Indeed, in contrast to what usually happens in legislative or transformative processes, the private sector has spearheaded many of the sustainability-related initiatives, such as the development of the green bonds market, arising in response to growing demand for responsible investment, regardless of supervisors. The cooperation of the private sector is also manifest in expert groups, which are helping authorities to define legislation and actions relating to this issue. Examples include, in the European arena, the EU High-level Group on Sustainable Finance, set up by the Commission in 2018 to advise on sustainability matters; turning to the Financial Stability Board (FSB), the creation of the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 is particularly noteworthy. Indeed, regulators and supervisors have also recently stepped up their involvement. And they have done so significantly. This conference organised by the CNMV is a good example of this. As you are all aware, the Climate Change and Energy Transition Law is in the process of being approved by parliament; this Law envisages that a huge volume of investment (around € billion over the coming decade) will be needed to successfully undertake the energy transition. The banking sector's participation will be essential to mobilise such a volume of investment which, in turn, represents a clear incentive for credit institutions to become involved in this challenge.
As regulator, our mandate is to ensure the financial stability of the economy. In this regard, our competencies as micro- and macroprudential supervisor require us to be able to assess and quantify the risks entailed by the transition to a more sustainable economy, both for each individual bank and for the financial sector as a whole. Indeed, the transformative measures to change our productive model will affect bank borrowers. In some cases, they will give rise to opportunities, but there is no way of hiding that these transformations will adversely impact the business model of certain sectors. Therefore, it should come as no surprise that as supervisors we require that banks measure the risks derived from the transition process and incorporate them into their 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.