to our economies and, basically, life itself. think of pollination, which is crucial for farmers, and for our food supply in general. to give you an idea of the magnitude of the exposures, let me give you some numbers. more than 500 billion euro in investments by dutch financial institutions are highly dependent on one or more of the services we find in our natural environment. also, the global carbon footprint financed by dutch financial institutions is at least 82 megatonnes. this is equivalent to the emissions caused if all the inhabitants of new york city would fly to london and back. ten times. this carbon footprint can lead to increased credit and market risk, among other things, as a result of the transition to a carbon - neutral economy. 1 / 4 bis - central bankers'speeches this is exposure, not risk. but still, these exposures could develop into a substantial amount of risk. because business models that are reliant on sectors and markets which are particularly vulnerable to climate - and nature - related risks may not be future - proof anymore. simply because transition risks may impact the current - day business models. for example, the dutch agricultural industry will likely need to shrink in order to meet long term bio - diversity requirements. hence, banks that are heavily involved in financing the agricultural industry today, must prepare for a changing demand for credit from this sector, in the future. in addition to physical risk and transition risk, financial institutions also face potential reputational and legal risk. these risks follow from an increased awareness in society of the effects of climate change and nature degradation. for instance, if a bank promises to be more green and to reduce its investments in fossil fuel sectors, but does not live up to its commitment, its reputation could be harmed. people will react and activist measures or changes in consumption patterns could follow. their goal being, ultimately, to drive banks towards a more environmentally friendly business model. it is clear that people have become more and more aware of the importance of climate change and environmental degradation and their consequences for daily life. people are prepared to take action. and they are prepared to take legal steps as well. therefore, banks may also be exposed to increasing litigation risk. if a bank, as a signatory to a climate commitment, does not live up to what it promises, not only could its reputation be harmed, it could also be subject to litigation, for example by ngos. actions against greenwashing are a good example. environmental organisations, policymakers

steven maijoor : managing climate and environmental related risk stepping up the pace speech by mr steven maijoor, executive director of supervision of the netherlands bank, at the morningstar sustainable investing summit 2023, amsterdam, 12 october 2023. * * * i was with my family in greece for the summer holidays. one evening we walked through a street in athens with restaurants lined up along the street, and there was a man trying to lure tourists into his restaurant. when he approached us i told him we had other plans, but somehow i wanted to know how he was doing. so i asked him. and what i did not expect was that he started ranting, a complete stranger, about how the summers had become unbearably hot, and that the number of tourists was already declining as a result. he was very depressed about the whole situation and he confided in me that he was seriously considering moving to norway. i was shocked and sad because i saw he really meant it. and the hard truth hit home again that the climate crisis is here and now, and it is affecting the lives of real people. and on top of that, it is affecting our economies. and when it affects our economies, it affects our financial sector as well. financial institutions are exposed to climate and environmental risk. think for instance about the risk of a flood in the western part of the netherlands. don't forget we are below sea level here. serious flooding could increase a bank's credit risk following damage to collateral such as houses and other buildings. and this would then require a bank to draw on its capital reserves. that's what we call physical risk. and then there is transition risk as well. transitioning to a net - zero society will likely lead to adjusted or new government policies. it could also lead to technological advances, or changes in market sentiment and market preferences. the transition to a net - zero economy creates risk for financial institutions that are highly exposed to sectors of the economy that are unprepared. governments, for example, could impose higher taxes on greenhouse gas emissions. as a result, the revenue of an energy - intensive company could decline. and this could impact the company's creditworthiness and its ability to repay outstanding debts to banks. physical and transition risks are not only related to climate change. financial institutions are also exposed to risk stemming from the degradation of nature, and actions aimed at preserving and restoring it. nature provides services that are essential