S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

Thank you for joining us today for our webinar titled Integrating Climate Risks into Credit Risk Portfolios with Climate Credit Analytics. My name is Namtse Namgyal, and I am the Global Head of ESG Channel Partnerships for S&P Global. I also head up our ESG commercial team, focused on working with our financial institutions clients in North America. I'll be your moderator today. Joining me is Dr. Giorgio Baldassarri. Giorgio is the Global Head of the Analytic Development Group at S&P Global Market Intelligence. Also joining me is John Colas. John is a Partner and Vice Chairman of Financial Services Americas with Oliver Wyman. Welcome to you both, and thank you for joining us today. So before we dive into our discussion today, we do have a few housekeeping items to cover. For those of you who may be new to these sessions, these webinars are intended to be interactive. So the console in front of you is fully customizable. You can resize and move the boxes around. At the bottom of the page, you should see a number of widgets that you can access. There should be a Q&A function there, and we encourage you to use that throughout the webinar to submit questions. We will do our best to address those questions, either directly, or if they may be relevant to the wider audience, we may hold some of those questions towards the Q&A portion of our discussion, which should be the last 10 minutes or so of our session today. The webinar will be recorded and available for on-demand viewing towards the end of the week. And if you have any technical difficulties, there should be a webinar health guide function, which should address many of the common issues that may occur. And you can also reach out directly to us through the Q&A function as that will continue to be monitored throughout the event. Finally, we will have an evaluation at the end of the session. We greatly appreciate your feedback. So if you could take a moment to fill that out, that would be wonderful. So now that we've covered the housekeeping, back to Giorgio and to John. I will start with some brief introductions of our presenters here, and then I'll pass it off to John, who will cover the current landscape, an overview of that. And then we'll pass it on to Giorgio, who will cover some of the solutions that we have for our clients. So as I mentioned, Giorgio is the Global Head of the Analytical Development Group at S&P Global Market Intelligence. He is responsible for all of the analytical development, maintenance and validation of all the credit risk models and products across credit risk solutions, which are used by financial institutions and corporates to measure and to manage credit risk, including within the regulatory frameworks. And John. So John is our -- is a Partner and Vice Chairman of Financial Services Americas at Oliver Wyman. He has worked in each of the world's principal financial centers and has been advising senior management in financial services and the public sector on critical matters, such as strategy, regulation, sustainability, climate risks and risk and capital management. John is the co-leader of Oliver Wyman's global climate and sustainability platform, and he also serves on Marsh McLennan's Climate Risk and Sustainability Task Force and the ESG Committee. Welcome again to you, both. So John, without further ado, I'll pass it over to you to cover why is it important for financial services industry to assess these climate-related risks and to share with us some of your insights into the emerging regulatory trends that you're seeing on quantifying these climate risks.

