Financial institutions, through their investments in companies, are exposed to physical risks (the impact of natural disasters) and transition risks (e.g. losses due to the declining value of investments in carbon-intensive companies). To provide insight into these risks, DNB, together with the ECB and other euro area central banks, has developed several sustainability indicators.
Because sustainability figures are so urgently needed, we have decided to make them available as soon as possible to anyone who wishes to use them. They are not yet complete and their quality is not yet comparable to that of our regular statistics.
Some of the published figures do not yet cover the full portfolios of financial institutions in some cases. This means that in most cases they can be interpreted as a lower limit of the actual transition and financial risks.
Further examples of data limitations include the fact that, in the indicators for physical risks, we have not been able to include all the locations of companies in which the financial sector invests, but only head office locations.
Accordingly, we wish to stress that this data must be treated with circumspection, especially when drawing conclusions or formulating policies.
The transition to a climate-neutral economy by 2050 may reduce the value of assets in carbon-intensive industries. This is why it is important to quantify the emissions that financial institutions finance through their investments. The Weighted Average Carbon Intensity (WACI) is used for this purpose.
WACI shows the relative carbon emissions per million euro of company revenue (carbon intensity), weighted by the investor's portfolio weight. This indicator is relative in two ways:
The charts below show the WACI time series on the left scale, and the change in WACI over the years on the right scale, both for pension funds/insurers and for investment funds.
The change in WACI is decomposed into changes due to five effects: carbon emissions, revenue, capital reallocation (e.g. investments and disposals in an investment portfolio), exchange rates and inflation.
Trends for banks and, for example, other CO₂ indicators, such as financed emissions, can be viewed in the tables.
The scope of the indicators covers investments in and loans to non-financial corporations by financial institutions (the assets). This dashboard does not cover mortgage loans and other consumer loans.
More extreme weather conditions stemming from climate change are likely to make natural hazards more severe and their occurrence more frequent. Besides their impact on society, natural hazards also cause damage to the economy. The physical risk indicators show the impact of natural hazards on the investments of Dutch financial institutions (banks, insurers, investment funds and pension funds) in non-financial corporations. Three indicators have been developed to show this impact:
These indicators calculate the impact of different types of natural hazards: coastal floods, consecutive dry days, landslides, river floods, rainfall variation, subsidence, water stress, wildfires and windstorms. The indicators reflect historical conditions or future climate and socioeconomic scenarios.
The PEAR indicator looks at bonds and shares issued by, and loans provided to, non-financial corporations in the euro area. Financial institutions that hold bonds and shares are called 'holders', and financial institutions that provide loans are called 'creditors'.
The PEAR indicator provides insight into the total volume of assets of Dutch financial institutions exposed to a given natural hazard. All risks are weighted equally regardless of the hazard’s probability of occurring.
The PEAR indicator can be supplemented by risk scores, which indicate how likely the natural hazard is to occur, from no risk to high risk.
Example: The high risk indicator for water stress is 18.25%. This means that 18.25% of the total portfolio value of Dutch financial institutions is located in areas at high risk of water stress.
The NEAR indicator shows the risk banks face through the loans they provide to non-financial companies. The NEAR indicator considers both the intensity and the probability of a natural hazard occurring. It also takes into account the relationship between the intensity of the hazard and the resulting economic damage. The NEAR indicator is only available for coastal floods, river floods and windstorms.
The NEAR indicator assumes that if a company loses 10% of its assets due to a flood, it will be unable to repay 10% of the outstanding loan amount. This creates a measure of the expected loss for the bank.
There are two versions of the NEAR indicator:
Example: The value of 'NEAR annual' due to windstorms is €208 million. This means that the expected annual loss for Dutch banks on loans to non-financial corporations in the euro area due to windstorms is €208 million.
The CEAR indicator is based on the NEAR indicator, but additionally takes into account financial and physical collateral. This collateral is linked to the loan and the bank can seize it if the company can no longer repay the loan. The loss from a natural disaster remains the same for the company, but the existence of collateral reduces the bank’s expected loss. It takes into account the expected decrease in the value of the physical collateral caused by the natural disaster. Like the NEAR indicator, the CEAR indicator has two versions: annual and maturity.
Example: The value of 'NEAR annual' due to river floods is €5 million, and the value of 'CEAR annual' due to windstorms is €3 million. This means that €2 million of the expected loss is covered by collateral.
This dashboard is part of a series of sustainability statistics compiled by euro area central banks. View the tables and read more about the methodology in the "Explanatory notes to data table” tab of:
A full overview of the data sources and methods can be found in:
More on sustainability
The physical risks (impact of natural disasters) for financial institutions and the emissions that institutions finance trough their investments.
Navigate to dashboard about Climate risks for the financial sectorSustainable investment indicators show the issuance and holdings of debt securities issued to finance sustainable projects.
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