Published as part of our Sustainable Finance Leadership Series

Frank Elderson, Member of the Governing Board of De Nederlandsche Bank and Chair of the Central Banks and Supervisors Network for Greening the Financial System (NGFS)

The mission of De Nederlandsche Bank (DNB) is to safeguard and contribute to sustainable prosperity in the Netherlands. Consequently, it sits within our mandate to incorporate sustainability into our supervisory practices. This means we expect financial institutions to have a more forward-looking approach on how relevant long-term risks can affect current businesses. It might come as a surprise to some that central bankers and supervisors are concerned about sustainability. In this post for the Sustainable Finance Leadership Series I describe how sustainability became part of our agenda and how central banks are now cooperating on sustainable finance, and I call on other supervisors to join our mission: global challenges can only be solved by working in close cooperation.

From mission…

Our journey started in 2011, when we, as newly appointed Governing Board members of DNB, walked along a foggy Dutch beach discussing our core mission statement. Back then, the global financial crisis had just passed and had revealed the vulnerability of our prosperity. Lacking strong long-term economic and financial fundamentals, the prosperity we created prior to the crisis had turned out to be unsustainable. With this lesson in mind, we realised it was essential to link prosperity with sustainability.

In spite of this lesson, the prosperity we are creating today is still not sustainable. Some of our economic activities result in significant ecological damage and will prevent future generations from obtaining similar or higher levels of prosperity than current generations. In the long run these activities are unsustainable. They could affect the real economy and translate into risk to the financial sector – not only in the future, but also today.

Consequently, it is part of our mandate as supervisors and as a financial stability authority to ensure that the institutions we supervise are able to meet their contractual obligations. For this reason, as we made our way through the fog, we agreed that it is our mission as a central bank and supervisor “to safeguard financial stability and thus contribute to sustainable prosperity in the Netherlands”.

 …via consensus…

Fast-forward seven years. On Friday, 6 April 2018 I found myself in DNB’s conference room to participate in the first ever Internat­ional Climate Risk Conference for Supervisors. This meeting, which would have been unthinkable back in 2011, was hosted by the newly formed Central Banks and Supervisors Network for Greening the Financial System (NGFS), which includes China, France, Germany, Mexico, Singapore, Sweden, the UK as well as the Netherlands as founding members. Together with the governors of three organising banks, DNB, Bank of England and the Banque de France, we had the honour of welcoming representatives from over 30 countries and more than 50 supervisory organisations. In addition, leaders from all of the European Supervisory Authorities (ESAs) – EIOPA, ESMA, EBA and ESRB – took part in a panel to explain how they will engage with the agenda of sustainable finance. All participants had taken different paths to get to this point. Some had already travelled a bumpy road, overcoming criticism and (political) backlash from their respective jurisdictions. Others had just started their journey. Yet, despite these differences, that Friday, all these organisations came together, sharing the conviction that climate change and the risks it poses to the financial system are highly relevant to the work of central banks and supervisors.

The conference was the first milestone for the NGFS, which aims to create a platform for sharing ideas and best practices in order “to manage risks and to mobilise capital for green and low-carbon investments in the broader context of environmentally sustainable development.” As Chair of the NGFS, I cannot stress the importance of these activities enough. The stability of the financial system and climate change are issues that, by their very nature, cross borders. Therefore, international cooperation and coordination are essential. Greening the financial system is not an individual race, but rather a team effort.

…to supervision

So far, our experience at DNB is that incorporating climate-related risks into supervision practices is not easy; not all risks are yet quantifiable and most risks have yet to crystallise. This raises the question of how we should assess whether and how financial institutions incorporate these type of risks in their decision-making processes.

At DNB, we started by conducting thematic reviews on the climate-related risks that could affect the Dutch financial sector (Time for Transition, Sustainable investment in the Dutch pension sector, and Waterproof?), resulting in clear insights of potential impacts. We are currently investigating how we can embed these risks in our supervisory assessment framework, for example by discussions with institutions. In addition, we are exploring how both physical and transition-related stress tests can help in assessing the long-term risks that financial institutions face.

However, some risks have already materialised. For instance, governments’ attempts to mitigate climate change by introducing new legislation are generating transition risks in the short run. A good example is upcoming Dutch legislation in the real estate sector. In the European Union, the majority of residential and commercial real estate properties have energy efficiency labels, ranking from A to G, with G being the least energy efficient. From 2023 onwards, proposed Dutch legislation requires that office properties in the Netherlands have an energy efficiency label of at least C, immediately stranding assets, namely those offices with an energy label lower than C. This affects Dutch banks in two ways. First, through lending to corporations that use their office properties as collateral for their bank loans, and second, through lending to commercial real estate companies that lease offices as a business model. It is this type of legislation that enables us to oversee how financial institutions manage their climate-related risks.

Surely, supervisors are not the only ones that have a role to play. This real estate example shows that it is important that governments also take responsibility. In our Waterproof? review we analysed the climate risks in the Dutch financial sector. Among other recommendations, the review stresses the importance of governments plotting a clear transition path by imposing unambiguous and long-term legislation. This allows the financial sector to set goals and take action at an early stage. In addition, governments should improve disclosure standards for climate-related risks, enabling financial institutions to adequately identify, price and manage them.

Furthermore, financial institutions themselves must also take action, and we have seen fine examples in the financial sector from those that take the lead. A more forward-looking approach to incorporating climate risks is needed. We expect financial institutions to be aware of how the relevant long-term risks could materialise and how these need to be mitigated in the short term. They should have this awareness not only in cases where there is a clear policy change, but also based on their internal forecasts.

The road ahead

We have already come a long way and momentum is building to take essential next steps. The NGFS, for example, has just published the mandates of its three work streams, on microprudential and supervisory matters, on macrofinancial implications and on scaling up green finance. The network will be pursuing several priorities over the year ahead: defining and promoting best practices and conducting analytical work on green finance. More members have joined the network.

Yet our journey has only just begun. As long as there is a need for us to discuss sustainable finance as opposed to current practices, we have not yet reached our destination. Let us move ahead together and we can drive the transformation process towards a world in which all finance is sustainable.

Members of the Network for Greening the Financial System


Bank al Maghrib

Banco de España

Banco de Mexico

Bank of England

Banque de France and the French Autorité de Contrôle Prudentiel et de Résolution (ACPR)

De Nederlandsche Bank

Deutsche Bundesbank

European Central Bank (ECB)

Swedish Finansinspektionen

Japan FSA

Monetary Authority of Singapore

National Bank of Belgium

Oesterreichische Nationalbank (OeNB)

People’s Bank of China


Observers of the Network for Greening the Financial System

Bank for International Settlements (BIS)

World Bank Group

Organisation for Economic Co-operation and Development (OECD)

European Bank for Reconstruction and Development (EBRD)

Sustainable Insurance Forum (SIF)

This commentary is published as part of our Sustainable Finance Leadership Series

The views in this commentary are those of the author and do not necessarily represent those of the Grantham Research Institute

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