Great. Thank you, Namtse, for that kind introduction. And I'd also like to thank Giorgio, S&P Global and the Sustainable1 team for their amazing collaboration in launching Climate Credit Analytics together. We're extremely proud of the product and the services being presented today, and we wish to make this presentation as helpful and instructive to the audience as possible. So we invite your questions, and thank you for your engagement. With respect to your first question, Namtse, in terms of the impact of climate risk and why financial institutions should care, there are at least 4 big reasons why. And I'll just take a moment to share with you some thoughts as to what's behind the impact and importance of understanding, managing, mitigating, and ultimately, optimizing climate risk. So the first one, I think, is the most important one, which is, essentially, climate risk has a tremendous impact on business strategy. And if we step back for a moment, at this point in time, over 70% of the world's GDP is pledged to a net zero by 2050 target. And if we think about that, that represents tremendous transformation of the global economy. And with that transformation, of course, comes risk and opportunity. So in order to really become fluent in the risks and to become better advisers on the opportunity, it is imperative for financial institutions to understand the risk to be able to quantify it, and importantly, to take those insights forward in terms of serving clients as trusted transition advisers. It's currently estimated that upwards of $6 trillion a year in financing will be required to help the global economy green and transition to that low-carbon economy. So that also presents opportunity, so it's both the risk and opportunity side which we think is most important from a business strategy perspective. In addition to the strategy point, we are all seeing, observing and acting on the evolving regulatory requirements. There have been very bold and important steps taken throughout the world, most notably by the ACPR and the Bank of France, the PRA and the Bank of England, of course, the ECB. And then more recently, we're seeing developments in the United States with the formation of the Supervision Climate Committee. Each of those initiatives with respect to the central bankers and supervisors is really aimed to ensure the stability of the financial system and to help promote a smooth transition to a low-carbon economy. And the means by which the supervisory community is beginning to catalyze that is the advanced application of scenario analysis. Another factor driving the importance of this in the financial system is just simply climate disclosures. Beginning with the launch of the TCFD back in 2015 to the present moment, we are just continuing to see increasing expectations from the investor community and stakeholders more broadly in wanting to understand the exposures, the risks and the opportunities that climate presents to each company. And we continue to see global support for mandatory disclosures. We don't know the exact timing of that. But as many on the phone would appreciate, the SEC has come out with an RFI with regards to disclosures. And there's more public commitments that have been made in specific countries, including the U.K., which is committed to TCFD mandatory disclosures by 2024. And then finally, we see increasing investor activism. And we don't have to look past the recent actions and announcements and news with regards to Exxon and Shell. But more importantly, I think it's critical for institutions to realize that it is projected by 2025 that fully 1/3 of the world's assets under management will carry an ESG label. So in order to be attractive to a very important and growing investment pool, understanding, disclosing and managing climate-related risk will just continue to be increasingly important. And then on the next slide, I just want to really underscore 2 important developments and quotes that highlight just how important this topic has become. You all would have noticed the new American administration here under President Biden has taken a very active stand in putting the U.S. economy on a pathway to net zero by 2050, if not sooner. And Secretary of the Treasury, Janet Yellen, has recently made a number of important public statements. And I think this one on the left is one that is most noteworthy. We are now in a situation where climate change is an existential risk to our future economy. And at the same time, the financial system must also manage the climate-related risks. I think that, that could not be clearer in terms of the imperatives for the financial services industry as a whole. And then on the right-hand side, from the world's largest asset manager, you see this important quote from BlackRock, which we continue to see play out in the market today, where there's a clear recognition that climate risk is an investment risk. And because capital markets pull forward future risk, there is going to continue to be important changes in capital allocation. And the challenge here is to avoid those Minsky Moments where we have a sudden and dramatic repricing in risk that actually makes the transition disruptive and not smooth. So the awareness of both of these, I think, is critical to risk professionals globally in thinking about measuring, managing, mitigating, and ultimately, optimizing return on risk. And then finally on the next slide, you've asked me to comment on the regulatory landscape. And there are so many different things to comment on. And this is just a quick overview of all of the different initiatives that are underway. At the top, you'll see the initiatives of the European Central Bank. I think most importantly there is the launch of the Supervisory Bank stress test will take place in 2022. The European Banking Authority, the EBA, has been very active, particularly on the guidelines for loan origination and monitoring. And then looking further down, there's the important initiatives in the European Union on the action plan on sustainable finance. And then, of course, 2 very important recent developments. You would have seen the announcement earlier this week from the Network for the Greening of the Financial System, NGFS, which has updated and set forth a more specific set of scenarios, which includes updates with macro variables to help risk managers integrate scenario analysis in thinking through climate risk. And then finally, the test was on climate-related financial disclosures. For those of you who may have missed it, this weekend -- this past weekend, the G7 finance ministers and central bank governors issued a communiqué which stated, "We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants that are based on the Task Force on Climate-related Financial Disclosures framework." So when we see such a pronouncement from the G7 finance ministers and central bank governors, we must realize how critical and important the integration of scenario analysis and the advancement of climate-related risks and opportunities in disclosures is becoming. And it's with that as a backdrop that I'm delighted to have Giorgio present the advances we've built together on Climate Credit Analytics, which we see as having immediate utility to both support stress testing, climate-related stress testing as well as TCFD disclosures. So thank you, Namtse. Thank you, Giorgio. And back to you, Namtse, for our polling question.

