Net‑Zero Commitments and Prudential Risks in the Dutch Financial Sector

2. Disclosure frameworks relevant for prudential risk assessment

Abstract

This chapter presents the main disclosure frameworks that shape climate‑related reporting by Dutch financial institutions. It covers EU climate and sustainability regulation, supervisory requirements applicable across the banking, pension and insurance sectors, and the voluntary frameworks institutions commonly use to measure emissions and set net-zero targets. The chapter shows that the resulting landscape is fragmented: requirements are largely subsector-specific and rely on differing metrics, leaving it uncertain whether the information currently disclosed is sufficient to assess financial institutions’ net-zero commitments from a prudential perspective.

2.1. Chapter objective

Financial institutions in the Netherlands are subject to a range of regulatory requirements. These arise from EU-level climate and sustainability regulatory frameworks, national and EU-level supervisory expectations on climate‑related risks, and are supported by voluntary frameworks and agreements.

This chapter explains the main disclosure frameworks that aim to support prudential risk assessment, as well as other investor-focussed frameworks that may also be informative for prudential risk assessment. It argues that the current climate‑related disclosure framework landscape for financial institutions is fragmented, and therefore has three main limitations for prudential risk assessment.

Table 2.1 provides an overview of the main regulatory and supervisory frameworks and the financial subsectors to which they apply. Voluntary frameworks, such as PCAF, the IEA NZE scenario, IFRS S1/S2 and the SBTi, are not shown separately, as they are in principle available to all financial institutions. An exception is the IEA NZE scenario, which serves as the mandatory reference pathway for banks’ emissions-intensity alignment disclosures under EBA Pillar 3 Template 3.

Table 2.1. Climate‑related regulation and supervisory requirements across financial subsectors

Disclosure and supervisory requirements are largely subsector-specific, with banks subject to the most extensive template‑based requirements

	Banks	Pension funds	Insurers
EU climate and sustainability regulation
CSRD	●	●	●
SFDR		●	●
IORP II		●
EU Taxonomy	●		●
Supervisory requirements
EBA Pillar 3 ESG (CRR)	●
EBA Guidelines on the management of ESG risks	◐
ECB Guide	◐
Solvency II / ORSA			●
DNB Guide		◐	◐

● Mandatory where in scope

◐ Supervisory expectation

Note: CSRD and EU Taxonomy apply to entities within CSRD scope (staged application; scope narrowed by the 2025 Omnibus). SFDR entity-level PAI statements are mandatory above 500 employees and comply-or-explain below. SFDR applies to credit institutions only where they provide portfolio management, and to insurers in respect of insurance‑based investment products. The EU Taxonomy’s disclosure requirements (Article 8) apply to the same companies as the CSRD, and therefore do not generally cover occupational pension funds. Pension funds may still report taxonomy alignment for individual investment products under the SFDR. EBA Pillar 3 ESG requirements apply in three tiers under CRR III: the full template set for large institutions, a simplified set for other listed institutions and large subsidiaries, and a reduced set of core ESG risk indicators for small and non-complex institutions (SNCIs). The DNB Guide refers banks to the ECB Guide.

2.2. EU climate and sustainability regulatory framework

The European Union has developed an extensive climate and sustainability regulatory framework in recent years, in line with the objectives of the European Green Deal. This framework comprises a set of EU-level regulations and directives, some directly applicable, others implemented in national law, and supervisory expectations that differ in scope, entity coverage, and objectives. These differences, including whether requirements apply to financial institutions, non-financial corporates, or specific financial subsectors, may complicate the comparability of disclosed information across institutions and financial subsectors.

This section provides a structured overview of the main regulatory frameworks relevant for Dutch financial institutions. It outlines the primary objectives of these frameworks, identifies the types of institutions subject to regulation, and highlights the metrics useful for prudential supervision.

2.2.1. Corporate Sustainability Reporting Directive (CSRD)

The CSRD supports the EU’s goal of achieving carbon neutrality by 2050 by improving corporate transparency on sustainability, including climate‑related disclosures relevant to assessing transition risks. The application of the CSRD takes place in stages. It requires in-scope companies to report standardised information on their climate‑related strategy, transition plans, GHG emissions, targets and progress under the European Sustainability Reporting Standards (ESRS). The 2025 Omnibus simplification process narrows the scope of CSRD reporting, meaning that fewer companies will be required to report or will report later than initially planned (Official Journal of the European Union, 2026[1]). To partly address the resulting information gap, the European Commission adopted a voluntary sustainability reporting standard for SMEs in July 2025.

