DNB Climate Risks for the Dutch Financial Sector

Ecofys, a Navigant company, together with Deltares and Triple-A Risk Finance, supported De Nederlandsche Bank (DNB), the Dutch central bank, with a high-level assessment of the key potential future physical impacts related to climate change (i.e., flooding, droughts, storm surges, etc.) and the impact on the balance sheet of Dutch financial institutions (banks, insurance companies and pension funds). The assessment contributed to a larger project carried out by the DNB, also focusing on climate transition risks for the Dutch financial sector.

The project consisted of two parts:

  • In the first part, the assets (corporate loans, mortgages, equity investments, bonds, etc.) of Dutch financial institutions were mapped on a global overview of world regions with their respective vulnerabilities for physical impacts as a result of climate change. For the indication of the vulnerability of countries, Ecofys updated the Standard & Poor’s risk indicator, which makes use of the the ND-GAIN Country Index, a project of the University of Notre Dame Global Adaptation Initiative (ND-GAIN). The most vulnerable regions and sectors in the world in which the Dutch financial institutions invested most were analysed in more detail using information from the Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5).
  • In the second part of the project, we zoomed in on the economic impacts of selected flooding scenarios in the Netherlands (river dykes breaking through in a specific area) and the expected losses from assets of Dutch financial institutions. The flooding scenarios and economic impacts were derived from the calculation model ‘Schade en Slachtoffer Module’ (damage and casulaties model) SSM 2017, which was developed by Deltares and other knowledge parties for the impact calculation of damages and casualties of flooding in the Netherlands and recently released by the Dutch Ministry of Infrastructure and Environment (IenM). As a next step, with support from Triple-A Risk Finance, we defined the possible channels through which the value of assets can be influenced on a per case basis and structurally. In the final step, we calculated the expected losses for Dutch financial institutions through the identified channels for selected asset classes (SME loans, mortgages, commercial real estate and government bonds).

Through this project, DNB has insight into the worldwide expected physical impacts of climate change on regions and sectors and how the Dutch financial sector is exposed to it. Furthermore, DNB has detailed insight into expected losses the Dutch financial sector could face, in case specific flooding scenarios become a reality. DNB will use the insights in its role as regulator of the Dutch financial sector to ensure that the financial sector identifies and manages climate change related risks appropriately.

Part of the conclusions of our work can be found in DNB's report “Waterproof? An exploration of climate-related risks for the Dutch financial sector".

Contact

Edgar van de Brug
Sustainable Industries and Services
E-mail
Sarah Hendel-Blackford
Energy Policies
E-mail
Giel Linthorst
Sustainable Industries and Services
E-mail
+31 (0)6 11 366 935
Source: Martijn Regelink et al., ‘De Nederlandse Financiële sector veilig achter de dijken? Een Nadere verkenning naar klimaatgerelateerde financiële risico’s’, De Nederlandsche Bank, 2017.