Climate change represents a concrete risk not only to ecosystems, agriculture and public health. What is also directly threatened is "the real economy and the stability of the financial sector". This was explained by Bank of Italy governor Ignazio Visco, speaking at the opening of the third Festival dello sviluppo sostenibile in Rome.

"Italy the nation most at risk from river flooding"

The economist highlighted in particular how the most at-risk areas in Europe are those in the south. And specifically "Italy is the European nation most exposed to damage related to river flooding" due to rising temperatures and the consequent melting of Alpine glaciers.

More broadly, according to the governor, climate change in our country could affect "the productive capacity of the economy in a permanent way". The scenario outlined in Visco's speech is for this reason particularly troubling: "These changes pose first and foremost a physical risk, which stems for example from the increased probability of observing extreme natural events".

This could cause "extremely serious costs, in terms of human lives, but also in terms of the destruction of public and private infrastructure. Forcing households, businesses and the state to allocate a significant amount of financial resources to their reconstruction".

Governor Visco says banks could turn off the credit tap

The governor of Bankitalia then focused on the chains through which risks are transmitted to the financial sector: "Natural catastrophes will interrupt the productive functions of businesses and households, will increase financial vulnerability, will reduce the value of assets pledged as collateral to obtain credit, and will thus make loan repayment more complex".

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Faced with such a scenario, Visco continues, "banks could be induced to tighten credit for those located in the most at-risk areas". In other words, before granting a loan or a mortgage to the section of the population most affected by climate change, financial institutions will think twice. This could create a severe vicious circle for the economy and society.

It is for these reasons that, according to the head of the Italian central bank, it is necessary to adopt sustainable investment strategies: "We have decided to adopt a policy that integrates ESG criteria (environment, society and governance) into the management of our own equity portfolio".

To protect the economy, Bankitalia is making its own investments more sustainable

In concrete terms, this translates into the exclusion of investments "in securities issued by companies operating predominantly in sectors that do not comply with the United Nations Global Compact". And into favouring those of the most virtuous companies.

In this way, according to Visco, it is possible to achieve "a significant improvement in the environmental impact of our financial investments: the companies included in the new portfolio are characterised by a lower level of greenhouse gas emissions (with a reduction of 23%) and lower energy and water consumption (of 30 and 17 per cent, respectively)".