Financial sector: 'Accelerating sustainability together with government and companies'

All financial institutions that signed the Climate Commitment financial sector in 2019 have fulfilled their promise to deliver climate action plans by the end of 2022, according to a report by KPMG. The sector would like to take the next steps together with the government and companies and accelerate the sustainability of the economy. By publishing the action plans, the financial institutions indicate that they are committed to solutions to achieve the Paris climate goals.

This also requires coordinated cooperation between government, business and the financial sector to enable the acceleration of sustainability. The government by standardizing, deploying and subsidizing the right financial incentives. The business community by embracing the transition, and developing sustainable products and services and making them profitable. The financial sector itself takes its responsibility by focusing its portfolios even more on sustainability and by financing as many profitable sustainable projects as possible.

"Institutions are working implementation and many actions have been taken in recent years. There is no time to lose, as 96% of the signatories have the ambition to align portfolios with a 1.5 °C scenario," writes Femke de Vries, independent chair of the Financial Sector Climate Commitment Committee, when presenting KPMG's report to the Ministers of Finance and Climate and Energy.

In the letter from Ministers Kaag and Jetten to the House of Representatives today, the Dutch financial sector receives compliments for the work so far. In discussions with the sector, the government wants to discuss how the contribution of the sector can be further increased and accelerated on the basis of the right preconditions. The sector is ready to continue the dialogue with ministers in the near future.

Intensive cooperation

According to KPMG, it is difficult to predict whether the actions in the action plans of the financial institutions will actually achieve the intended climate goals. In the implementation, government, business and financial sector are interdependent on each other. According to the financial sector, we are at a tipping point: now is the time to implement the ambitions through an effective interplay between the government, the real economy and the financial sector.

Almost all financial institutions now have a clear view of which sectors in their portfolio cause the most issues, according to KPMG. They use these insights to focus their action plans mainly on those sectors, for example for setting the objectives or for actions such as 'engagement' or ending investments. This is evident from an analysis by KPMG of the 52 action plans of financial institutions and their four financial umbrella organisations. These parties signed the Climate Commitment financial sector in 2019.

Financial institutions engage with funded clients and investee companies to improve their sustainability efforts. For example, by setting reduction targets.

Constant dilemma

Exclusion and ending investments and financing are effective in reducing the CO2 content in portfolios, but this does not necessarily lead to lower emissions in the real economy. After all, a company may be able to contact another investor or financier in the Netherlands or abroad. According to the KPMG report, the financial sector faces 'an ongoing dilemma' to find a balance between divestment and engagement, with the aim of persuading clients and investments that have a real impact on the climate to become more sustainable.

A transition period is needed for a society to gradually switch from fossil fuels to sustainable products, taking into account affordability and availability of sustainable solutions for citizens and businesses. It is up to the government to set the desired pace, clear and guiding goals and to set standards. This makes it clear within which legal frameworks business and consumers can and must operate in order to achieve the Paris goals. For example, the energy label C obligation for office buildings has proven to be an effective standard for making commercial real estate more sustainable within a few years.

Dutch Fund and Asset Management Association, Dutch Banking Association, Pension Federation, Dutch Association of Insurers