Background

According to DNB, climate and nature risks can lead to various prudential risks for Dutch financial institutions. DNB expects financial institutions to identify and adequately manage climate and nature risks and believes improvements in this respect can be made. DNB supports the Guide, as it aims to contribute to proper management of climate and nature risks through the provision of good practices.

What is new?

The Guide is an update of the first version from 2023 and has been finalised following consultation with stakeholders across the financial sector. Compared to the previous version, legal frameworks have been updated and expanded. New insights on ESG risks have been included, particularly in the areas of nature and legal sustainability risks. Good practices have been revised or expanded, including new guidance on managing nature-related risks and the integration of climate action plans.

The Guide

DNB announced it will use the Guide in its prudential supervision on climate-related and nature risks. For banks (both significant and less significant institutions), DNB applies the ECB Guide of November 2020.

DNB has identified four main supervision areas: (i) business model and strategy, (ii) governance, (iii) risk management and (iv) information provision. The Guide consists of a cross-sectoral section and sector-specific sections. We have summarized the key supervision focus areas below. 

Supervision focus areas 
  1. Business model and strategy: financial institutions should include material climate and nature risks in their business model and strategy. To determine the materiality, qualitative and quantitative assessments should be conducted. In addition, stress tests and scenario-based analysis should be performed to substantiate the business model and strategy.

  2. Governance: DNB expects climate and nature risks to be embedded in the governance of financial institutions including in internal key functions. DNB will pay explicit attention to the suitability of policymakers related to the management of climate and nature risks. Financial institutions are also expected to follow a sound approach to align the remuneration policy with the institution’s strategy on climate and nature risk management.

  3. Risk management: financial institutions should explicitly include climate and nature risks in their risk appetite and integrate it into the full risk management cycle from identification to evaluation. Scenario analyses and stress tests should be used to assess climate and natural risks exposures and set adequate risk tolerance levels and indicators. Also, financial institutions are subject to reporting requirements.

  4. Information provision: this is a shared supervisory domain of the AFM and DNB. The Guide describes the supervision areas of DNB which will relate to prudential reporting and prudential implications arising from external reporting in connection with climate and nature risks.
Implications for supervision

DNB has reaffirmed its continued focus on climate and nature-related risk management. The Guide offers valuable insights for financial institutions on what to expect in terms of supervisory expectations, illustrated through practical examples and good practices.

DNB’s supervision is risk-based, meaning that the scope and intensity of supervisory activities depend on the type and size of the financial institution. While the Guide provides examples of good practices, DNB also welcomes alternative interpretations of laws and regulations—provided their soundness can be clearly demonstrated to DNB.

Contact

If you have questions about this topic or another financial regulatory topic, please contact our Financial Regulatory Team.