Dutch central bank sees rising risk of shock climate transition due to delays

De Nederlandsche Bank (DNB) said the risk of a shock transition in response to climate change is rising as the Netherlands looks set to miss targets to cut emissions, according to the Dutch central bank’s annual financial stability report.

The DNB cited climate change, in particular flooding, as one of the principal risks to financial stability, alongside geopolitical tensions, cyber threats, overheated financial markets and concerns about the sustainability of government debt.

“Global uncertainty has reached levels not seen in decades, spanning multiple domains. As a result, the probability of shocks to the economy and financial system remains elevated. The question is no longer whether such shocks will occur, but when and where,” DNB president Olaf Sleijpen said.

The DNB said climate risks were increasing due to a delay decarbonising the economy, noting it would be increasingly difficult for the Netherlands to meet its target to cut emissions by 55% reduction by 2030.

“Delaying the necessary measures will make the future task greater and more costly, which in turn could affect financial and price stability,” the report said.

The central bank noted that the Netherlands, where almost a third of the land is under sea level, is particularly at risk of floods which it said could cause “sudden and substantial costs for households and firms”.

The DNB said it was working with various bodies including the Network for Greening the Financial System and the Netherlands Environmental Assessment Agency to get more insight into the financial and economic consequences of climate change and nature loss, and to strengthen the resilience of the financial sector.

The bank said in September that it is making a new push to help financial institutions manage climate and nature-related risk and it is conducting analysis of these risks at pension funds and insurers with a view to incorporating them into its regular risk assessments.

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