Sustainability transitions and the financial sector

Expected end of 2022
What options does the government have for influencing the financial sector in such a way that non-sustainable investment is limited and investment in sustainability is encouraged? And to what extent is that necessary, desirable, and urgent?
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Background and request for advice

The financial sector plays an important role in the sustainability transitions that are taking place in the physical environment. Banks, pension funds, insurers, and asset managers can finance projects and companies that contribute, for example, to making mobility, agriculture, industry, and the built environment more sustainable. At the same time, these financial institutions face financial risks if they themselves fail to become sustainable. What options does the government have for influencing the financial sector in such a way that non-sustainable investment is limited and investment in sustainability is encouraged?

The financial sector is increasingly aware of the risks involved in non-sustainable financing and of the need for scaling up financing for sustainable economic activities. There is a mismatch, however, in supply and demand as regards sustainable finance (also referred to as Environmental, Social and Governance or ESG).

In the physical domain, too, there has been an increasing focus on sustainable financing in recent years. In several of our advisory reports, we emphasise the important role of the financial sector and also the fact that private financing is crucial for the sustainability transitions. Clarity is lacking, however, as to what the financial sector can or cannot contribute in this regard, and also as to the extent to which the Dutch government can influence matters. This may result in exaggerated expectations or missed opportunities. The report on “Sustainability Transitions and the Financial Sector” is included in our work programme for 2022-2023, and is therefore a requested advisory report.

It deals with the interface between the physical environment and the financial sector. These are intrinsically bound up with one another, on the one hand because of the risks that the sustainability transitions entail for the financial sector, i.e. both physical risks due to the changing climate, and transition risks due to changing regulations and policies. On the other hand, they are linked through the contribution that the financial sector can make to opening up resources for the transitions. Our report focuses on both aspects, with the core question being:

What options does the government have for influencing the financial sector in such a way that non-sustainable investment is limited and investment in sustainability is encouraged? To what extent is that necessary, desirable, and urgent?

The report will be published after the Dutch Government has presented its views on the role of the financial sector in sustainability (in the summer of 2022). The report focuses on the challenges involved in implementation and potential responses to the strategic choices in the Government's statement of its views.

Planning

The Council expects to publish its report by the end of 2022.

Composition of the council committee

Jeanet van Antwerpen, Rli Council Member and chair of the committee
Pallas Agterberg, Rli Council Member

External committee members

Peter Blom, former CEO Triodos Bank
Eloy Lindeijer, former CIO PGGM

Information or response: 

For more information or to respond, please contact project leader Joris Stok at joris.stok@rli.nl