Under the CSRD, companies must detail in a standardised manner their climate‑related strategy, transition plans, GHG emissions, targets, and progress towards achieving them. To meet CSRD requirements, companies must report information in line with the ESRS covering a broad range of environmental, social, and governance issues, including climate change, biodiversity and human rights.

The directive also requires sustainability disclosures to be subject to external assurance at a limited level. This requirement applies to all companies within the scope of the CSRD. External assurance enhances the credibility, comparability and reliability of climate‑related reporting by providing independent verification of data quality and methodological consistency.

2.2.2. Sustainable Finance Disclosure Regulation (SFDR)

The SFDR intends to enhance market transparency. It requires asset managers, other investment firms, and financial advisers to disclose specific information on how they take sustainability risks and principal adverse impacts (PAIs) on sustainability factors into account in their investment decisions. PAIs are intended to help investors assess whether investment decisions have negative effects on sustainability factors, including climate, environmental and social outcomes. Additionally, financial institutions subject to the regulation must improve the transparency of their remuneration policy by considering sustainability-related risks and disclose product-level information on sustainable investments.

At entity level, the obligation to publish a detailed PAI statement is mandatory for financial market participants with more than 500 employees, while smaller entities, including many occupational pension funds, benefit from a “comply or explain” approach (EBA, EIOPA, ESMA, 2025[2]).

The SFDR regulatory framework provides a list of indicators for the PAIs statement of the financial market participants. The list includes mandatory and voluntary indicators on environmental and social factors, for which the institution must state the adverse impacts, as well as mitigation actions and targets. Indicators for equity investments include (among others):

• PAI 1: Scope 1, 2, 3, and total GHG emissions

• PAI 2: Carbon footprint relative to investment value

• PAI 3: GHG intensity of investee companies (scope 1, 2 and 3 emissions / revenue)

• PAI 4: Exposure to companies active in the fossil fuel sector

• PAI 5: Share of non-renewable energy consumption and production

• PAI 6: Energy consumption intensity per high impact climate sector

• PAI 10: Violations of UN Global Compact Principles and of the OECD Guidelines on Responsible Business Conduct for Multinational Enterprises

• (optional) Investments in companies without carbon emission reduction initiatives

• (optional) Share of securities not issued under European Union legislation on environmentally sustainable bonds.

The GHG intensity of investee companies (PAI 3) corresponds to the WACI, as defined by other frameworks (further details on WACI can be found in Chapter 3).

The regulatory framework also provides indicators applicable to investments in sovereigns and supranational institutions and to investments in real estate assets, including (among others):

Investments in sovereigns and supranationals:

• GHG intensity of investee countries

• investee countries subject to social violations.

Investments in real estate assets:

• exposure to fossil fuels through real estate assets

• exposure to energy-inefficient real estate assets

• (optional) energy consumption intensity.

Further, the SFDR regulatory technical standards (RTS) require financial market participants to disclose data sources, measures taken to ensure data quality, how data are processed, and the proportion of data that are estimated.

In November 2025, the European Commission proposed amendments to the SFDR to simplify sustainability disclosures and reduce compliance costs. The proposal removes entity-level PAI disclosures, including the current “comply or explain” regime for smaller financial market participants, and shift the framework towards simplified product-level disclosures. As the proposal is still subject to the ordinary legislative process, the current SFDR requirements remain applicable until the revised framework is adopted and enters into application.

2.2.3. IORP II Directive

The IORP (Institution for Occupational Retirement Provision) II Directive (Official Journal of the European Union, 2016[3]), in force since 2017, sets standards to ensure the soundness of occupational pension schemes and the protection of members and beneficiaries. In this regard, it requires institutions for occupational retirement provision (IORPs) – funds that manage retirement savings for employees through employer-sponsored schemes – to consider environmental, social and governance (ESG) factors in investment policy and risk management where relevant and to disclose how and whether they do so.

They are required to disclose whether and how ESG factors are taken into account in their investment policy and whether and how environmental, climate, social and corporate governance factors are considered in their investment approach.

