'There's No Time to Wait For Perfect Climate Regulation' – DNB

Valerio Baselli caps off Morningstar's Sustainable Investing Summit with this exclusive interview with the executive director of De Nederlandsche Bank

Valerio Baselli 17 October, 2023 | 9:41AM
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Valerio Baselli: The sustainable investing revolution will never happen without the support of key financial institutions. We are at the Morningstar Sustainable Investing Summit in Amsterdam, and I'm joined now by keynote speaker, Steven Maijoor, executive director at the De Nederlandsche Bank, the Dutch National Bank.

Steven Maijoor: Very good, Valerio. Very good.

VB: Thank you. So, Mr. Maijoor, climate change is one of the most important topics of the conference and one of the most important issues overall, I would say. What kind of role can financial institutions play in actually fighting it?

SM: I think they play a very important role in climate change. I think first and foremost what you would expect from me as a supervisor and a regulator is to assess properly the risks of climate change to clients because risk to clients can become also risks to the financial institutions and to the banks. So, obviously, that is very important. But in addition to that we also know is to make sure that our economy is transition is that major investments will be needed, and there, banks can also have a very important role as the providers of loans, of funding to ensure that we can make the transition to a more sustainable economy.

VB: Right. And climate change, as we said, is the most discussed topic, but it's not the only one of course. When we address sustainability risks, there is much more to evaluate, and we know that. What action, for example, DNB takes in order to the financial system to be better prepared to manage such risks?

SM: So, obviously, in addition to – if you're looking at climate, we're not only looking at – sorry – on environmental, we're not only looking to climate but also to broader environmental risks, the biodiversity is obviously very important, also very important for some of the clients of financial institutions, of banks, and therefore, it is also important that that is taken into account by financial institutions. For example, if they look at the risks, we call that credit risks, for example, of their clients is take that into account, but we also look at broader sustainability issues. Supervisors, regulators have a long tradition of looking also at governance, governance of financial institutions is very important to make sure that financial institutions are viable is that you know that they can adopt to new changes, changes in the environment, changes in competition and therefore, governance has always had the attention from regulators and central banks. And maybe finally on social, I think that is probably the area which is a bit further ahead where we are less far ahead, less developed yet, but where it affects us as a central bank is, for example, the inclusiveness of the financial system – how do we ensure that everybody can participate in the financial system, that there is access to bank accounts and in that sense can contribute, let's say, to the personal wellbeing, their financial wellbeing as a citizen?

VB: Of course, very important. And finally, what is your take on the current situation of the European Sustainable Finance Regulation? Surely much has already been done, but a lot remains to be done, I believe. What do you think?

SM: Well, first of all, we have seen ourselves as supervisors that initially climate risks should to some extent be similar to other risks. These are risks that can affect clients of banks and therefore they need to be prepared, they need to take that into account when they take new clients onboard, assess those risks. So, we have taken the position already under the existing rules, banks should take climate, environmental risks into account. At the same time, to have a level playing field across the globe, it would be better if we have a more common understanding globally about what those, how you do it. And so, it's very good that there's progress in Europe on, given an integrating climate and environmental risk into the banking framework.

I think the biggest area now, a very important area now, where also financial institutions have to cope with everything that has to do with disclosure, making sure, first of all that clients disclose, first of all, to the public, but also to the bank's information on their climate risk, on the environmental risk. And although there's been a lot of rules have been made there now, it's really important now that we work with it, is that we use it. We'll probably have to adjust over time because this is a major new area. But that is really about implementation and making sure that it works. I think my main message here should be don't wait until the whole regulatory system is, let's say, finalised, et cetera. There is already under the existing requirements – for financial institutions and banks, there is already a good reason to take a climate and environmental risk into account.

VB: Very clear. Thanks a lot to Steven Maijoor.

SM: Thank you very much.

VB: For Morningstar, Valerio Baselli. Thanks for watching.

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Valerio Baselli

Valerio Baselli  is Senior International Editor at Morningstar.

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