On 28 October 2024, the Dutch Central Bank (De Nederlandsche Bank, DNB) published their findings from its sector-wide self-assessment on Environmental, Social, and Governance (ESG) risk integration among pension funds. The report reveals that while many pension funds have taken steps to incorporate ESG risk into their policies, there is still a substantial portion that lacks adequate insight into these risks.
DNB launched this self-assessment to examine the level of ESG risk integration within various core processes like strategy, governance, risk management, and reporting. Using DNB’s Guide to Managing Climate and Environmental Risks as a framework, the self-assessment aimed to benchmark the industry against regulatory standards and gain insights into pension funds’ preparedness c.q. willingness to address ESG risks.
The key findings from the self-assessment included:
- Despite recent efforts, 37% of pension funds have not started assessing ESG risks, falling short of the Pension Fund (Financial Assessment Framework) Decree Article 18 requirements. Additionally, 42% of funds with significant fossil sector exposure lack climate transition risk analyses.
- Although ESG principles are embedded in most funds’ strategies, only a minority have established measurable key performance indicators (KPIs) for ESG objectives. Most oversight is at board level, but only 17% of funds integrate ESG across all governance levels.
- Pension funds differ in their chosen ESG metrics, including carbon footprints, and biodiversity measures. A more standardized approach would enhance risk monitoring and mitigation.
High-risk pension funds will receive in-depth tailored feedback, given by DNB, to implement. Furthermore, all funds are expected to conduct an ESG risk assessment by mid-2025. DNB’s update Guide to Managing Climate and Environmental Risks, set for release mid-2024, will offer practice tools and best practices to support ESG integration for all pension funds.