As part of their risk management systems, IORPs must conduct a risk assessment of their pension activities and make it available to the competent authorities. Where relevant, this assessment should cover ESG risks related to the investment portfolio and its management, including emerging risks such as climate change, use of resources, other environmental and social risks, and asset depreciation resulting from regulatory changes (stranded assets).

The system of governance must include consideration of ESG factors where relevant in investment decisions and be subject to regular internal review.

IORPs may justify limited or no consideration of ESG factors, if this is consistent with the proportionality principle and adequately disclosed.

2.2.4. EU Taxonomy for Sustainable Activities

The EU Taxonomy for sustainable activities is a classification system that sets criteria for economic activities aligned with a net-zero trajectory by 2050 and other environmental goals. Its main goal is to direct investments to the economic activities most needed for the transition, in line with the European Green Deal objectives.

The EU Taxonomy defines a list of sectors and activities that can be classified as sustainable, enabling or transitional, and establishes specific disclosure requirements for all types of financial and non-financial companies. The economic activities classified as “sustainable” under the EU Taxonomy are generally consistent with 1.5°C decarbonisation trajectories. Enabling activities allow others to make a substantial contribution to an environmental objective, while transitional ones are where there are no technologically or economically feasible low-carbon alternatives and GHG emission levels correspond to the best performance in the sector or industry.

The EU Taxonomy applies to companies subject to the CSRD, including non-financial and financial corporations. Corporations disclose different key performance indicators (KPIs) in relation to the taxonomy. For example, credit institutions disclose the green asset ratio (GAR), i.e. the share of the institution’s assets financing taxonomy-aligned economic activities. Asset management activities, including those conducted by asset managers as well as investment portfolios managed by banks and insurance companies, disclose the proportion of their investments that are taxonomy-aligned, based on the applicable regulatory templates. Insurance companies must additionally disclose the share of gross premiums from insurance activities associated with coverage of climate risks.

2.3. Supervisory requirements for climate‑related risks

2.3.1. EBA Pillar 3 climate risk disclosure requirements

The Capital Requirements Regulation (CRR) (Official Journal of the European Union, 2013[4]) mandates the European Banking Authority (EBA) to develop implementing technical standards (ITS) for Pillar 3 disclosures on ESG risks. Adopted in 2022, the ITS include mandatory, quantitative disclosure requirements for climate‑related transition and physical risks, including information on alignment with net-zero pathways, exposures to high-carbon assets and assets subject to chronic and acute climate change events. These Pillar 3 requirements are designed to support CRR institutions (primarily banks)1 in reporting meaningful and comparable information on how ESG risks and vulnerabilities may exacerbate other risks in their balance sheets.

CRR III expands the scope of ESG disclosure requirements beyond large credit institutions to also include (i) small and non-complex institutions (SNCIs), and (ii) other listed institutions and large subsidiaries (Official Journal of the European Union, 2024[5]). In contrast to the largest banks for which all requirements are mandatory, other listed institutions and large subsidiaries must disclose a simplified set of information, while SNCIs must report a simplified set of core ESG risk indicators, such as exposure to physical and transition risks and fossil fuel sectors.

The EBA requires qualitative information on the governance, strategy, and risk management of financial institutions for climate‑related risks, which is relevant for evaluating banks’ organisational capacity and strategic approach to risk management. Alongside qualitative information on ESG risks, institutions are required to provide quantitative information referring to (see Annex for details):

• transition risk, including sector-level alignment metrics that compare financed activities against science‑based net-zero emissions-intensity pathways

• physical risk, including exposures that are potentially vulnerable to physical climate risks, distinguishing between acute and chronic hazards

• mitigation actions associated with economic activities aligned with the EU Taxonomy

• other mitigating actions and exposures to climate‑related risks not aligned with the EU Taxonomy but contributing to the counterparties’ climate transition or adaptation process.

Lastly, the EBA requires banks to explain data sources and methodological choices used in their disclosures, including providing transparency on how estimates are derived.

