Bank of Italy – which is Italy’s central bank – is currently putting the finishing touches on a 7 billion euro investment scheme, set to go live at the end of June. The plan, which will reward companies for taking positive action in relation to the environment and climate change, will initially provide access to its portfolio of shareholdings, and subsequently complement this with an extended plan – including 1 billion euros in corporate bond holdings.
Companies who want to take part in the scheme will have exacting criteria to measure up to. The Bank of Italy has ambitious targets for companies entering into its portfolio; including lowering greenhouse gas emissions by 23 percent and cutting the consumption of energy and water, respectively, by 30 and 17 percent. The programme will exclude any firm that does not abide by UN principles on the environment, human rights, anti-corruption and labour laws.
The Bank of Italy is a member of the global Network for Greening the Financial System, which views climate change as a major threat to the world’s financial stability.
The Italian move is the latest in a growing trend towards ‘green’ investment, driven by a moral movement aimed to help counteract climate change, which is resulting in significant investment opportunities.
The European Central Bank (ECB) is among the largest green investors. In a speech last year, Benoît Cœuré, member of the ECB’s executive board, revealed that the bank owned approximately 25 percent of green public bonds – for a sum of 48 billion euros – along with an equal proportion of green corporate bonds.
On a global level, sustainable investments were recently highlighted by the United Nations Global Platform for Risk Reduction (UNDRR) and E3G, a climate change consultancy. Their report highlighted the need for countries to align investment needs with tackling climate change, adding that there was a massive need for countries to take climate related risk and natural disasters into account when considering investment decisions.
The UNDRR’s report emphasised that Europe had endured massive economic losses related to extreme weather and climate related events – valued at half a trillion euros – during the period between 1980 and 2017. The authors of the study suggested that national strategies for disaster risk reduction should be aligned with climate change plans; something that could then be linked to opportunities for investment.
Taking their recommendations a step further, the report proposed that any project seeking funding could be required to have disaster and climate change risk factored in, before it was considered for investment. The European Commission could then create a taxonomy of “unsustainable activities”, comprising projects that would not be considered for EU investment on this basis.
The scale of this sector continues to grow. Blackrock, the world’s largest fund management agency, has forecast that the total share of global sustainable investments will rise sharply from 3 percent today to 21 percent by 2028. Mark Carney, Governor of the Bank of England, recently stated that “Banks have begun considering the most immediate physical risks to their business models – from the exposure of mortgage books to flood risk, to the impact of extreme weather events on sovereign risk.”
Returning to the Italian context, the Bank of Italy recently published a study which highlighted how some of the nation’s most economically vital areas are critically under-insured for flood risk and, as a result, some businesses in these areas are being denied access to investment by banks that are, understandably, concerned about their risk exposure to catastrophic events.
Nowhere does the threat of these catastrophic events loom larger than in the water-bound city of Venice, which is in an existential battle for survival with the elements.
In November 2018, a seasonal high tide combined with storm-force winds and submerged large parts of the city, with the loss of life and considerable destruction of property – including the city’s priceless cultural heritage. The city had been planning for such threats, having invested 6 billion euros over the course of fifteen years in the MOSE project to protect the city from floods. Unfortunately, the project was only 90 percent complete when the floods hit, with the spiralling costs of the project blamed for the delay in its completion.
The catastrophic events of last November only highlight the importance of undertaking investments in ventures, such as MOSE, that mitigate serious environmental threats. Moreover, spiralling costs on projects of this nature could be alleviated by tapping into strategic investment instruments such as the InvestEU scheme, which ultimately aims at ramping up the levels of public and private spending on projects that have been data-proven to not only diminish levels of risk, but to provide resilience against disasters and climate related events.
