Environment

The Net-Zero Banking Alliance represents a path of decarbonization and a long-term vision, to be achieved by 2050. To do this, we have to start acting now.

Net-Zero means cutting greenhouse gas emissions down to zero, achievable through:

• a significant reduction of direct and indirect emissions;
• the balance between remaining or non-reducible emissions produced and emissions removed from the atmosphere.
   

Net-Zero banking Alliance (NZBA) is a United Nations-led initiative that aims to accelerate the sustainable transition of the global banking sector. It requires participating banks to commit to aligning their lending and investment portfolios to achieve net-zero greenhouse gas emissions by 2050, in line with the targets set by the Paris Agreement on climate change and science-based decarbonization scenarios.

Based on the commitments made to the Alliance, BPS identified priority sectors for which targets should be published taking into consideration the following elements:

• relevance of the sectors to the Bank (i.e., financed emissions);
• availability of data and methodologies for the definition of reduction scenarios and related Net-Zero targets;
• alignment with the coverage of priority sectors on the portfolio published by the Members.

The Bank has identified priority sectors on which it has defined intermediate emission reduction targets to 2030, which have been published 6 months in advance of NZBA's timeline:

1. Oil and Gas
2. Agriculture
3. Iron and Steel
4. Aluminium
5. Power Generation

The table below summarises the intermediate (to 2030) and long-term (to 2050) targets identified for the Bank's priority areas.

Glossary

Alignment to the Paris Agreement: the Paris Agreement is an international treaty that legally binds its signatories to act to combat climate change. In it, an action plan to limit global warming is outlined which, specifically, stipulates that the global average temperature increase should not exceed 1.5° C by the end of the century.

Financed emissions: financed emissions are defined as the absolute counterpart emissions attributed to the Bank's loans and investments. Such emissions are classified as Scope 3 emissions - Category 15 Investment. It is specified that the PCAF (Partnership for Carbon Accounting Financials) methodology is used to calculate financed emissions, which relates the Bank's gross exposure to counterparties and their absolute emissions.

Reduction target: a percentage reduction level set, in line with the NZBA requirements, at an intermediate (i.e., 2030) and long-term (i.e., to 2050) milestone relative to the base year value identified. The target is defined through the analysis of ‘Net-Zero’ decarbonisation scenarios, aligned with the objectives of the Paris Agreement.

Decarbonisation scenarios: greenhouse gas emission reduction pathways considered for the definition of decarbonisation targets. For the selection of these scenarios, the NZBA guidelines envisage ‘science-based’ approaches aimed at pursuing the goal of limiting global warming to 1-5°C above the pre-industrial average by the end of the century through the use of methodologies from internationally recognised credible sources (e.g. IEA NZE scenarios as defined by the International Energy Agency; Intergovernmental Panel on Climate Change -IPCC- scenarios or additional scenarios derived from such models, including the One Earth Climate Model -OECM- scenarios).

What are C&E risks?

Climate-environmental risks are to be understood as the financial risks generated by the Bank's exposures to counterparties that suffer impacts deriving from climate change and environmental degradation (such as air pollution, water pollution, scarcity of fresh water, soil contamination, biodiversity loss and deforestation), as they are exposed to extreme weather condition or possible changes in their asset value. Managing these risks represents a challenge for the financial sector, stimulated by growing regulatory pressure and by the increasingly widespread occurrence of extreme weather events.

There are two categories of C&E risks: physical and transition risks.

Transition risk

Financial loss directly or indirectly related to the transition to a low-carbon and more environmentally sustainable economy.

Physical risk

Financial impact of climate to frequent extreme weather events (‘acute’ physical risk) and to gradual climate changes (‘chronic’ physical risk), as well as environmental degradation, air, water and soil pollution, water stress, loss of biodiversity and deforestation.

Map of Italy with indications of landslide danger and hydraulic danger

The Bank has adopted a specific “Climate and environmental risks general Regulation " to formalize the governance, management and control of C&E risks.

How are C&E risks managed? 5 steps

11 Green financing lines supporting environmental investments.

Since 2023, BPS supports the Task Force on Climate-related Financial Disclosures (TCFD), which is an international organization that encourages companies to be more transparent about the financial risks and opportunities associated with climate change.

The Bank has undertaken to report the environmental and climate-related risks and opportunities, as well as the targets, in the TCFD Report, attached to the NFS, thus aligning with international best practices. In particular, the TCFD recommends the use of a scenario analysis precisely in order to assess the risks related to climate change, so as to ensure a clear direction towards a reduction of direct and indirect impacts. The guidelines drawn up by the TCFD aim to measure the adequacy of the climate strategy of member companies and to support them in communicating the relevant aspects relating to the climate promptly and transparently.