This chapter develops the monitoring framework that supervisors can use to assess the prudential risks stemming from financial institutions’ net-zero commitments. The framework combines a quantitative and a qualitative assessment, both organised at the level of economic sectors, and is grounded in current reporting practices and the data supervisors can realistically access. The quantitative component sets out which indicators supervisors may rely on for each type of institution – sector-level physical emissions-intensity metrics and targets where financial institutions, notably banks, report them, and internal-data measures such as decomposed sector-level WACI where they do not. The qualitative component provides a questionnaire on governance, risk-management and engagement practices, drawn from existing supervisory principles.
Net‑Zero Commitments and Prudential Risks in the Dutch Financial Sector
Abstract
5.1.1. Chapter objective
This chapter develops the monitoring framework that DNB can use to assess the prudential risks that stem from financial institutions’ net-zero commitments.
The monitoring framework is first established top-down. Financial institutions have publicly committed to net-zero emissions, and the preceding chapters have shown that legal and reputational risks can be mitigated by credible progress towards these commitments. Such progress can be assessed through alignment with sector-level physical emissions-intensity pathways.
At the same time, the approach is informed by a bottom-up review of current reporting practices, based on the analysis of publicly available disclosures by Dutch financial institutions. While existing regulatory and voluntary disclosure requirements are not always designed with prudential supervision as their primary objective, they are a good proxy for which information is currently available, comparable and easily accessible to supervisors.
Additionally, the framework considers information DNB has access to through its ongoing reporting channels with Dutch financial institutions. Incorporating this perspective ensures that the proposed approach remains grounded in reporting practices that can realistically be used in day-to-day supervision.
Further, the chapter includes an assessment of sectoral exposures of select financial institutions with net-zero pathways based on physical emissions intensity metrics (Section 5.2.2) – which the framework puts forward as the primary indicator for assessing legal and reputational risks related to net-zero commitments, as well as a relevant metric for assessing other climate‑driven prudential risks. The analysis details the practical challenges that may arise in the context of such assessments and incorporates guidance for these in the supervisory framework.
5.1.2. Framework structure
The supervisory framework distinguishes between quantitative and qualitative assessment components. The quantitative dimension provides guidance on how supervisors can use climate‑related indicators to assess the prudential risks that stem from financial institutions’ net-zero commitments. Where relevant, it links climate‑related indicators (e.g. financed emissions by sector or emissions-intensity alignment) with financial indicators (e.g. sectoral exposures, remaining maturities, Stage 2 exposures and non-performing exposures).
The framework does not provide a full overview of the prudential information supervisors typically use to assess credit, market, liquidity or operational risk. Indicators such as liquidity indicators, funding profiles, collateral management practices or market-risk sensitivities are discussed only where needed to explain how climate‑related risk drivers may amplify traditional prudential risks.
The quantitative guidance is structured in three subsections. First, it sets out propositions that apply across financial sectors and risk channels. Second, it identifies the public disclosures, internal data and supervisory analyses that can support risk assessment (Table 5.1). Third, it provides practical guidance on how supervisors may use this information, drawing on the preceding analysis.
The qualitative assessment outlines general propositions, including a questionnaire for assessing financial institutions’ governance, risk-management and engagement practices. The questionnaire translates existing supervisory principles and disclosure expectations into concrete questions, rather than introducing new requirements. It draws on the Basel Committee’s Corporate Governance Principles for Banks, the EBA Guidelines on the management of ESG risks and IFRS S2. As such it does not create an additional reporting burden for institutions and instead allows supervisors to assess information available in existing disclosures in a structured manner for climate‑related risks.
The quantitative and qualitative assessments can be conceptually structured as in Figure 5.1 below. The rest of this section explains further.
Quantitative assessment requires an economic-sector-level view and adequate emissions-intensity data, while qualitative assessment becomes especially important where data quality and availability is low
5.2.1. General propositions
Legal and reputational risks related to net-zero commitments, as well as other prudential risks driven by climate‑related factors, may need to be assessed on an economic sector basis. This is because net-zero pathways are generally defined for specific sectors and activities, using metrics that reflect how those sectors decarbonise. Climate‑related risk drivers also affect sectors differently.
