How do climate action plans contribute to the long-term health of financial institutions?

In 2019, dozens of Dutch financial institutions voluntarily signed the so-called Climate Commitment. By doing so, the signatories expressed their intent to contribute to the government's climate goals. DNB analysed the action plans to understand how these financial institutions aim to support the transition to a CO2-neutral economy. The insights from this analysis can help institutions deploy their action plans more effectively to ensure long-term viability.

Action plans are relevant for DNB as a prudential supervisor

The question of whether financial institutions are sufficiently contributing to the transition to a CO2-neutral economy is not part of DNB's supervisory mandate. However, the climate action plans are relevant for DNB as a prudential supervisor. Firstly, the implementation of these plans helps financial institutions manage climate-related risks and adjust their business models as needed in anticipation of the energy transition. Furthermore, the action plans provide an additional source of information for DNB, complementing the usual supervisory data. Secondly, the Climate Commitment reflects the institutions' response to growing societal concern about the impact of their investments and assets on the environment. Insufficient progress in realizing the action plans could increase reputational and legal risks. These potential risks are a reason for DNB to incorporate the action plans into its supervision.

Climate goal and initial framework for steering and monitoring

The analysis shows that institutions have set a climate goal for 2050, providing a benchmark to align their organization. Institutions have identified assets that currently deserve the highest priority from a climate impact and feasibility perspective. For these assets, they have defined monitoring indicators and, in most cases, transition pathways. This has created an initial framework for management and monitoring their investments. However, for some action plans, it's difficult to determine whether transition-sensitive assets were rightfully excluded. This raises the question of whether these institutions are making full use of the potential of the action plans.

Attention to implementation is crucial

To achieve the set goals, institutions have outlined strategies. Nevertheless, many action plans lack a concrete elaboration of these strategies and a clear connection to the objectives. Additionally, institutions provide little insight into how the responsibilities for executing the plans are assigned within their organization. Although institutions are only at the beginning of the action plans' implementation, the multi-year nature requires a robust approach. To avoid reputational risks, it’s crucial that financial institutions ensure effective implementation.

Uniform reporting format and digital environment

The analysis also shows that the content and design of the action plans vary widely. This lack of uniformity makes it harder to compare plans from different institutions and assess progress. It is therefore desirable to enrich the Climate Commitment with a uniform reporting format and a digital environment for storing and monitoring the plans. This could increase the informational value of the action plans for the general public and relevant stakeholders, including DNB as a supervisor.