Thanks, John. Very interesting. So as John mentioned, we're going to be passing over to Giorgio in a moment. Before we do that, we just have a quick polling question for the audience. What is the main challenge for modeling financial impact of transition risk in your opinion? Is it lack of relevant data, impossibility to backtest results, choice of scenarios or impact of assumptions on final outcome? So I'll give the audience a little bit of time, just to make your final decisions. And then in a moment, we can share the live results with you all. [Voting]

Okay. I think we've got a clear winner. So we have the lack of relevant data, scoring above 60%. And the second runner-up is the impact of assumptions in the final outcome. So Giorgio, any -- first, before you kick off into your slides there, any comments or any surprises that you're seeing here from the poll results?

Hi, Namtse. Thank you, actually, and hi, everyone. Before I start commenting on these poll results, I just wanted to say it's a privilege to join forces with John today and discuss about our solutions for climate-related scenario analysis developed with Oliver Wyman. So certainly, looking at these poll results, as you said, Namtse, probably there is the -- an obvious winner here, the lack and the paucity of relevant data. That is certainly one of the major challenges that we also see in the market. And it's not a big surprise, obviously, because this is a nascent field in terms of the understanding and the assessment of this financial impact due to the climate change. The good news is that, obviously, there is a lot of regulatory tailwinds and a lot of efforts done by government to not only enforce an understanding of this impact of climate-related scenarios but also related to the collection and the standardization of the data that can be used to achieve this goal. And I think if we move to the next slide, I will briefly discuss and provide a summary about some of the major aspects about the solution that we have developed with Oliver Wyman. So it's a tool that is called Climate Credit Analytics that it is very useful to, in essence, gain a powerful insight into the future financial performance of companies. And we have developed it, as I was mentioning, with Oliver Wyman to join and to combine our respective strengths. So on one side, Oliver Wyman expertise on the climate side as well as on the financial modeling and our statistical models and the credit risk assessment to see the impact also, the financial impact on the credit side of the story. And the tool itself is definitely useful for enabling risk managers at banks and as well as asset managers to combine the rich data sets offered by Market Intelligence to perform scenario and stress testing analysis of the impact of climate-related energy transition scenarios because both, in fact, as John was mentioning before, this is a new type of risk that we are, in essence, facing now going forward. It's not something that was done in the past. And this is one of the reasons why there is not much ability to backtest the results of this impact. So on the data side, Market Intelligence collects financials for several million companies, both public and private, worldwide. And we also have a very detailed and sector-specific information on individual companies. For example, in the metals and mining sector, we collect the production by metal type. And we also collect climate-level data such as carbon emissions or environmental information via Trucost that is now part of the S&P Global Sustainable1. And in terms of scenarios, the tool embeds integrated scenarios that have been developed by the Network for Greening the Financial System. So this is a group of academic, governmental and financial institutions that takes into account the interplay between climate, greenhouse gas emissions, carbon tax, the macro economy and various energy trends to arrive at a comprehensive picture of how things may realistically pan out over the next decades. But we also allow users to simulate what will happen if there is a sudden stress with a fully disordered transition over a very short period of time, like over the next 3 years. And Climate Credit Analytics combines the data in the scenarios by a bottom-up approach. So it's a flexible approach that is, in essence, particularly suitable, in this case, because there is no way, as I was mentioning before, to backtest the transition risk because we are starting to do it now. So we are moving and companies are moving to adopt greener technology in order to reduce potential carbon emissions. And our tool is deployed in a compact Excel file that is connected with Market Intelligence's database and can pull out precalculated scores based on the NGFS' scenarios for several thousands of companies based on various -- but obviously can be also used to analyze companies on the fly. And in addition, there is an option to connect it to API for users that want to use the engine itself in their own systems. And to take into account the way that companies in different industries operate and obtain a more accurate feature, Climate Credit Analytics includes a suite of sector-specific models that focus on some of the main energy-intensive sectors like oil and gas, airlines, automobile and power generation, but we also have a general approach that applies to the remaining nonfinancial sectors. So if we move to the next slide, this slide shows the analytical framework that we have adopted. And we start with the climate scenarios, and we link these 2 impacts on key drivers, such as the volume, the costs and the price of goods sold by companies. For example, for oil and gas companies, we look at the oil price and production and the gas production as well, as well as