and supervision, n. 29. non - financial firms. i will argue that excessive reliance on sectoral sustainability data by lenders ( banks and investors ) can lead to incorrect allocation of finance, to the detriment of the overall transition process. intermediaries and companies should join forces to assemble data at the individual company level