On 28 February 2022, the Dutch Central Bank (De Nederlandsche Bank, DNB) published for public consultation a good practices document covering environmental, social and governance (ESG) risk management for pension funds (the Good Practices Document).

With the Good Practices Document, DNB aims to provide guidance to pension funds for the organisation of their risk management cycle. DNB notes that pension funds in achieving their strategic objectives are increasingly taking into account ESG factors, such as climate change, loss of biodiversity, social challenges and governance challenges. By integrating sustainability considerations in their strategic objectives and investment policies, pension funds are able to contribute to the transition to a better world and the reduction of social risks. However, according to DNB, the integration of these ESG factors also carries risks which can affect pension funds’ ability to achieve their strategic objectives. These risks include financial risks, reputational risks, compliance risks and operational risks. Therefore, ESG factors should not only play a role in the context of their investment policies, but should also be part of the risk management of pension funds.

DNB believes that pension funds are working on embedding ESG risks in their risk management, but that this is not yet always being done at an appropriate level. The Good Practices Document contains a number of general recommendations with regard to ESG risk management, such as pension funds should:

  1. allocate sufficient capacity to the integration of ESG risks in their risk management, taking into account fast-paced developments, complexities and uncertainties associated with ESG risks;
  2. look through their investment portfolios to gain insight into the financial and non-financial impact of ESG risks; and
  3. increase the support among participants by asking them about their preferences, involving participants in policy-making and by conducting dialogues with them about ESG policy.

The Good Practices Document furthermore aims to assist pension funds in meeting their statutory obligations by providing good practices for each step of the risk management cycle:

  1. risk identification;
  2. risk assessment;
  3. risk mitigation; and
  4. monitoring and evaluation.

The deadline for responding to the public consultation is 15 April 2022.