2.3.2. EBA ESG supervisory reporting requirements

In April 2026, the EBA launched a consultation on proposed ESG supervisory reporting requirements under Article 430 Capital Requirements Regulation (CRR) as part of a broader simplification package under CRR III. These requirements build on the EBA’s previous ad hoc ESG data collection, which used templates developed for Pillar 3 ESG disclosures, and would establish a dedicated framework for information reported to competent authorities for supervisory purposes. The main proposed changes include the removal from supervisory reporting of EU Taxonomy-related data points, including information on the Green Asset Ratio (GAR) and Banking Book Taxonomy Alignment Ratio (BTAR), and the introduction of reporting requirements that include obligor-level information on environment-related concentration risks in selected corporate sectors directly for supervisory authorities. Related Pillar 3 disclosure requirements are being amended through a separate process under Articles 434a and 449a CRR. The supervisory reporting consultation does not, by itself, confirm whether all proposed supervisory reporting changes will be reflected in the Pillar 3 public disclosure framework. The final ITS are expected to be adopted following the consultation process.

2.3.3. EBA Guidelines on the management of Environmental, Social and Governance (ESG) risks

The EBA Guidelines on the Management of Environmental, Social and Governance risks (“EBA Guidelines”), published in January 2025, aim to operationalise the prudential framework established by the Capital Requirements Directive (CRD VI). They expect institutions to identify, measure, manage and monitor ESG risks over the short, medium and long term. EBA Guidelines apply to credit institutions and investment firms within the meaning of Article 4(1) point 3 of the CRR. Specifically, they will apply to ECB-supervised institutions starting from January 2026, while small and non-complex institutions are expected to comply starting from January 2027.

EBA Guidelines specify that governance arrangements institutions are expected to have in place and set:

• minimum standards and reference methodologies for the identification, measurement, management and monitoring of ESG risks

• qualitative and quantitative criteria for the assessment of the impact of ESG risks on the risk profile and solvency of institutions in the short, medium and long term

• the content of plans to be prepared by the management body, amongst which specific timelines and intermediate quantifiable targets and milestones.

2.3.4. ECB Guide on climate‑related and environmental risks

In November 2020, the ECB published the Guide on Climate‑related and Environmental Risks (“ECB Guide”), establishing principles-based supervisory expectations for how banks should integrate climate and environmental risks into their governance, strategy and risk management frameworks. The ECB Guide is intended for significant institutions supervised by the ECB, while less significant institutions may apply it voluntarily.

The ECB’s approach emphasises forward-looking identification and assessment of climate‑related and environmental risks, requiring banks to identify material risk drivers and to map them to sectors, portfolios, and counterparties using appropriately granular classifications.

Banks are expected to integrate climate‑related considerations into their client due diligence and credit processes, gathering relevant information such as exposure to high-emission activities, vulnerability to transition and physical risks, and, where material and available, data on emissions and counterparties’ transition strategies.

The ECB Guide sets out 13 supervisory expectations organised around four key areas: (i) business strategy and processes, (ii) governance and risk appetite, (iii) risk management, and (iv) disclosure. Banks under ECB supervision are expected to conduct self-assessments against these expectations and submit implementation plans, with the ECB subsequently conducting thematic reviews to assess progress.

By the end of 2024, banks were expected to meet all supervisory expectations on climate‑related and environmental risks. During this period, the ECB monitored banks’ remediation of shortcomings and implementation plans, taking follow-up and enforcement actions as needed. It also conducted targeted deep dives, including on litigation and reputational risks, as well as dedicated on-site inspections.

ECB’s climate‑related supervisory priorities for 2026-2028 include (ECB, 2025[6]):

• follow-up and monitoring to ensure banks fix remaining gaps in how they identify, measure and manage climate risks (building on the ECB’s earlier climate reviews and climate stress test findings, e.g. shortcomings in governance, data, scenario analysis and integration into risk management)

• a thematic review of banks’ transition planning (prudential transition plans), in line with CRD VI

• a horizontal assessment of banks’ compliance with Pillar 3 ESG disclosure requirements, including a targeted review of physical risk disclosures

• a deep dive into banks’ capabilities to address ongoing climate‑risk challenges, including physical risk

• targeted on-site inspections of banks’ climate risk management, either as a standalone focus or embedded in other reviews (e.g. credit risk).

2.3.5. EIOPA’s climate‑related expectations for European insurers

Under the Solvency II framework, the European Insurance and Occupational Pensions Authority (EIOPA) expects insurers to integrate climate change risks into their governance, risk management systems and the Own Risk and Solvency Assessment (ORSA), including through forward-looking climate scenario analysis and materiality assessments.

