Waiting with climate policy has a high price

Waiting with climate policy has a price. Anyone who hesitates now runs the risk of causing problems for banks, insurers and pension funds later on. This is what De Nederlandsche Bank (DNB) says in its semi-annual risk analysis this week. For the first time, climate change is discussed in detail as a risk for the financial sector.

Almost 200 countries agreed in Paris at the end of 2015 to limit global warming to below 1.5 degrees, in the worst case to below 2 degrees. To achieve this goal, greenhouse gas emissions must be drastically reduced.

Governments should not postpone climate measures, according to DNB on the basis of the climate stress test published this Monday. Because postponement increases the chance that later “abrupt” measures are required, which would lead to “substantial losses” in the Dutch financial sector.

Double shock

The stress test covers four scenarios where shocks occur. Within a period of five years, major changes are taking place in the global energy supply, or large uncertainty arises due to the absence of measures.

Scenario 3 is the most likely scenario according to DNB president Klaas Knot. It combines the first two scenarios into a ‘double shock’. It is also the most expensive scenario for the financial sector: EUR 159 billion of evaporated capital. “If you start earlier, you can adjust better,” said Knot. He called on banks, insurers and pension funds to take into account the energy transition in their risk management.

Source: NRC