The Bank of Italy is committed to ensuring that the banking and financial system is well-prepared to face the challenges posed by the transition towards a sustainable economy, while at the same time avoiding unwarranted burdens on intermediaries. Integrating environmental, social and governance (ESG) factors into firms' and supervisory processes is one of the strategic priorities for the next few years: the goal is to raise bank and non-bank financial intermediaries' awareness of the challenges and opportunities that ESG factors could create for their business models and to develop appropriate supervisory assessment methodologies and practices.
At international level, the Bank of Italy is an active contributor to the work of the main fora for supervisory cooperation. The Basel Committee on Banking Supervision is analysing whether and to what extent the current regulatory framework is capable of adequately capturing climate-related financial risks. It is studying possible improvements to Pillar 1, 2 and 3 rules: among other things, in November 2021 it published for consultation specific guidelines for banks and supervisors on the effective management of climate-related financial risks. In Europe, the European Banking Authority (EBA) is drawing up disclosure standards and guidelines on effective ESG risk management. The recent European Commission proposal to review the prudential rules for banks and investment firms (CRR3-CRD6) is a further step towards strengthening the disclosure to the market (Pillar 3) and the safeguards that financial intermediaries must put into place to ensure an informed governance of risks (Pillar 2). Within the Single Supervisory Mechanism, the Bank of Italy is involved in reviewing significant institutions' plans for implementing the ECB's expectations on climate-related and environmental risks and contributing to the 2022 climate risk stress test.
Throughout 2021, a first round of interviews with the members of the boards of directors of a large sample of less significant institutions (LSIs) was conducted at national level to gather data on their level of awareness of environmental risks, alongside an in-depth analysis of the methods used by asset management companies (SGRs) to incorporate ESG factors in their business processes.
Moreover, in early 2022 the Bank of Italy identified an initial set of 'supervisory expectations' for the integration of climate and environmental risks into the corporate strategies, governance and control systems, risk management frameworks and disclosure requirements of supervised banking and financial intermediaries. The Bank of Italy reserves the right to amend the report over time to take account of developments in best practices and in the regulatory framework. It may also expand it to incorporate social and governance issues.
The report was already being used in 2022 by supervisory units as a base for their initial dialogues with individual intermediaries with regard to the extent to which they are meeting supervisory expectations and their plans for implementing them. Specifically, the Bank of Italy contributed to an in-depth study of the topic - begun through the ECB - on a representative sample of LSIs and it administered a specific questionnaire to a significant sample of non-bank intermediaries.
The replies to the survey on the LSIs were made available in a report published in November together with a note that urged the governing bodies of all LSIs to adopt action plans designed to fully incorporate climate risks into their ordinary risk management and governance frameworks over the next three-year period. A similar notice was sent to non-bank intermediaries at the beginning of 2023 to sum up the findings of the analysis of the replies to the questionnaire and call upon their governing bodies to adopt specific action plans designed to encourage the gradual integration of climate and environmental risks into their corporate strategies, governance and control systems, and into their risk management frameworks in the medium term.
Finally, the main results of the analysis of the action plans prepared by LSIs and non-bank intermediaries were published, together with an update of the good practices observed, as well as first results emerging from the assessment of the accounting impacts of ESG risks and of the ESG disclosures of Italian banks.
The Bank of Italy will continue to consider sustainability issues in the regular supervisory dialogue with LSIs and non-bank intermediaries, and monitor the implementation of action plans, in compliance with the proportionality principle.
