, the financial sector plays a key part in influencing the scope, speed and fluidity of the transition. it can do so effectively if intermediaries also consider sustainability factors in their corporate governance systems and in their risk management and investment strategies. today, central banks and supervisory authorities also pay close attention to these issues in carrying out their mandates. they are helping to raise awareness and nurture a better understanding of the risks related to the sustainability factors and the channels through which they are transmitted to the financial system. they can disseminate more data, help develop shared analysis methodologies, and facilitate cooperation and the sharing of best practices between the various stakeholders in the financial system. they are trying to provide a good example for all investors through their policies for managing financial resources and the related risks. the bank of italy as an investor … this year the bank of italy has decided to adopt an investment strategy that integrates esg factors into the management of its equity portfolio, a move that it announced on its website last week. the principles of diversification and market neutrality, part of the previously used framework, have been maintained and two new assessment criteria have been added. the first excludes investments in shares issued by companies mainly operating in sectors that do not comply with the united nations ’ global compact, an agreement signed in 2004 that sets out the principles companies should follow regarding human rights, labour and environmental sustainability, and measures to prevent corruption. the second gives preference to the securities of companies with the highest esg scores. the new framework significantly improves the environmental footprint of our financial investments : the new shareholdings portfolio is characterized by lower greenhouse gas emissions ( a reduction of 23 per cent ), and lower energy and water consumption ( by 30 and 17 per cent respectively ). it also follows that risk management becomes more effective : a comparison of various solutions shows that this approach provides the best risk - return profile and the greatest protection against particularly adverse market trends. for the time being, this strategy is being applied to equity investment ; an assessment is under way of the possibility of extending it to other asset classes, such as corporate bonds. as we work towards further improving the esg profiles in our portfolio, we will provide regular reports on the results achieved, so that our best practices and the methodology we use can serve as a reference for other investors. aside from ensuring less risk, sustainable investment does not penalize financial performance : numerous studies show that it leads to market returns that are not significantly lower than those achieved using traditional

whether to sell npls or externalise servicing to a specialised operator. of the total of €81 billion of net bad loans, only about €20 billion are with banks, significant and less significant, that are currently experiencing difficulties. the average book value of these assets is around 40 per cent of their face value. this is about twice the low prices currently offered by a few market specialists. based on these prices, the additional provisions that such banks may need to book could be estimated at about €10 billion. this amount of additional provisioning is far 4 below the €20 billion fund set up by the italian government at the end of last year to support troubled banks. moreover, it should not be forgotten that any public support would be accompanied by some burden sharing. the npl legacy comes from the past. another and even more serious challenge for all european banks lies in the present and the future and has to do with technology and the shape of the market. current trends are compressing profitability. it is time for a change in the business model of many banks. the extension of branch networks, the provision of services, and the use of technology must be reviewed in a bold and innovative spirit. this is essential for italian banks if they want to compete effectively and maintain their stability. 3 / 4 bis central bankers'speeches the prospects for the italian economy have been improving gradually but steadily in the last three years ; the moderate recovery is a testimony to the effectiveness of the policies put in place, but also to the need for further intervention. the production of goods and services continues to increase in the current quarter, although the pace of recovery is slow and lags behind that of other large countries in the euro area. domestic demand is benefiting from favourable monetary and financial conditions, as well as from a mildly expansionary fiscal policy. labour market conditions have improved. business confidence is increasing. bank lending has continued to expand in recent months, even though it remains heterogeneous across firms. our latest forecasts suggest a further moderate strengthening of gdp growth. as in the euro area as a whole, the outlook, however, is clouded by risks, and tilted to the downside mostly by global geopolitical factors. economic policy uncertainty – as measured by the most popular indicators – is at very high levels nationally, in the euro area, and outside europe. italy has been on a path of reform for a number of years now. change is beginning to pay off. the effort to modernise