the capital expenditures of companies and the asset value that can be used to capture the effect of stranded assets in case the carbon tax increases too much and demand for certain assets drops a lot. And we then link all these key drivers to each current financial item within the financial statement of the company. For example, for revenues, we use the volume and the price. And then we determine the scenario-adjusted financials, and then we plug these adjusted financials in our credit risk models to see the change in credit score from the current level. So if we move to the next slide, I can show you how the tool really looks in practice. And so these are several actual snapshots of the Excel tool, and I, on purpose, show you the snapshots, just in case there are any glitches in my Internet connection, because this would, to a certain extent, the operational risk to my discussion on climate, financial and credit risk. So this is the initial sheet that is include -- that includes the inputs that a user needs to select in order to set up a scenario. So the selection is pretty compact and yet enables users to have the full control of what goes into the tool. So the user can select scenarios based on carbon tax, along with the relevant level of the price of carbon tax. And this short-term scenario assumes that the carbon tax level chosen by the users to pay $60 happens in a disorderly way over the next 3 years. And the tax can be applied to the producer, so the company itself, or to the consumer who releases the emissions through the use of fossil fuels. And actually, there is an option to run up to 4 different carbon tax scenarios in 1 go in addition to the user-defined. And let me jump for a second further down and highlight that we have 2 potential credit risk models that either assess the probability of defaults for a company or the credit score assessment that we expressed on the same scale as S&P Global Ratings but in lower case because we want to distinguish it from a natural S&P Global Ratings issuer credit rating. And there are a few additional inputs that can be edited, if the user wants, to provide further flexibility to the analysis and control how, for example, dividends and cash flows are administered by the company, for example, to repurchase shares or reduce debt as well as define a maximum debt-to-equity ratio. And if we move to the next slide, I also list the -- we can see also the other scenarios included in Climate Credit Analytics that can be selected by the user via the drop-down menu to perform, in this case, a long-term analysis up to the next 30 years based on a chosen step, for example, 5 years period interval. And these scenarios, as I was mentioning before, have been adopted by the Network for Greening the Financial System group. And there are 3 families of integrated scenarios called REMIND, GCAM and MESSAGEix-GLOBIOM that describe various hot world delayed, orderly and also disorderly cases for transitions for different temperature targets. So the REMIND scenarios, for example, are generated by a global multi-regional model that takes into account the interactions between the economy, the climate system and the energy sector. The GCAM takes into account the complex interactions between the energy, the water, the land use, the economy and the climate. And the MESSAGE includes also consideration related to air pollution. So these are really complex scenarios that we are leveraging in the tool, and that, as John mentioned, are also included in some of the stress testing exercises that various regulators are considering or have already launched and are launching in the next few months. So the existence and inclusion of these scenarios is really critical because there is a high level of uncertainty of how the transition will evolve and also around the interplay between the various systems as well as how companies will behave and perform over such long time frames. And if we move to the next slide, we can see that, in essence, the energy transition does not only entail risks but also opportunities for companies who are willing to adopt greener technology to capture these aspects. And the tool includes and is able to -- allows users to switch between a static and adaptive behavior. And in the static case, companies maintain the current investments path. Whilst in the adaptive case, they take actions that are specific to the sector under consideration. So for example, for the airlines, we assume that companies start using sustainable aviation fuel to reduce their direct or Scope 1 emissions. And this comprehensive set of scenarios is actually made fully transparent with all assumptions within the tool. So if we move to the next slide, I show basically how the -- this is another snapshot showing the actual scenarios that are included with the variables in the tool itself for the long-term view. And the user has also the possibility to modify the assumptions of these long-term scenarios by editing the values for the next 30 years, as needed. So if we move to the next slide, I have discussed about the scenarios and the high level of transparency and flexibility that Climate Credit Analytics offers to its users. But this applies also to the other inputs that are included in the tool, such as the company financials that are reported for the past 3 years and that are directly sourced from our historical database within S&P Global Market Intelligence, and that form the basis for the starting point for the financial projections, along with the climate scenarios. And the company financials, obviously, can also be -- provide further specific granularity to companies based on specific information that we capture, depending on the sector where the company is operating. So we look