Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Climate Risk Analysis
IMF Staff Country Reports, June 18, 2024
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- Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Climate Risk Analysis
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Bibliographic details
- Published: June 18, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400279690.002
Summary and scope
- Presents a technical note on climate risk analysis in The Netherlands.
- Assesses exposure to both physical and transition risks from climate change.
- Part of the Financial Sector Assessment Program (FSAP) analysis of potential risks to financial stability posed by:
- physical risks from floods; and
- transition risks from nitrogen.
Physical climate risk — stress test design and key findings
- Bank stress tests were conducted against flood events under a range of scenarios encompassing diverse regions, climate conditions, and flood protection reinforcement plans with different return periods.
- Despite the sizeable land area in the Netherlands susceptible to flooding, the physical climate stress test has demonstrated that the banking sector exhibits resilience to flood events.
- Recommendation on scenario design:
- Flood scenarios designed with detailed flood maps under future climate conditions would provide a more accurate assessment of both climate change impact and adaptation measures.
Transition risk — nitrogen and credit channel
- As the government’s efforts to reduce nitrogen depositions continue, the banking sector could face transition risks through the credit channel.
- Transition risk concentration is particularly relevant if loans are extended to financially vulnerable firms in high nitrogen-emitting sectors.
Policy recommendations and institutional priorities
- Strengthen data sharing and collaboration with floods and climate experts.
- Improve flood scenario design with detailed flood maps under future climate conditions to better assess climate change impact and adaptation measures.
- Monitor credit exposures to firms in high nitrogen-emitting sectors and assess borrower vulnerability to policy-driven transition shocks.
Content in this bundle
- Kingdom of the Netherlands—the Netherlands