Supervisors should assess the coverage and reliability of the relevant data. This includes evaluating the reporting perimeter and disclosed data-quality indicators. This assessment helps supervisors determine the extent to which reported information can be relied upon, whether it should be complemented with third-party estimates, or whether further supervisory engagement is needed. It also informs the level of prudence applied when assessing apparent risks.
Where quantitative information is of lower quality or shows gaps that may be difficult to entirely overcome – such as for SNCIs, LSIs, or relatively smaller pension funds and insurers – supervisors may place greater emphasis on qualitative assessments, including transition planning, governance, risk management and engagement practices of financial institutions.
Supervisors may also monitor whether institutions expand reporting scope and improve data quality over time, thereby gradually reducing uncertainty in their supervisory mandate and increasing confidence in their assessments.
5.2.2. Assessing sector exposure alignment with net-zero commitments
The analysis of sectoral net-zero pathways described in this section uses physical emissions intensity metrics reported for bank loan books of large listed and non-listed institutions – currently the sole financial sector activity obliged to report such disclosures publicly.
The analysis here does not extrapolate past emission reduction progress against future emission levels, as progress towards targets does not necessarily follow a predetermined trajectory. For example, a bank may hold a number of relatively high-emitting assets in a sector where emission reductions have so far been limited, resulting in a relatively flat emissions reduction curve. However, if the bank can demonstrate that these loans are set to expire soon and will not be refinanced, the sector’s emissions intensity could decline sharply once those exposures mature. Further, sectoral emissions pathways that financial institutions have followed historically are often non-linear and irregular in shape, making projection difficult. Therefore, this analysis focusses on monitoring and assessing financial institutions’ current progress, rather than predicting future progress towards net-zero commitments.
For methodologically accurate comparisons, emissions-intensity reduction progress per sector must be assessed against appropriate sectoral emissions reduction pathways. Selecting an appropriate pathway requires consideration of the composition of sectoral portfolios, which often aggregate exposures across multiple subsectors and geographies, each associated with different emissions profiles and decarbonisation trajectories. In real estate, for example, emissions-intensity pathways differ between residential and commercial assets, and within residential portfolios between single‑family and multi-family buildings, reflecting differences in building characteristics, energy use and renovation potential. In addition, required emissions-intensity reductions vary by country, due to differences in climate conditions, building standards, energy mixes and policy frameworks. Figure 5.2 and Figure 5.3 are based on pathways developed under the CRREM, presented in Section 2.4.3.
Figure 5.2 illustrates that real estate pathways can differ materially across countries and asset types. For instance, the required emissions intensity for residential single‑family housing in 2030 differs by around 26% between Germany and the Netherlands. Given this heterogeneity, it is important that financial institutions clearly specify which pathways they apply and how these relate to the underlying composition of their portfolios.
Large banks usually name the net-zero pathways they use to assess alignment of their sector exposures, albeit without further information on their country or subsector composition. They also do not explain the rationales for the pathways chosen in standardised fashion – e.g. whether a domestic pathway has been chosen because non-domestic exposures are less material in monetary size or emissions. Similarly, institutions typically do not disclose detailed country or subsector portfolio information of their sectoral exposures, making it difficult to assess whether the pathway corresponds adequately to the sectoral assets.
Figure 5.3 compares the reported physical emissions intensity of the three largest Dutch banks and their weighted average trend, by gross carrying amount, for the residential and commercial real estate sectors. All three banks operate in both the residential and commercial real estate sectors and report emissions intensity using comparable metrics, allowing for meaningful aggregation and comparison. Panel A compares their recent reported climate performance in real estate against the Netherlands’ single‑family residential real estate CRREM net-zero pathway.
Differences in pathways have practical impacts (Figure 5.2). Bank A applies the latest CRREM version 1.5°C pathway for its residential mortgage portfolio, but does not clarify whether the pathway is weighted according to the country distribution of its real estate portfolio, nor does it provide a country-level breakdown of its residential mortgage exposures (Figure 5.3). This limits the extent to which supervisors can assess whether reported targets are aligned with the relevant physical emissions-intensity pathways applicable to the underlying exposures.