at revenues by regional segment or information, for example, specific, as I said, to specific sectors, such as the powertrain type for automobile companies, or the production of metals and minerals that are extracted by mining companies. And this obviously needs to be tailored this way because different types of goods can be affected in different ways as a result of the transition. For example, some minerals that are key components of electric batteries, and those are important enablers of the energy transition, will see a rise in use, while products like coal that is highly polluting will likely see a drop, depending on the chosen scenario. In any event, users can override or supplement our data for companies in their analysis in - through the tool that we -- through the various sheets that we have included in the tool. And finally, we also include that for specific sectors, the information on greenhouse gas emissions collected by Trucost as well as counter emissions by energy type or asset-level data on reserves and production. And all these data are not only useful but actually needed for a bottom-up approach to deliver analytically robust results. So if we move to the next slide, as I mentioned at the beginning, the tool generates financial projections over a given horizon, depending on the chosen scenario. And the user can easily inspect the full financial statement, so the P&L, the cash flow and the balance sheet, with projections in steps of 5 years or according to the chosen period set. And the financials are then automatically fed into Market Intelligence Credit Analytics models to see how the credit risk changes over time. So this slide shows, in essence, the output of Climate Credit Analytics, like in the case of a 2-degrees scenarios with limited carbon dioxide reduction, as calculated by REMIND. So the assumption behind this scenario is that governments and companies will follow the current country pledges until 2030 and then will delay actually their action until 2030, so there is a slow increase of electric vehicle sales and a slight decrease of internal combustion engines. And then after 2030, governments introduce a higher carbon tax to accelerate the transition. And this leads to a sharp fall in the sales of internal combustion vehicles and a rapid increase in the share of electric vehicles and of gas powered by alternative fuels like hydrogen. So for this company on the right-hand side, we see that during the initial period, it becomes less profitable due to higher initial costs and investments in greener technology to increase production of electric vehicles up to 2030 or 2035. And then the opposite happens towards the end of the period with growing revenues and higher profitability, offsetting costs and leading to a credit score improvement. So Climate Credit Analytics shows an initial drop by 1 notch up to 2035 and then an improvement by 2 notches in terms of credit score by 2050. Obviously, much depends on the type of response of the company and also on how well positioned the company is with respect to the transition itself already starting now. So to illustrate at this point, I have a small portfolio of companies that I can show you in the next slide for which I use the tool and for which, in essence, we can see the results. Actually, another slide again, a bit further down. So if we move to the next slide. Yes, this one, okay. So for the sake of simplicity, I focus again on the 2-degrees REMIND scenario with delayed action after 2030 because now we are familiar pretty much with this and isolated 10 major automobile manufacturers. And I analyze the credit risk impact of these 10 companies over this scenario from now until 2050. And in the static scenario, we assume that companies maintain the historical rate of increase of electric vehicles, but this is obviously not sufficient to meet market demand, especially in the long term. And thus, there is a loss of revenue opportunities, and companies cannot offset properly the higher carbon tax. So we see a deterioration by 1 notch, in average, by 2050 on the orange line in the left plot. Now the good news is that these companies adopt and invest in greener technology. Whilst in the short term, we'll see they will suffer EBITDA due to the further investments and the research and development costs, in the long run, will be able to reap the benefits of their efforts. And in average, we see an improvement by a quarter of a notch by 2050. Now this may sound like it's not really much. But in reality, looking at the average effect does not really do justice to what happens to different companies. In fact, some companies run through our tool show a very different impact, depending on how well and how some companies may be better positioned with respect to their counterparts and so whether they are already now able to sell more electric vehicles. And the plot on the right-hand side shows exactly this different impact by companies. So some companies with a potential credit risk deterioration by 6 notches in credit score by 2050 over the static scenario, so I would say some sort of doomsday. While for others, there is enough listed by 2 notches in credit score over the adaptive case. So I guess this is an exemplary case study that highlights how wildly different effects can be over the long run, depending on the scenario, the company behavior and the individual characteristics on the companies under consideration. So the good news is that Climate Credit Analytics has been built exactly for this purpose to enable users to perform scenario and stress testing analysis on energy transition scenarios and thus capture the variety of results. This concludes my demonstration, and thank you all for your attention. Over to you, Namtse.

