News feature | 07-06-2022 | 12:14
The transition to a sustainable economy is of enormous importance in this time. As a financier and investor, the financial sector is indispensable for a more sustainable economy. Before the end of this year, financial institutions must present their action plans for their contribution to reducing CO2 emissions. This is what Minister of Finance Kaag writes today in his political agenda for sustainable financing
The financial sector must now realize its ambitions
More than 50 banks, insurance companies, 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, the signatories of the climate commitment must present their action plans to reduce the CO2 impact of their loans and investments. The action plans will be assessed by the ECSC and Finance Ministers for transparency, comparability and level of ambition. For example, financial institutions are expected to base their actions on the 1.5 degree scenario in accordance with the coalition agreement. If the results are not in line with the objectives of the Climate Agreement, new legislation and rules will not be ruled out.
The choice of the financial sector determines what grows and what dies out. This is where banks, pension funds, asset managers and insurance companies can make the difference. As long as we are not on track to realize the ambitions of the coalition agreement – at least a 55% reduction in CO2 emissions by 2030 – we must show much more ‘said Minister Kaag.
The ambitions to make the financial sector more sustainable are in line with the government’s broader ambitions in terms of climate, biodiversity and nitrogen. The government is working on clear and predictable conversion paths for the real economy. It 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 decide 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 dive deeper into the companies they finance. Currently, institutions use different definitions of what is sustainable and what is not.
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 through the EU Sustainability Reporting Directive. This prevents the so-called green sink. If companies engage in greenwashing, they should 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 should be held accountable by regulators.
Risks must be well managed
Financial institutions are becoming increasingly aware of the sustainability risks they themselves face. For example, greener society can cause investments in fossil fuels to lose value. The consequences of extreme weather mean that insurers need to be prepared for a sharp rise in claims costs. Loss of biodiversity and loss of nature also lead to major economic risks. Minister Kaag, together with the Minister of Agriculture, Nature and Food Quality, argues that the financial sector is part of the international Global Biodiversity Framework.
Further research from supervisors is needed to better identify these risks. This must also have a proper place in the supervisory framework of banks. For example, banks’ capital requirements 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 to influence and improve reporting.