On 1 April 2020, the Dutch Central Bank (De Nederlandsche Bank, DNB) published a Q&A and Good Practice document related to the integration of climate-related risk considerations into banks’ risk management.
According to DNB, banks can be vulnerable to the physical consequences of changing weather (physical risks) and to the consequences of a transition to a climate-neutral economy (transition risks). Given the potential impact of these climate-related risks, DNB expects banks to analyse and describe their impact on their risk profile. If there is a material risk, DNB expects banks to manage these risks just like any other conventional risks.
The Good Practice document contains good practices for integrating climate-related risks into governance, risk management and reporting. The Q&A contains DNB’s interpretation of how existing legislation applies to climate-related risk management. Both the Good Practice document and Q&A have been publically consulted and a round table discussion was organised by DNB with representatives of banks; DNB has published a response to the input from the sector in a feedback statement.
DNB’s Q&A and Good Practice are in line with the European developments in this area:
- the ECB will consult the sector in areas such as climate-related risks, and expects to issue its supervisory expectations for this topic later in the year; and
- as part of the new Article 98 (8) revised Banking Directive, the European Banking Authority has been mandated to investigate how Environmental, Social and Governance risks can be included as part of prudential assessment and evaluation (SREP).