The correlation between financial risks and environmental risks seen by international banking operators.

The problems of the environment and the related environmental risks are not, today, only the prerogative of an increasingly large group of young people who demonstrate in the squares and are not only an occasion for the so-called ” green washing” , the sometimes ‘green label on products by companies, but they have entered forcefully into the muffled rooms of the finance that counts.

The issue of climate has become a problem of financial risk , involving banking institutions and the international financial system, which will have to deal with a sneaky and powerful enemy.

There is not a single environmental risk , but several elements that could be linked together, creating a problem of difficult financial management, such that the capital in circulation could be put in crisis. Environmental risks that attract the most attention from financial institutions can be listed in:

• Greenhouse gas increase
• Precipitation increase
• Drought increase

The risks associated with these problems depend on their occurrence and the violence with which they occur in the geographical areas of the planet, but they translate into costs of human lives, destruction of public and private infrastructures, loss of productivity with damage to economic growth and raising of primary commodity prices.

These costs will directly affect the values of the assets, with a deterioration in the ability of companies and families to honor debts and a reduction in the value of guarantees.

Banks are entrusted with the task of directing financial flows towards activities that indirectly reduce the risk itself and therefore towards environmental sustainability initiatives that can mitigate the effects that cause climate change. These loans are necessary for the stability of the banks themselves.

Europe would need, to update the energy networks, improve waste management, water resources, to modernize the transport and logistics network, of 270 billion euros per year , huge figures that will have to be found because there they are alternatives to the road of environmental sustainability.

The main concern of banks and financial investors is the risk in the deterioration of their loans and the value of their assets in relation to climatic factors, which are not in themselves new risks, but which are becoming of such proportions that could destabilize the return financial operations.

The international community from a political point of view is moving in a loose order, with different approaches between the United States, Europe, China, Russia, India , to name a few, but in the end it will be the financial institutions that will influence the choices of energy transition and environmental sustainability.

At this time, however, not all banks have fully understood which is the correct path for the donation of capital on the industrial market and what impact it will have, also in terms of risk on the operations, remaining immobile on the assets in the portfolio.

You can see, for example, in the United States, a country managed by an ultra-denial policy in environmental terms, that environmental movements are demonstrating against banks, such as JP Morgan, Well Fargo, Bank of America , which continue to support financially companies engaged in the extraction and refining of oil.

But there are also international investment funds, such as BlackRock , the largest in the world, which quickly understood where to direct the helm of its investments and, through President Larry Find , reaffirmed its customers and the CEOs of the companies in to which the fund is positioned, which will reward businesses and projects related to sustainability.

According to Find, not only governments, but also financial institutions and businesses will be overwhelmed if effective environmental measures are not taken.

BlackRock is not a recommendation or advice , but a strong and unambiguous decision that could materialize through opposition on the boards of directors or distrust of managers who will not take concrete measures in terms of climate sustainability.

Find sees the environmental risk directly affect the solvency of mortgages, especially those on the home, on inflation, if the prices of primary commodities should soar, on the slowdown in the growth of emerging countries and therefore cascade on the world one, caused by the reduction in production for rising temperatures.

Automatic translation. We apologize for any inaccuracies. Original article in Italian.