Climate change and the energy transition are key challenges facing the economy and the financial sector. In the past year, we have taken important steps to identify the climate-related risks and opportunities of our own-account investment portfolios and to make our investments more sustainable. We present the main developments below.
Climate-related considerations play an increasingly prominent role in our efforts to make our own-account investment portfolios more sustainable. We believe it is important to be open about the challenges and opportunities on the road to becoming a sustainable investors. That is why we have added a special climate annex to our annual report this year. It is fully in line with the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD) and includes the carbon footprint of our own-account investments. In this climate report, we want to share our experiences with other central banks and financial institutions. We explain how we deal with climate risks and opportunities in our core tasks of monetary operations, supervision of the financial sector, economic advice and statistics production.
We have started to build up a green bond portfolio for our own-account investments to support the development of this market. This year, we aim to invest at least EUR 400 million. At the end of last year, the volume of our green bond portfolio amounted to around EUR 320 million.
We are improving the sustainability of our investments on the basis of the principles we formulated in our 2019 Responsible Investment Charter. Since then, we have taken a number of important steps. In 2019, for example, we appointed two new external managers for our corporate bond portfolio. In 2020 we also appointed a new manager for part of our equity portfolio. These new managers comply with our principles. This means they integrate environmental, social and governance (ESG) criteria in the investment decision, exclude producers of controversial weapons, and screen for violations of the UN Global Compact principles, leading to exclusion or engagement. In chapter 4 of our Annual Report, we explain the steps we have taken so far to align our investments with our Charter. We are almost there. We are currently in the process of adapting our operational organisation and systems in order to realise the goals of our Charter in all our portfolios.
We subjected our balance sheet to a climate stress test this year. This revealed that our balance sheet is sensitive to transition risks. Transition risks are the result of the transition to a carbon-neutral economy. Climate policy, technological developments and changing consumer preferences may cause loans to sectors and companies that emit high levels of CO2 or other greenhouse gases (and investments in them) to lose value much faster than expected. In the most severe stress scenario both our corporate bond and equity portfolios are hit relatively hard.
You can read more about the climate stress test in the climate annex of our annual report.
We continue to prioritise climate change. We are currently exploring whether we can align our equities portfolios with the agreements set out in the Paris Climate Agreement. For example, we aim to formulate measurable carbon reduction targets. We will also start investigating and identifying the physical climate risks of our investment portfolios, such as the impact of increasing drought and extreme weather conditions on the companies in which we invest.
The term of the Responsible Investment Charter has been extended by one year. In the spring of 2022 we will publish an update, including further details on how we will implement the Paris Climate Agreement.
Would you like to know more about our approach to sustainable investment? Then listen to our DNBTalks podcast (in Dutch) about sustainable investment, in which journalist Krista Arriëns interviews our experts, Lisanne Cock and Rianne Luijendijk.
The vast majority of homeowners in the Netherlands have sufficient savings or could take out a loan to make their home more climate-friendly. They can afford to upgrade their home insulation to energy label B and install a heat pump.
Read more Almost all Dutch homeowners able to finance climate measures
Dutch banks risk losses from coastal and river flooding through their loans to businesses. Flood measures such as dykes and storm surge barriers mitigate most of the risk, even as climate change increases flood risks. Without flood measures, expected losses would total more than €2.5 billion a year.
Read more Dutch banks' exposure to flood risks through corporate lending is limited
The market for Dutch green securitisations of residential mortgages and for green covered bonds more than tripled in size in 2023 compared to 2022, DNB figures show, reflecting investor demand for green investments.
Read more Sharp increase in green securitisations in 2023
At her keynote address at the CMPI-IOSCO workshop today, Inge van Dijk (Director Payments, Cash & Market Infrastructure, De Nederlandsche Bank) said Financial Market Infrastructures could do more to integrate climate risk in their risk management.
Read more Climate risk: what does it mean for you?