The Solvency II Directive mandates EIOPA to assess the potential for a dedicated prudential treatment of assets or activities associated substantially with environmental or social objectives, or harm to such objectives, and to assess the impact of proposed amendments on insurance and reinsurance undertakings in the European Union (EIOPA, 2024[7]). In November 2024, EIOPA recommended potential additional capital requirements for fossil fuel assets to effectively reflect transition risks in the Solvency II capital framework (EIOPA, 2024[8]).

The EIOPA Final Report on the Prudential Treatment of Sustainability Risks for Insurers covers three areas: the market risk of assets exposed to the climate transition, the impact of climate risk-related prevention measures on non-life underwriting risks and the treatment of social risks. Nevertheless, these proposals are not yet binding and would require legislative action to become prudential requirements.

There are currently no explicit Pillar 1 mandatory prudential requirements for insurers to measure or disclose the carbon intensity of their underwriting portfolios, nor to demonstrate alignment with net-zero pathways or specific temperature scenarios.

2.3.6. Climate‑related risk integration under Solvency II and Own risk and solvency assessment (ORSA)

Insurance companies must integrate climate‑related risks into their ORSA reports under Solvency II, analysing how future physical and transition risks could affect their risk profile and solvency, but are not required to disclose the granular emissions intensity metrics and net-zero pathway alignment that banks must report.

2.3.7. DNB Guide to managing climate and nature‑related risks

DNB’s Guide to Managing Climate and Nature‑related Risks (“DNB Guide”) sets out principles-based supervisory expectations and good practices on how institutions are expected to embed climate‑ and nature‑related risks into governance, strategy and risk management. In particular, the guide expects institutions to identify, assess and manage these risks in a forward-looking manner, to integrate them into their risk appetite and decision-making processes, and to ensure appropriate data, metrics and scenario analyses are used where risks are material, without prescribing specific methodologies or indicators.

The guide is intended for institutions supervised by DNB, such as insurers, pension funds, investment firms and payment institutions, and was updated most recently in September 2025. For banks, DNB explicitly points to the ECB Guide, analysed above, as the applicable supervisory reference (DNB, 2025[9]).

2.4. Voluntary frameworks for climate‑related risks

In addition to the regulatory and supervisory frameworks described in the preceding sections, financial institutions have committed to a range of voluntary frameworks and methodological initiatives to measure, disclose and assess climate‑related risks and progress toward net-zero commitments.

This section focusses on voluntary frameworks that are either (i) referenced in regulatory or supervisory disclosures, or (ii) widely used in practice and extend the information available for assessing net-zero commitments. For example, the IEA NZE scenario is used as the reference pathway in the EBA Pillar 3 Template 3, while the Partnership for Carbon Accounting Financials (PCAF) is referenced in the EBA Pillar 3 instructions as a possible methodology for estimating financed emissions and is widely used in practice (The European Commission, 2022[10]). As of 2025, PCAF counted more than 700 financial institution signatories representing over USD 98 trillion in assets globally (PCAF, 2026[11]).

Broader net-zero alliances or similar initiatives are not discussed separately here. While they provide guidance on target-setting and transition planning, they primarily support the implementation of net-zero commitments within participating institutions rather than introducing distinct disclosure metrics relevant for supervisory assessment. For instance, the Net Zero Investment Framework (NZIF) developed by the Institutional Investors Group on Climate Change provides methodological guidance for asset owners and asset managers on assessing portfolio alignment with net-zero pathways. In an analysis conducted for this report of ten of the largest European asset managers, only two institutions disclosed portfolio alignment information based on such voluntary frameworks.

2.4.1. The IFRS Sustainability Disclosure Standards and the Task Force on Climate‑ related Financial Disclosures (TCFD)

In 2023, the International Sustainability Standards Board (ISSB), established by the IFRS Foundation, issued the IFRS Sustainability Disclosure Standards: the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate‑related Disclosures (IFRS S2).

The purpose of the ISSB was to provide capital market participants with the information they need to support better investment decisions. The standards require companies to disclose information on the governance, strategy, risk management, and metrics and targets related to sustainability- and climate‑related risks and opportunities, enabling investors to assess how these factors may affect financial performance over the short, medium and long term. The IFRS Sustainability Disclosure Standards are intended for entities that publish general purpose financial reports for investors and other external capital market participants.

