Banco BPM-Bank’s role in funding climate adaptation for businesses

It's widely known that market participants today are primarily focused on how companies are managing the transition to a carbon-free economy – by decarbonizing emission-intensive production processes and reducing energy consumption – rather than on the plans they should be developing to ensure operational continuity by adapting to ongoing climate changes.

This is understandable, as there is broad agreement among climate scientists that the primary cause of climate change is rising temperatures due to anthropogenic greenhouse gas levels in the atmosphere. We must therefore act now to reduce these levels in the medium to long term. Indeed, achieving the often-cited “Net-Zero” by 2050 is the explicit goal of the European Green Deal.

That said, it is evident that the adverse effects of ongoing climate change are already increasing significantly in their frequency, extent, and impact. Therefore, in the short term, adapting to climate change is the primary risk factor to address, especially since a slower climate transition is assumed to lead to more frequent and severe acute or chronic adverse climate events.

Taking early action to prevent or mitigate the damage caused by such events is now critical for ensuring a company’s operational continuity, maintaining housing stability for families, and protecting property values. This is particularly relevant in a country like Italy, which, as ISPRA has demonstrated for years, is among the most exposed in Europe to risks like landslides, floods, tornadoes, hailstorms, fires, water shortages, and droughts.

Banks, therefore, have a particular interest in integrating new climate and environmental risk factors into their operations, especially into their risk exposure assessment models. As adverse climate events become more frequent and impactful, they can worsen credit risk parameters (PD and LGD), with negative consequences for banks’ income statements, capital adequacy, and liquidity levels.

Banks have a dual need: to thoroughly assess their clients’ exposure to these risk factors and to fully seize the business opportunities that arise. Among the major domestic banks, Banco BPM is undoubtedly the one with the strongest connection to the territories and communities it serves. Nearly a third of its total loan portfolio (over €30 billion for businesses and households) has been granted to Italian SMEs. This share exceeds that of its domestic peers by about 10 percentage points and is more than double that of the two national champions.

For this reason, after developing methodologies to assess clients’ exposure to physical risks in the territories where they live and operate, Banco BPM has placed significant emphasis on enhancing its product offerings. The goal is to provide clients with a wide range of solutions to secure the liquidity needed to make investments or cover the costs of implementing climate change mitigation and adaptation plans.

The range of solutions offered includes financing for “green” projects (purpose-specific or sustainable-linked loans), funding for renewable energy development through project financing, and catastrophic insurance policies. Since mid-2024, these policies have been successfully marketed, particularly to smaller businesses, anticipating by 18 months the mandatory insurance introduced by the 2024 Budget Law, which allows them to keep receiving state incentives.

Additionally, a product that combines an adaptation loan with a natural catastrophe ("nat-cat") policy is under development. This product aims to leverage the benefits of a reduced exposure to physical risks to lower the insurance premium.

This significant focus on supporting clients in adapting to ongoing climate change is part of Banco BPM’s commitment to fostering a more resilient, inclusive, and sustainable economic system.