We are constantly improving our sustainable financing. More research and cooperation are needed on the road to a green economy. And we also work hard to achieve this.
Sustainable finance is strongly on the rise. But it is still in its infancy. There remain many challenges ahead. For example, we lack reliable data, international standards and measurement methods to determine a sustainability profile. This means that we often have to make assumptions about the extent of sustainability or that we unintentionally apply double standards. What one institution calls sustainable can therefore be rejected as unsustainable by another. There are also many obstacles to sustainable financing. These and other challenges call for more research and cooperation.
In the Paris Climate Agreement, it was agreed to limit global warming to 1.5 ⁰C compared to pre-industrial levels. The EU’s ambition is to be climate neutral by 2050 and to achieve a carbon (CO2) reduction of at least 55% in 2030 compared to 1990. The Dutch government is aiming for a 49% carbon reduction in 2030. We are far away from achieving that aim with the current efforts. So there is every reason to invest much more in achieving the climate targets.
A recent DNB study shows that there are several obstacles to climate investment. For example, the return on investment compared to the risks is poor, because CO2 emissions are underpriced and government policy is uncertain. As a result, emission-intensive companies do not receive sufficient sustainability incentives when attracting funding.
We advocate higher taxes on CO2 and the phasing-out of fossil subsidies. Furthermore, policies are needed to drive climate investment and provide sustainability incentives for businesses. Possibilities include encouraging equity financing and financial innovation. This will allow better matching of supply and demand for innovative and risky climate investment. Read more about our recommendations to stimulate sustainable financing.
In 2019, DNB was the first central bank to sign the Principles for Responsible Investment (PRI). We thus clearly show that we take sustainability seriously and want to be transparent about how we put this into practice. We apply the six investment principles of the PRI and also take into account the ESG criteria. And we commit to comprehensive accountability and reporting in accordance with the PRI requirements. All this helps us to further develop sustainable investment. For example, we have improved our ESG framework with feedback from the PRI. We have also charted the CO2 footprint of our investments in our Annual Report. And we published our first report on financial climate-related risks and opportunities in accordance with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD).
One of the obstacles to sustainable financing is the lack of internationally comparable data. DNB supports the IFRS Foundation’s plans to set up a Sustainability Standards Board. IFRS is ideally suited to set global sustainability reporting standards for the business sector. It is important that annual reports also contain reliable and comparable sustainability information in the near future. This gives all stakeholders the data they need to assess the risks of climate change and biodiversity loss. And it will help them contribute to achieving the Paris climate targets.
To meet all these challenges and learn from each other, we work to bring parties together. In 2016, we established the Sustainable Finance Platform, where the Dutch financial sector, supervisors and ministries work together on sustainability initiatives. DNB is also one of the pioneers of the Network for Greening the Financial System (NGFS), which aims to green the financial system and strengthen the efforts of the financial sector in achieving the Paris Climate Agreement targets. Read the report and progress report on the steps taken by central banks in making their own investment portfolios more sustainable.
DNB is committed to promoting financial stability and sustainable prosperity. That is our mission. Climate change threatens our prosperity and stability. Therefore, it is necessary to take a more sustainable approach. We are working hard on this in many areas. In our supervision, we ask financial institutions to take on board the financial risks of climate change. We also want to invest more sustainably. And we make new euro notes using sustainable cotton.
Dutch insurers and pension funds invest not only directly in listed equity and corporate bonds, but also indirectly via investment funds. New DNB figures on CO2 emissions of non-financial corporations relate to both types of investments and provide a more complete..
Read more Carbon footprint of Dutch insurers and pension funds in sharper focus
European companies that are big carbon emitters are paying higher and higher interest rates on the bonds they issue on financial markets. Indeed, investors are asking for an interest rate premium to compensate for the risks that emission-intensive companies are exposed to
Read more Carbon-intensive companies pay ever higher market interest rates
Effective investment in the United Nations’ sustainable development goals hinges on the possibility to measure the impact of such investments.
Read more SDG-related investment: overviews of impact measurement methods and data
DNB launches its new sustainable finance strategy. Five questions about the impact on the economy, the financial sector and consumers.
Read more Five questions about the impact of the new sustainable finance strategy