IFRS S1 sets out general requirements for the disclosure of sustainability-related risks and opportunities that could reasonably affect a company’s financial performance. These disclosures follow the four‑pillar structure originally developed by the TCFD: governance, strategy, risk management, and metrics and targets. IFRS S2 sets out specific disclosure requirements for climate‑related risks and opportunities, including information on emissions, transition plans, climate targets, and scenario analysis. It builds on the general framework in IFRS S1 and applies the same four‑pillar structure.

The IFRS Sustainability Disclosure Standards build on the framework developed by the TCFD, which was disbanded in 2023. The TCFD had been established to respond to growing demand from investors, lenders and insurers for better information on how climate change may affect companies’ financial performance. Its objective was to improve the disclosure of climate‑related risks and opportunities and enable stakeholders to assess their potential financial impacts.

The TCFD developed a framework to guide companies in disclosing climate‑related information around four pillars:

• Governance: Oversight of climate‑related risks and opportunities by the board and senior management.

• Strategy: Actual and potential impacts of climate‑related risks and opportunities on the organisation’s business, strategy and financial planning.

• Risk Management: Processes used to identify, assess and manage climate‑related risks.

• Metrics & Targets: Indicators and targets used to measure and manage climate‑related risks and opportunities.

2.4.2. Partnership for Carbon Accounting Financials (PCAF)

Partnership for Carbon Accounting Financials (PCAF) is an industry-led initiative that developed a widely used standard for measuring and disclosing financed emissions across asset classes (loans, listed equity and corporate bonds, project finance, commercial real estate, mortgages, etc.) (PCAF, 2025[12]). The PCAF Standard is commonly used by banks, asset managers and other asset owners when they report financed emissions and portfolio decarbonisation progress.

PCAF is not a legally mandatory reporting framework under EU law. Financial institutions are not required to use PCAF specifically. However, EU regulations increasingly require financial institutions to disclose financed emissions, and PCAF provides a practical and widely used method to calculate these required disclosures.

PCAF also introduces a standardised data-quality scoring system that allows users and supervisors to understand how financed emissions figures are derived and how reliable they are. These data-quality scores are assigned by the reporting financial institution itself in accordance with the PCAF methodology and therefore represent a self-assessment of the underlying data sources and estimation methods. For each exposure, institutions must assign a data-quality score ranging from 1 (highest quality) to 5 (lowest quality), based on the source and robustness of the underlying emissions and activity data.

A score of 1 reflects the use of primary, counterparty-specific data, such as verified Scope 3 emissions reported directly by the borrower or investee company and matched to exposure‑specific activity data (e.g. loan amount, outstanding balance). At the other end of the spectrum, a score of 5 indicates that emissions are derived from high-level proxy data, such as sector or regional averages, applied where no company-specific emissions information is available. Intermediate scores reflect reliance on modelled or estimated data.

2.4.3. Science‑based net-zero pathways and alignment frameworks

Beyond disclosure frameworks, financial institutions commonly rely on science‑based transition pathways and alignment initiatives to set sectoral targets for their financial exposures and assess progress against net-zero commitments. Pathways such as the IEA NZE scenario provide reference decarbonisation trajectories for different sectors, subsectors and regions.

These trajectories indicate how the emissions intensity of economic activities would need to evolve over time to remain consistent with a 1.5°C transition. Financial institutions can compare the emissions intensity of their financed activities with these trajectories to assess whether their sector exposures are broadly aligned with a net-zero pathway.

Methodological initiatives, such as the Science Based Targets initiative (SBTi), build on these reference pathways and translate them into target-setting approaches that financial institutions can apply to their portfolios. In practice, pathways therefore serve both as benchmarks for assessing alignment and as the scientific basis for methodologies used to set and validate portfolio targets.

International Energy Agency (IEA) Net Zero Emissions scenario (NZE)

The NZE scenario, developed by the IEA, is a widely used science‑based reference pathway for assessing alignment with the Paris Agreement, particularly in the energy and energy-intensive sectors. The IEA NZE scenario, used as a reference pathway for scenario alignment, provides a global 1.5°C pathway describing how the energy system must evolve to reach net zero by 2050, by defining sectoral emissions trajectories, technology deployment pathways, and energy demand and supply evolution across regions (IEA, 2021[13]).