While pathways converge towards 2050, differences in the short and medium term can be sizeable – such as a 26% difference in the required kgCO2/m² intensity for residential single‑family mortgages in Germany and the Netherlands in 2030.
Source: CRREM V2.
Two of the three largest Dutch banks’ residential mortgage portfolio align with the corresponding net-zero pathways, and reported information allows for comparisons and aggregated assessments
Notes: Targets reflect the latest reported information for each bank. Bank A’s real estate targets are based on its 2023 annual report. The bank removed these targets from its FY 2024 disclosure.
1. In Panel A, the CRREM net-zero pathway represents CRREM’s most up-to-date (version 2.2) single‑family net-zero pathway for the Netherlands.
2. In Panel B, a representative commercial real estate pathway would need to consider banks’ commercial real estate portfolio exposure to the following categories: office, retail high-street, shopping centres, retail warehouses, hotel, distribution warehouse (cold and warm, respectively), healthcare, lodge/leisure. While individual banks presumably use their internal data to compute their corresponding CRREM commercial real estate pathway, they currently do not disclose such information. Therefore, the analysis is unable to compare their pathways against an aggregate or their individual CRREM pathways in this category. Analyses are subject to limited data quality. Therefore, analysis as the above may not describe economic realities accurately and should be considered with variation and unknown confidence intervals. Although the exact distance between reported performance or targets and net-zero pathways may therefore be uncertain, the analysis nevertheless helps supervisors assess the direction and pace of changes over time.
Source: CRREM, Company Reports.
Panel A of Figure 5.3 compares the banks’ reported emissions intensity in the residential real estate sector against the Netherlands-specific single‑family CRREM pathway. The comparison shows that two banks’ reported targets align with the pathway, while one bank reports a deviation.
Deviations from the pathway can reflect several factors. Deviations may indicate slower progress towards net-zero alignment, as well as differences in portfolio composition, such as greater exposure to countries or subsectors with different emissions baselines or more lenient pathways (Figure 5.1, Panel A). A more detailed comparison is not possible because banks currently do not publicly disclose country breakdowns for their sector exposures.
Panel B of Figure 5.3 compares the banks’ reported physical emissions intensity in the commercial real estate sector. An equivalent science‑based net-zero pathway is not shown due to data limitations. Constructing such a benchmark would require a weighted pathway reflecting each bank’s exposure to different commercial real estate subsectors. Nevertheless, the banks disclose their required 2030 convergence values for most reported sectors, indicating that they benchmark their progress internally against sector- or subsector-weighted trajectories.
Even without a harmonised benchmark, peer comparisons can still provide useful supervisory insight. Differences in reported emissions intensities may highlight institutions whose portfolios or targets deviate materially from those of comparable peers. In the case shown in Panel B, Bank A reports higher physical emissions intensity and higher target levels than the other two institutions, although these differences may partly reflect variation in portfolio composition.
Where exposures overlap, institutions sometimes report sector emissions using different metrics, which limits comparability. For instance, in the automotive sector, two banks measure their exposure in kilograms of CO₂ per vehicle‑kilometre, while the third bank uses tonne‑kilometres, – a metric that accounts for both vehicle distance and cargo weight – making direct comparison with vehicle‑kilometres difficult.
5.2.3. Indicators relevant for the risk assessment
Table 5.1 structures the information supervisors may rely on when assessing prudential risks. The framework does not position these indicators as stand-alone quantitative criteria. They should be assessed together with institutions’ own risk assessment, scenario analysis and stress-testing practices, where available. This reflects the way climate‑related risks are commonly assessed in supervision: reported indicators can help identify potential vulnerabilities, while scenario analysis and stress testing help assess how these vulnerabilities may affect institutions under adverse transition or physical-risk assumptions.
