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Cambridge Institute for Sustainability Leadership (CISL)

11 October 2018 – On Monday, De Nederlandsche Bank (DNB) launched an energy transition risk stress test for the financial system of the Netherlands. The study, supported by the University of Cambridge Institute for Sustainability Leadership's Centre for Sustainable Finance, provides a first attempt at assessing potential financial stability impact of a disruptive energy transition.

Wind turbinesThe study analyses the impact of four scenarios on the Dutch financial system: a policy shock, a technology shock, a double policy and technology shock, and a confidence shock.

The report reveals substantial findings. Losses for pension funds range between 7 per cent of total stressed assets in the policy shock and confidence shock scenarios and 10 per cent in the double shock scenario. Losses for insurers range between 2 per cent of total stressed assets in the technology shock scenario and 11 per cent in the double shock scenario, with the interest rate effect driving the majority of losses in three out the four scenarios. Losses for banks range between 1 per cent of total stressed assets in the technology shock scenario and 3 per cent in the double shock scenario.

The study is particularly interesting as it not only assesses the losses in relation to the stressed assets, but also looks at the impact of scenarios on regulatory ratios for banks, insurers and pension funds. Further, it is the first study by a central bank that uses a stress test to quantify the risks of an abrupt, rather than managed, energy transition.  

In the context of capabilities developed through CISL’s role convening industry groups like the Banking Environment Initiative, CISL's Centre for Sustainable Finance experts were happy to provide input and feedback into this analysis.

Dr Nina Seega, Research Director, Sustainable Finance comments:

“This is a pioneering study by the DNB of the impact of a disruptive energy transition on the financial stability of Netherlands. I was very pleased that the expertise of the CISL Centre of Sustainable Finance could support DNB in its endeavour to quantify transition sources of financial risk under different scenarios.”

Read the full report here, and learn more about the work of the Centre for Sustainable Finance.

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