It is also the reference pathway for banks’ emissions-intensity alignment disclosures under the EBA Pillar 3 ESG framework (Official Journal of the European Union, 2022[14]). Under Pillar 3 ESG disclosure templates, notably Template 3, institutions are required to report alignment metrics against a science‑based net-zero scenario, with the IEA NZE scenario used as the reference point.

In practice, financial institutions, most notably banks, often need to translate the IEA NZE’s system-level sectoral trajectories into exposure‑level benchmarks that can be applied to their loan portfolios. For example, in the buildings sector, the NZE scenario assesses progress primarily through energy demand per square metre (kWh/m²), changes in the energy mix (such as electrification and fuel switching), and the decarbonisation of energy supply, reflected in declining emissions per unit of energy consumed (gCO₂/kWh).

While these elements define the overall emissions trajectory of the sector, the NZE scenario does not generally provide building-level emissions-intensity thresholds expressed directly in kgCO₂ per square metre, differentiated by country and property type. As a result, institutions cannot easily assess whether individual buildings or mortgage exposures are aligned with a Paris-consistent pathway based on NZE data alone.

To operationalise real-estate alignment assessments, banks therefore commonly rely on the Carbon Risk Real Estate Monitor (CRREM). CRREM translates Paris-aligned climate objectives into country- and property-type‑specific decarbonisation pathways expressed in kgCO₂/m², enabling clearer exposure‑level benchmarking. Similar logic applies to other sectors.

In shipping, for instance, banks often apply the Poseidon Principles methodology, which benchmarks vessel emissions intensity against decarbonisation trajectories linked to international climate objectives for maritime transport. As with CRREM, such tools are best understood as implementation methodologies that operationalise alignment assessments in specific sectors, while the IEA NZE scenario remains the regulatory reference pathway for Template 3 disclosures under the EBA Pillar 3 framework.

Science Based Targets initiative (SBTi)

Originating from a collaboration between the Carbon Disclosure Project (CDP), the United Nations Global Compact, the World Resources Institute and the World Wildlife Fund (WWF), the Science Based Targets initiative (SBTi) develops standards, tools and guidance that allow companies to set GHG emissions reductions targets in line with what is needed to reach net-zero by 2050 at latest (SBTi, 2026[15]).

SBTi also provides methodologies and independent validation enabling companies, including financial institutions, to set GHG reduction targets that are consistent with recognised science‑based net-zero pathways. Where economy-wide scenarios such as the IEA NZE pathway and other existing implementation methodologies do not provide sectoral or institutional specificity, SBTi develops sector- and activity-specific methodologies for target setting. This is, for instance, relevant in land-intensive sectors through its Forest, Land and Agriculture (FLAG) guidance, which provides dedicated methodologies for setting targets in areas such as livestock and dairy production (SBTi, 2025[16]). Some Dutch banks reference FLAG when setting portfolio targets in agricultural sub-sectors; for example, Rabobank discloses intensity-based dairy-, beef- and soy-sector targets aligned with SBTi FLAG methodologies (Rabobank, 2024[17]).

2.5. Fragmented disclosure metrics undermine uniform climate reporting

The current climate‑related disclosure framework landscape for financial institutions has three main limitations for prudential risk assessment. First, disclosure requirements are largely sector-specific, applying to different parts of the financial sector and therefore limiting cross-sectoral comparison. Second, the various frameworks require different metrics and indicators, which further complicates the comparability of disclosed information across institutions and sectors. Third, it remains uncertain whether the information currently disclosed is sufficient and appropriate for assessing financial institutions’ net-zero commitments from a prudential risk perspective.

For banks, prudential disclosure is anchored in the EBA Pillar 3 ESG templates under the CRR. These include counterparties’ absolute emissions alongside exposures and credit quality indicators (Template 1), and pathway-alignment metrics against science‑based scenarios (Template 3).

For pension funds and insurers, mandatory public disclosure of portfolio-level net-zero alignment information is more limited. Large pension funds and insurers may fall within the CSRD and ESRS where applicable, which support entity-level sustainability reporting. Insurers are also subject to governance and risk-management expectations under Solvency II. However, these frameworks do not provide the same standardised, template‑based information on sector exposures, financed emissions, credit quality and pathway alignment as EBA Pillar 3 disclosures for banks.

