Dutch Central Bank and Sustainability: external supervision on the management of ESG risks

Climate change is already impacting the planet. There are legal risks as well, such as legal procedures against countries that do too little to protect its citizens against climate change, on the grounds of human rights. Possibly, financial institutions are next.

ESG risks are financial risks. To Dutch Central Bank ESG risks are a strategic priority to safeguard a stable financial system and sustainable welfare.

ESG risks should be part of risk management and of all core processes of pension funds. These risks may be managed by scenario building. For example, what is the future exposure of the pension fund’s investments to stranded assets.

At least one pension fund trustee should have ESG as part of the duties.

Dutch Central Bank will be monitoring ESG risk management by pension funds more closely from 2025.

The Management of Geopolitical Risks Attached to Worldwide Investments

Mr Chausovsky presented on geopolitical risks of worldwide investments. All investments are exposed to these risks. The way to manage them, is by scenario building.

As an example, Mr Chausovsky showed these risks in connection with renewable energy investments. As pension funds should manage their climate risks, they are encouraged to invest in forms of renewable energy. The risks attached to these investments should also be managed.

The EU could become as dependent on China for lithium-ion batteries and fuel cells by 2030 as it was on Russia for energy before the Ukraine war.

While electric vehicles may be a good investment for ESG purposes, from a geopolitical perspective there are important international supply chain risks. For one such a vehicle 1,000 microchips are needed, with Taiwan as the main supplier and the neccessary raw materials from various countries.

Managing geopolitical risks of investments requires strategic analysis and scenario building/forecasting at the trustee level.

New Lines Institute can help learn how to manage geopolitical risks wit its specialized analytical products for geopolitical risk management and  training sessions.

Contact: Eugene Chaukovsky by email: echausovsky@newlinesinstitute.org

The Investment Opportunities of a Net Zero Future

Ms O’Shea presented on the opportunity of the move towards a net zero economy. Countering climate change requires us to broaden the remit and look at all major sources of environmental pollution. This is necessary not just to slow down climate change, but also to defend environmental ecosystems around the world that play a crucial role in balancing the consequences of natural resource consumption.

Ms O’Shea believes that the momentum we’ve seen in clean power globally should be replicated in resource efficiency, clean transportation, sustainable food production and biodiversity & carbon offsetting.

BlackRock aims to sift through this fragmented landscape to identify solutions that can make a real impact while also being financially viable and scalable.

McKinsey's Global Energy Survey Updated

A presentation of the annual update of McKinsey's Global Energy Survey, including the global demand for energy and a discussion of risks and returns of energy investments, exclusive for the delegates who attended this event.

Deep Waves. A View on Economic, Demographic and Geopolitical Developments

Over the last 40 years or so, economic logic has been the top priority, as the world focused on economic growth via globalization. Now things are different: there are three centers of economic gravity, the US, Europe and China. Europe’s strength is based on the size of its market and its status as the setter of specifications and regulations for tradeable goods and services, as well as carbon markets and AI.

At the same time, demographics and geopolitics are driving a fragmentation of global trade and a focus on national security.

This means investors should not underestimate the return of the political economy and be prepared to think along geoeconomic lines for the first time.

Renewable Energy in Emerging Markets

For over 10 years Triodos Investment Management has invested in renewable energy in emerging markets. A few examples Triodos Investment Management finances are large scale windmill parks in Kenia and Vietnam.

Thanks to the co-operation with financially sound and seasoned partners, such as national utility companies and multilateral development banks, credit and currency risks may be mitigated.

Investors may view this asset class as a means to manage their exposure to climate risk.

A well diversified strategy (countries and proven technologies) realised a financial return of 8.4% YTD 2023 (per 30/09/23) and contributed to a positive social impact on local employment and economy.