News item | 07-06-2022 | 12:14
The transition to a sustainable economy is of enormous importance at this time. As a financier and investor, the financial sector is indispensable for a more sustainable economy. By the end of this year, financial institutions must present their action plans for their contribution to reducing CO2 emissions. This is what Minister Kaag of Finance writes today in her policy agenda for sustainable financing
The financial sector must now realize its ambitions
More than 50 banks, insurers, pension funds, asset managers and their umbrella organizations signed the Climate Commitment in 2019. The Netherlands was an international leader in this regard. By the end of this year at the latest, the signatories to the Climate Commitment must present their action plans for reducing the CO2 impact of their financing and investments. The action plans will be assessed by the Ministers of EZK and Finance for transparency, comparability and level of ambition. For example, financial institutions are expected to base their actions on the 1.5 degree scenario, in line with the coalition agreement. If the results do not match the goals of the Climate Agreement, new legislation and regulations will not be ruled out.
The choices of the financial sector determine what grows and what dies out. That is where banks, pension funds, asset managers and insurers can make the difference. As long as we are not on track to realize the ambitions from the coalition agreement – at least a 55% reduction in CO2 emissions by 2030 – we will have to show a lot more’said Minister Kaag.
The ambitions for making the financial sector more sustainable are in line with the broader ambitions of the cabinet with regard to climate, biodiversity and nitrogen. The government is working on clear and predictable transition paths for the real economy. This gives the financial sector a better idea of what the economy will look like in 2030 and 2050, as far as the government is concerned. A predictable and clear government climate and energy policy helps to determine where to invest or not.
Reporting standards provide insight
By reporting unambiguously and transparently, financial institutions can better account for the CO2 emissions of their loans and investments. Financial institutions should therefore delve more deeply into the companies they finance. Currently, institutions use different definitions of what is sustainable and what is not.
In order to ensure greater transparency and standardization of reporting, the EU has developed legislation in various areas. The Netherlands is committed to an ambitious implementation of this legislation, for example via the EU Sustainability Reporting Directive. This prevents the so-called green washing. If companies engage in greenwashing, they must be held accountable by regulators. The Netherlands also supports the development of global sustainability reporting standards by the International Sustainability Standards Board. If companies engage in greenwashing, they must be held accountable by regulators.
Risks must be well managed
Financial institutions are becoming increasingly aware of the sustainability risks they themselves are confronted with. For example, the greening of society can make investments in fossil fuels lose value. The consequences of extreme weather mean that insurers must be prepared for a sharp increase in claims costs. Biodiversity loss and loss of nature also lead to major financial risks. Together with the Minister of Agriculture, Nature and Food Quality, Minister Kaag argues for the inclusion of the financial sector in the international Global Biodiversity Framework
Additional research by supervisors is needed to better identify these risks. This must also be given a proper place in the supervisory frameworks for financial institutions. For example, the capital requirements of banks must be linked to sustainability risks. At European level, Minister Kaag will take the initiative to exchange best practices with other European member states in the field of sustainability risks, but also making impact and improving reporting.