Central bank warns financial firms on environmental and social risks

Dutch financial institutions are exposed to environmental and social risks such as water stress, human rights controversies, the loss of biodiversity and a scarcity of raw materials, according to new research by the central bank.

For example, the report shows that the Dutch financial sector’s exposure to the most water-scarce regions totals €97bn and that human rights controversies also arise regularly with respect to businesses in which Dutch financial institutions invest.

‘In addition, there are clear examples of the negative impact which biodiversity loss has on economic activity,’ the report states, adding that other environmental and social risks also warrant more detailed study.

The report points out that most Dutch financial institutions have not yet fully integrated their sustainability plans 
into their operational management.

‘Financial institutions need to have a 360-degree view of the risks they face and be aware of how environmental and social risks contribute to their aggregate risk position,’ the report states.

Controls

The central bank says it ‘will take the necessary steps to contribute to financial institutions’ adequate identification and control of climate-related risks’.

Climate-related risks will be taken more into account within the bank’s supervisory approach and will also be addressed in interviews with supervised institutions.

‘We are also working on implementing and further developing climate stress tests,’ the bank said. ‘For example, we are currently conducting a climate-related stress test at non-life insurers and we are working on a stress test for transition risks.’