For asset management activities on behalf of clients, including where these activities are carried out within banking or insurance groups, the SFDR applies through product- and entity-level sustainability disclosures. This includes PAI indicators such as absolute GHG emissions of investee companies (PAI 1), carbon footprint (PAI 2), GHG intensity (PAI 3, commonly referred to as WACI), and exposure to fossil-fuel companies (PAI 4).

As a result, financial institutions disclose climate‑related information using a range of non-uniform metrics and indicators, including absolute financed emissions, WACI, fossil-fuel exposure for asset management, and, in banking, template‑based information, including physical net-zero pathway alignment measures. It therefore remains unclear which metric, or combination of metrics, supervisors should prioritise to monitor in order to assess the prudential risks associated with financial institutions’ net-zero commitments. The next chapter analyses reported information in detail, with the aim of distilling supervisory-relevant information for assessing net-zero commitments and associated risks.

References

[9] DNB (2025), Guide to managing climate and nature-related risks, https://www.dnb.nl/media/fbjjzf1o/guide-to-managing-climate-and-nature-related-risks-update-september-2025.pdf.

[2] EBA, EIOPA, ESMA (2025), Principal Adverse Impact disclosures under the SFDR, https://www.esma.europa.eu/sites/default/files/2025-09/JC_2025_26_Report_on_PAI_disclosures_under_Article_18_SFDR.pdf?.

[6] ECB (2025), Supervisory Priorities 2026-28, https://www.bankingsupervision.europa.eu/framework/priorities/html/ssm.supervisory_priorities202511.en.html.

[7] EIOPA (2024), Final Report on the Prudential Treatment of Sustainability Risks for Insurers, https://www.eiopa.europa.eu/publications/final-report-prudential-treatment-sustainability-risks-insurers_en?.

[8] EIOPA (2024), Final Report on the Prudential Treatment of Sustainability Risks for Insurers, https://www.eiopa.europa.eu/publications/final-report-prudential-treatment-sustainability-risks-insurers_en.

[13] IEA (2021), Net Zero by 2050, https://www.iea.org/reports/net-zero-by-2050.

[1] Official Journal of the European Union (2026), DIRECTIVE (EU) 2026/470 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL, https://eur-lex.europa.eu/eli/dir/2026/470/oj.

[5] Official Journal of the European Union (2024), REGULATION (EU) 2024/1623 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 31 May 2024 - mending Regulation (EU) No 575/2013 as regards requirements for credit risk, credit valuation adjustment risk, operational risk, market risk and the output floor, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202401623.

[14] Official Journal of the European Union (2022), COMMISSION IMPLEMENTING REGULATION (EU) 2022/2453 of 30 November 2022 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of environmental, social and governance risks, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?from=DE&uri=CELEX%3A32022R2453.

[3] Official Journal of the European Union (2016), Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32016L2341.

[4] Official Journal of the European Union (2013), Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, https://eur-lex.europa.eu/eli/reg/2013/575/oj/?eliuri=eli%3Areg%3A2013%3A575%3Aoj&locale=en.

[11] PCAF (2026), PCAF Signatories, https://carbonaccountingfinancials.com/signatories (accessed on 8 March 2026).

[12] PCAF (2025), Financed Emissions - For financial institutions measuring and reporting scope 3 category 15 emissions, https://carbonaccountingfinancials.com/files/standard-launch-2025/PCAF-PartA-2025-Full-Document-Clean.pdf.

[17] Rabobank (2024), Impact Report 2024, https://media.rabobank.com/m/209b209e0d737f3e/original/Impact-Report-2024.pdf.

[15] SBTi (2026), Standard and Guidance, https://sciencebasedtargets.org/standards-and-guidance.

[16] SBTi (2025), SBTi’s Forest, Land and Agriculture (FLAG) Guidance in Brief, https://files.sciencebasedtargets.org/production/files/SBTi-FLAG-Guidance-in-Brief.pdf.

[10] The European Commission (2022), COMMISSION IMPLEMENTING REGULATION (EU) 2022/2453, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?from=DE&uri=CELEX%3A32022R2453.

Note

← 1.  In CRR terminology, “institutions” refers to CRR-scope entities (credit institutions and, where applicable, certain investment firms). Article 449a CRR initially covered large, listed institutions; CRR3 expanded the scope to all institutions from 1 January 2025.