Pathway-alignment analysis is particularly relevant for assessing prudential risks related to net-zero commitments. It also helps supervisors identify whether sector exposures may become more vulnerable to other prudential risks driven by climate‑related factors. Supervisors should therefore assess pathway information together with sectoral information on financial exposure and financed emissions. For large listed and non-listed banks, EBA ESG Pillar 3 Template 1 provides relevant information on sectoral exposures, financed emissions, maturity and credit quality. For pension funds, insurers and other banks, supervisors may rely on internal data on positions and holdings, which may be matched with emissions estimates. Because there are currently no disclosure or supervisory reporting requirements covering such information for these sectors, the relevant data is not yet available or reported across these financial sectors. Therefore, supervisors may use sectoral weighted average carbon intensity as an alternative measure in these sectors.
Supervisors should ideally rely on sectoral intensity-based indicators to assess emission trajectories, and sectoral emissions and financial exposures to assess the extent of prudential risks
Notes: EBA Template D 04.00 refers to the proposed supervisory reporting to competent authorities in the EBA’s April 2026 proposed simplification of supervisory reporting. The report recognises that supervisors may treat climate‑driven risks arising from insurance underwriting separately, given their distinct business nature. In insurance underwriting, climate‑related risks arise through the liabilities insurers assume when covering policyholders’ risks. Higher underwriting-related emissions, or slower reductions in such emissions, do not necessarily mean that the insurer faces higher transition risks. They may instead reflect slower transition in the insured real economy. However, prudential concerns may arise where climate‑related risks are not adequately identified, priced or managed in underwriting practices.
5.2.4. Practical guidance
For carbon-intensive sectors, where available, supervisors may compare reported physical emissions-intensity metrics and interim targets with the referenced net-zero pathways used by the institution. Based on publicly reported and supervisory data, this is largely only possible for significant banks that list their equity.
Where substantial deviations from pathways occur for material sector exposures, supervisors may consider further supervisory engagement. For financial institutions for which such information is not available, supervisors may analyse decomposed sectoral WACI trajectories instead.
Where intermediate targets are disclosed but not yet aligned with net-zero pathways, supervisors may encourage financial institutions to disclose what a pathway-aligned intermediate target would be, reflecting their subsector exposures. Supervisors may also request additional qualitative information on how the institution’s transition plan mitigates risks arising from these sector exposures.
When financial institutions set intermediate targets that are not yet fully aligned with net-zero pathways (as for Bank B in Figure 5.3), it may be useful for the supervisor to monitor both the current distance to the net-zero‑aligned target, and its distance to the bank’s stated target.
Even when targets appear to align with net-zero pathways, supervisors and institutions should verify that the chosen benchmark reflects the portfolio’s actual composition. That is because differences between the net-zero pathway requirement of different countries or subsector exposures can be substantial (Figure 5.2). If subsector composition is unclear, supervisors may request more granular disclosure of portfolio composition to assess alignment against representative sector pathways.
When large institutions do not disclose or bilaterally communicate sector-level targets for carbon-intensive sectors, supervisors may consider further supervisory engagement.
Materiality thresholds may be applied to prioritise sectors or counterparties based on exposure size in financial terms and emissions contribution. Large financial exposures may indicate higher potential prudential materiality. Nevertheless, sectors with high financed emissions may be relevant for legal and reputational risk, even where the financial exposure is smaller. Supervisors may therefore need to consider both dimensions when selecting sectors or counterparties for closer assessment and engagement.
5.3.1. General propositions
Supervisory assessments of risks related to net-zero commitments should consider both reported data and forward-looking information, including targets where available. Where such data is incomplete or of low quality, supervisors may place greater weight on whether the institution has a credible transition plan, including arrangements to manage risks from misalignment with net-zero commitments. This includes: (i) whether the institution’s mandate and business model are consistent with reducing transition-sensitive exposures; (ii) whether sector strategies include exposure limits or financing criteria for high-emitting activities exposed to transition risks; (iii) whether counterparty engagement includes measurable milestones and escalation mechanisms; (iv) whether climate‑related risks are integrated into credit, investment, liquidity and scenario‑analysis processes; and (v) whether governance assigns clear accountability for implementation and monitoring.