Wonderful. Thank you, Giorgio. So before we head into the Q&A portion, which I'm starting to see lots of great questions coming in, we just have another quick question for the audience. Please indicate would you like to be contacted by a team member to learn more about any of the solutions you've seen here about climate credit risk solutions. I'll give everybody a moment to complete that while we prepare to take a look at some of the great questions coming through.

Okay, wonderful. So the first question, let me direct to you, John. How practical are climate risk scenarios?

Yes. Namtse, great question. I think that we need to appreciate that there is tremendous utility in the climate scenarios, and let me explain why. If we think about traditional stress testing, which we've all come to know through the work of the central banks with regards to stress testing in the United States, CCAR and around the world in terms of capital-related exercises, those scenarios and stresses tend to be anchored in macroeconomic factors. They tend to have a sort of 9-quarter horizon, and they are really focused on sort of capital levels and resilience in the banking system. Climate is a much longer-term risk, and we're asking the industry really to look out over a longer-term horizon, much longer than 9 quarters. And we don't have the historical data to backtest and validate against. So the value of the climate scenarios as produced by the NGFS and the climate science community is incredibly important because it will advise institutions, as Giorgio has presented, in how to take those factors associated with the climate scenario and bring them into the economic impacts at the customer and portfolio level. Where the challenge lies is how to translate many of the factors in a climate scenario into the economic drivers at a customer level. That is what Climate Credit Analytics does. And as we look at the progression of climate scenarios today, we are seeing, through the good work of the NGFS, the addition of more macroeconomic factors and variables. And we continue to expect that there will be advances in both data and methodologies over time to enable the industry to be able to model those longer-term scenarios and take appropriate actions in advising clients and helping them navigate through the transition.

Thanks, John. Okay. Next question is to Giorgio, I think. How do you integrate a country's climate risk into a counterparty's climate risk?

I think -- thank you for the question, Namtse. This is very interesting, talking about country -- counterparty's risk. I think it's -- we have obviously included already in some of our statistical models the impact of country risk. However, when we are speaking about climate change, in particular, this is a different story because the tool, Climate Credit Analytics, already includes scenarios developed by the NGFS that take into account, especially the second generation of these scenarios, differentiation by country. The ultimate purpose, however, of the scenario tool itself is not necessarily to capture the specific characteristics for each individual country in one go, however, can be used to study the variability and the uncertainty related to the output by flexing, in a robust way, all the assumptions that are in the tool. So there are ways in the tool, actually, to study the impact also of different behaviors by country level by including some of these assumptions and the change in the [indiscernible]

Thanks, Giorgio. So here's an interesting one. Is there quantitative evidence available, not modeled, that demonstrates how climate risk has financially impaired the investment portfolio of financial institutions, such as the insurer groups? Maybe is that -- Giorgio, can you address that one?

