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Assessing climate risks in the Italian financial sector

Technical Report · February 2021

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Lorenzo Forni Michele Catalano

University of Padova Prometeia Associazione
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7 6.8
6.0
6 5.3 5.5 5.5
5.1
5

4 3.4
3.2
3

0
Italy Other EU Other OECD Other Non
countries countries OECD countries
Banks Supp. Pension Schemes
 DATA 2018 Volumes in millions of euros
Supplementary Private social
Insurance
Pension security Banks
companies*
Schemes^ agencies
Deposits 361 9 944 5 887
Government bonds 359 776 55 246 14 649 448 935
- of which Italians 297 301 28 296 9 105 368 320
Corporate bonds 148 327 22 615 4 919
- of which Italians 33 165 2 453 808 88 995
- of which Italians
7 176 531 175 32 286
NFC^^
Equities 10 908 21 760 7 148 171 643
- of which Italians 3 990 1 205 3 582 102 504
- of which Italians
NFC^^ 2 795 844 2 509 72 365
Shares in investee
companies, including
strategic shareholdings 83 225 326 531
Mutual funds 80 106 18 226 41 081
- of which real estate - 1 571 14 326
Other 7 712 4 399 12 807
Total 690 415 132 516 87 022 3 665 798

Government bond Equity on Total

on Total Assets NFC domestic bonds Assets (%)
(%) on Total Assets (%)
Banks 12% 0.9% 4.7%
Insurance Companies 52% 1.0% 1.6%
Supplementary
Pension Schemes 42% 0.4% 16.4%
Private social security
agencies 17% 0.2% 8.2%
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 p q
𝑦𝑡 = c + ∑𝑖=1 𝑎𝑖 𝑦𝑡−𝑖 + ∑𝑖=0 𝑏𝑖 X𝑡−𝑖 + 𝜀𝑡

• 𝑦𝑡

• ∑p𝑖=1 𝑎𝑖 𝑦𝑡−𝑖 ∑q𝑖=0 𝑏𝑖 X 𝑡−𝑖

𝑋𝑡
 NACE 1 Level Coverage
ratio at 2019
A Agriculture, forestry and fishing 59.1
B Mining and quarrying 62.7
C Manufacturing 62.7
D Electricity, gas, steam and air conditioning supply 83.6
E Water supply 71.2
F Construction 59.4
G Wholesale and retail trade 66.5
H Transport and storage 60.3
I Accommodation and food service activities 53.7
J Information and communication 68.0
K Financial and insurance activities 68.1
L Real estate activities 52.0
M Professional, scientific and technical activities 61.9
N Administrative and support service activities 64.2
Others 65.0
 1 − 𝑒 (−𝜏∙𝑚) 1 − 𝑒 (−𝜏∙𝑚)
𝑟𝑡𝑖 (𝑚) = 𝛽0,𝑡 + 𝛽1,𝑡 ( ) + 𝛽2,𝑡 ( − 𝑒 (−𝜏∙𝑚) ) [D1]
𝜏∙𝑚 𝜏∙𝑚

𝑚 𝑖

• 𝛽0

• 𝛽1

• 𝛽2

• 𝜏

𝑃 𝑄 𝑄

𝑌𝑡𝑖 = 𝛼 𝑖 + ∑ 𝛽𝑝𝑖 𝑌𝑡−𝑝

𝑖
+ ∑ 𝛾𝑞𝑖 𝑀03𝑖𝑡−𝑞 + ∑ 𝛿𝑞𝑖 𝑌10𝑖𝑡−𝑞 + 𝜀𝑡𝑖 [D2]
𝑝=1 𝑞=0 𝑞=0

𝑖 = DEU, USA, 𝑌 𝑀03

𝑌10

𝛽0,𝑡 , 𝛽1,𝑡 , 𝛽2,𝑡

𝜏
 𝐸𝑡
𝑃𝑡 = [E1]
(1 + 𝑅𝐹𝑡 + 𝐸𝑅𝑃𝑡 )

𝑙𝑛(𝑃𝑡 ) = 𝛼 + 𝛽1 𝑙𝑛(𝐸𝑡 ) + 𝛽2 𝐷𝐹𝑡 + 𝜀𝑡 [E2]

𝐷𝐹𝑡 = (𝑅𝐹𝑡 + 𝐸𝑅𝑃𝑡 )

𝜀𝑡
 SECTOR SUBSECTOR ATECO - Bank of Italy
Technology 26: Electronic and optical products
Telecommunications J: Information and communication
Health Care 1000055: Chemicals
Investment Banking and Brokerage Services K: Financial and insurance activities
Insurance
Financials
Finance and Credit Services
Banks
Real Estate L: Real estate activities
Automobiles and Parts 1000060: Manufacture of motor vehicles, trailers and semi-trailers
Household Goods, Home Construction 31: Manufacture of furniture
Personal Goods 1000062: Textiles, wearing apparel, leather and related products
Consumer Discretionary Media 1000063: Paper and paper products
Retailers G: Wholesale and retail trade; repair of motor vehicles and motorcycles
Travel and Leisure N: Administrative and support service activities / I: Accommodation and food service activities
Leisure Goods
Consumer Staples 1000061: Food products, beverages and tobacco / A: Agriculture, forestry and fishing
Construction and Materials F: Construction
Electronic and Electrical Equipment 27: Manufacture of electrical equipment
General Industrials 22: Manufacture of rubber and plastic products
Industrials
Industrial Engineering 28: Manufacture of machinery and equipment n.e.c.
Industrial Transportation H: Transportation and storage
Aerospace and Defence
B: Mining and quarrying / 23: Manufacture of other non-metallic mineral products / 24: Manufacture of
Basic Resources
Basic Materials basic metals / 25: Manufacture of fabricated metal products, except machinery and equipment
Chemicals
Electricity D: Electricity, gas, steam and air conditioning supply
Utilities
Gas, Water, Multi E: Water supply; sewerage, waste management and remediation activities

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𝑒𝑥𝑝(𝐷𝑡 )
∆𝑙𝑛(𝑇𝑅𝑡 ) = ∆𝑙𝑛(𝑃𝑡 ) + ( ) [E3]
𝑒𝑥𝑝(𝑃𝑡−1 )
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