Mandate matters because it can shape the sectors an institution finances and the risk profile of those exposures. For example, Dutch healthcare institutions operate under the Green Deal for Sustainable Healthcare, which aims to reduce CO₂ emissions and climate‑neutral healthcare by 2050, while housing associations are linked to the national objective of a CO₂-neutral housing stock by 2050. Where lending is concentrated in sectors with public mandates or sector-wide transition commitments, transition risk dynamics may differ from those of commercial portfolios with larger exposures to carbon-intensive corporate sectors. Guarantees by public authorities may also reduce prudential credit risk where they apply. These elements help supervisors assess whether reported targets are supported by credible processes and whether climate‑related risks are actively managed.
Exclusion policies and minimum standards may act as prudential risk mitigants. For example, an institution may prohibit new financing for thermal coal expansion, require oil and gas clients to have credible transition plans, or apply minimum energy-efficiency standards for new real estate financing. Such policies can reduce legal and reputational, and other prudential risks. They may also lead to a materially different transition risk profile compared with portfolios that show declining emissions intensity but still retain material exposure to high-emitting activities. Where such policies are clear and binding, especially for smaller and less complex institutions, the quantitative assessment may be less demanding.
For smaller or specialist banks, limited exposure to carbon-intensive sectors may reflect deliberate strategic non-exposure rather than weak reporting or data gaps. Supervisors should therefore distinguish between exclusions based on mandate or risk appetite, and limited information caused by methodological constraints. This distinction can help avoid misinterpreting low reported exposure as poor disclosure, or weak reporting as low risk.
The assessment should remain focussed on prudential risks stemming from misalignment with net-zero commitments. However, information on capital allocation can provide complementary supervisory insight. Two institutions with similar emissions intensities may have different real-economy impacts depending on whether they mainly finance incumbent firms on credible transition pathways or direct solutions such as renewable energy, circular economic activities or nature‑based solutions. Such information should not replace risk assessment, but it can help supervisors understand the credibility of transition strategies and the institution’s role in reducing future climate‑related risk drivers.
5.3.2. Questionnaire for assessing governance, risk-management and engagement practices
In addition to quantitative metrics, central banks and supervisors may assess progress towards net-zero commitments through regular qualitative assessments. Such assessments may help determine whether financial institutions have robust governance, risk management and engagement frameworks in place to identify, manage and mitigate climate‑related risks and support the achievement of their net-zero commitments.
The questionnaire set out below was developed by translating existing supervisory principles and disclosure expectations into concrete, assessable questions, rather than by introducing new requirements. It draws on the Basel Principles for Banks, the EBA Guidelines on the management of ESG risks, and IFRS S2, which set out high-level expectations on governance, risk management, internal controls, and transition planning, but do not prescribe specific question formats.
The questions were formulated by identifying the relevant principles and expectations in these frameworks and operationalising them into clear supervisory checks, with an explicit focus on climate‑related and net-zero transition risks. The fourth column in the table specifies the underlying principles or sections from which each question is derived.
Based on publicly available disclosures, the reporting of the six largest Dutch banks has been sufficient for answering most of the below questions positively, with minimal exceptions (questions 8 and 12). By contrast, for smaller banks, insurers and pension funds, public reporting would often be insufficient to address all the topics covered by the questionnaire. It may, therefore, be useful for bilateral engagements between DNB and non-bank financial institutions and smaller banks.
Especially in light of the limited data quality (highlighted in Section 3.3.) supervisors should pay attention to whether financial institutions have established clear responsibilities within their management bodies for climate‑related risk oversight, integrated climate‑related risks into their risk appetite frameworks, and developed credible transition plans with time‑bound targets linked to their business strategy.
Where quantitative information is weak, incomplete or indicates misalignment with targets, qualitative assessment can help supervisors evaluate whether risks are being identified, governed and managed effectively
Notes: Supervisors may use the questionnaire proportionately and focus bilateral questions on areas where public disclosures are insufficient, unclear or indicate potential weaknesses in governance, risk management or transition planning.
Source: Based on EBA Guidelines; Basel Committee’s Corporate Governance Principles for Banks.