Fourth, the impact of the materialisation of the physical and transition risks of climate change may be very uneven across geographical areas and economic sectors. Moreover, apart from this geographical and sectoral diversity, the impact is also likely to be very uneven across economic agents. Given these special features, we banking regulators and supervisors have launched various initiatives to assist and oblige banks to take these risks properly into account. Thus, the European Banking Authority (EBA),8 the European Central Bank (ECB)9 and the Banco de España10 have each published supervisory guidelines and expectations explaining how banks are expected to consider these risks in their daily operations, their business strategies 7  See, for example, A call for action. Climate change as a source of financial risk, NGFS, April 2019, and Climate-related risk drivers and their transmission channels, BCBS, April 2021. 8  EBA report on management and supervision of ESG risks for credit institutions and investment firms, EBA, June 2021. 9  Guide on climate-related and environmental risks, ECB, November 2020. 10  Banco de España supervisory expectations relating to the risks posed by climate change and environmental degradation, Banco de España, October 2020. 3  and their risk management.
At global level, the BCBS has published for consultation a paper on principles for the effective management and supervision of these risks.11 In any event, the improvement in banks’ management capability will presumably have to be supplemented by the development of a regulatory and prudential framework that properly takes into account the special features of the risks associated with climate change. There are two preliminary issues here: the existence of information and common taxonomies and the development of measurement methodologies. The need for common definitions and granular data To assess climate risks correctly, first it is necessary to have common definitions and data of sufficient quality and granularity. The Network for Greening the Financial System (NGFS), of which we, among 108 central banks and supervisory authorities from all over the world, are members, published in May 2021 a report12 emphasising the importance of having common worldwide definitions and standards for disclosure of information associated with these risks. Common definitions Owing to the complexity of the matter, the progress made towards establishing a global taxonomy is, unfortunately, still limited. Not only are productive technologies characterised by great heterogeneity at any given moment in time, which affects their environmental classification, but also a dynamic approach, which recognises the progress made in reducing their emissions, needs to be adopted. I would, however, like to stress the impetus the European Union has given to this issue, through the Taxonomy Regulation,13 which sets the foundations for a common European classification of “environmentally sustainable” economic activities. The regulation establishes six environmental objectives.