SMEs, hydrogeological instability increases the risk of default: 200 billion euros are needed

L’flood in Romagna severely hit the region’s production system. After the damage count, estimates of what the future risks could be in the hypothesis that this type of event is repeated more frequently are now starting to emerge. Cervedfor example he has carried out a study on Italian SMEs, dividing them by region and therefore on the basis of the risks of each area of ​​the boot, to estimate the costs that companies may face. The analysis, which was carried out taking as an example the climate stress test promoted by European Central Bankexamined three different scenarios based on the different efforts made to prevent disasters and limit their damage: that of the orderly transition, which proceeds on a regular basis and concentrates the major investments in the first decade; that “disorderly”, in which interventions are postponed in 2030-40, with higher costs in the medium term; and finally it “greenhouse” scenario (hot house)in which there is little intervention, with a consequent increase in the frequency and severity of physical events.

Well, businesses that won’t quickly take steps to manage the climate transitionwhich is among the causes of the hydrogeological instabilitywill have in 2050 the 25% more likely to default compared to today and 44% more than those who invest right now. Not only that: for companies at high physical risk (over 8%, concentrated above all in Emilia Romagna, Tuscany, Liguria, Valle d’Aosta and throughout the Apennines) an increase in annual reconstruction costs is expected by 2050 of plants and structures equal to 1.6% of assets and insurance premiums up to 3% of turnover.

“According to our estimates, the investment that Italian SMEs should support to finance the transition process right now is around 203 billion euros by 2050, of which 137, i.e. 67%, in the next 8 years – he claims Andrea Mignanelli, CEO of Cerved – The largest share concerns the North (73.7 billion in the North-West and 54.8 in the North-East), where most of the production activities are concentrated, but it is in the South that action must be taken immediately even with adequate support, so as not to affect budgets and aggravate the most fragile financial situations. An ‘orderly’ transition, despite the high impact in the short term, represents the best choice considering economic trends and risk prospects, but requires the active participation of all players, from the political system to the productive and banking system”.

In the disordered scenario, we start ten years late, and the majority of investments (134.5 billion euros) are concentrated between 2030 and 2040. In ‘greenhouse’ scenario, or hot houseinstead they choose to do very little, investing just 121.4 billion by 2050. But the saving is only apparent: inaction increases the physical risk exponentially, starting from 2040, with a consequent greater probability of default risk and much higher costs for related reconstructions and insurance premiums.

In Cerved’s simulation, investments lead in the long term to a reduction in the probability of default in scenarios with “orderly” and “disordered” transition. In the “hot house” hypothesis, on the other hand, there is a +25% risk in 2050 compared to today and a +44% compared to the ordered scenario, particularly in the South (where the default risk goes from the current 3% to 3.8%) and in the Center (from 2.9% to 3.7%).

Cerved analysts also considered, on the one hand, the greater investments necessary for the reconstruction of plants and structures affected by landslides or floods, closely linked to the rise in temperature, and on the other the growth in insurance premiums required to cover, at least in part, the damage. In the first two scenarios, the frequency of negative events by 2050 increases only marginally and the cost of reconstruction reaches a maximum of 0.1% of assets for high-risk SMEs, while policies do not affect more than 1.1% of the sales. Conversely, in the “greenhouse” scenario, these percentages rise to 1.6% and 3% respectively for companies with high physical risk.