Okay. On the insurers side, I think this is an interesting question because, obviously, for the investment portfolios of insurers, in particular, I would imagine, the insurance companies already have -- depending on the type of exposures that they have, but they already are very well versed in the analysis on, in general, operational risk, so also climate-related or physical events. But specific to this question that probably is more tailored towards transition risk, there is empirical evidence that is obviously -- there is not much empirical evidence, sorry, that is available because this is exactly a new type of transition that is happening. So on the physical side, there is information. Insurance companies do collect some of the -- of these losses and events in their databases. The challenge probably is that -- is about projecting these things over longer time horizons as a higher level of temperature and global warming will potentially change both the frequency and the severity of the distribution of the events, of the fiscal event.

Thanks, Giorgio. So perhaps we can switch back to you, John, and talk about banks. So managing climate risk as financial risk in banks, what's the common practice today?

Well, I would say, Namtse, that the industry is continuing to make significant stride and advances in how it is going about integrating climate risk in its management processes. I would say the practice today is sort of a combination of things. It starts first with an acknowledgment and recognition of climate as a financial risk and the need to integrate climate risk as such in the bank's enterprise risk management activities. One can think of climate as a cross-cutting risk that touches many of the other risk management activities in a firm. And we believe the best place and the sort of natural starting point for most firms has been to begin with a top-down portfolio view in the form of a heat map to really understand the concentrations of risk exposed to climate change and then to dive deeply into those portfolio subsegments initially in a pilot manner in order to better understand the data sets, the insights and the implications for those portfolios. And then over time, we do see important initiatives underway to ensure that climate is reflected in enterprise risk appetite statements, that there's robust governance in how credit -- climate risk is being factored into the credit processes. And I think this audience has probably seen some of the recent information and requests coming from the European Central Bank, which is really speaking specifically to the need for institutions to take climate and climate-related and environmental risk into their credit processes and to form a view as to how that risk will affect the counterparties of an institution. So Namtse, it's really a journey, and it's an evolving practice, but it does involve working across all of the risk functions as well as with other functions in the bank, including the sustainability teams, the investor relations teams, and of course, the business units. And it's all of those groups coming together to really help better understand the implications of climate and how central the banking system is in helping clients through this transition.

Thanks, John. So I think we probably have time for just one last question before we wrap up today. I know there are lots of great questions coming through. So if we don't get to your question, rest assured, we will be back in touch with you to address those. Giorgio, perhaps this is another one for you to end on. How do you see climate-related risks impacting credit management, not only for financial institutions and large corporates, but also for middle-market companies and smaller businesses and their related supply chains?

Thank you, Namtse. I think the keyword here is exactly the supply chain. So in particular, if I'm thinking about, and we've seen it actually last year and in the previous years wildfire happening everywhere. Physical risks are really posing a big threat to companies, to the world as such due to global warming. If there is not such a thing like a transition, a proper transition and an understanding about the risks related to this transition, then we're going to face more physical risks due to global warming. And this has the power, the risk, really, to disrupt supply chains and have repercussions on -- even on smaller companies like SMEs that are using larger suppliers from their side in the supply chain. On the other side, we have done recently, using Trucost data, an analysis of the carbon emissions typically of SME companies, and we found through the data set that, as obvious to a certain extent, the average level of carbon emissions of SMEs is lower than per-dollar amount than their larger counterparts. Partly, this is driven also by the industry sectors in which they operate that are less related probably to high greenhouse gas-emitting sectors.

Perfect. Thank you, Giorgio. I think this brings us to our conclusion of our webinar. I think we've gotten -- we've covered a lot, but we've also done a lot of questions. So again, if we haven't had a chance to address your questions on this webinar, we will be reaching out to you directly with anything. And as always, if you have any follow-up questions, you can -- there's a widget there. You can use that to contact us, and we can gladly assist you with those also. And just as a quick reminder to everyone, the session is recorded, and it will be available for on-demand viewing by the end of the week. And please, if you have a chance, please answer the evaluation form. We really appreciate that. So with that, thank you very much to our presenters and also to all of our audience for joining us, and we look forward to seeing you soon.

Thank you, Namtse.

Thanks, Namtse.