The Dutch Federation of Pension Funds (Pensioenfederartie) has raised "major concerns" over the application of the Dutch pensions regulator De Nederlandsche Bank's (DNB) guidance on the management of climate and environmental risks.

DNB previously announced that it would be investigating several ‘points of attention’ as part of a further consultation on its environmental, social and governance (ESG) reporting statements, following negative industry feedback.

In its response to this, Pensioenfederartie said the new version of the guidance was a "clear improvement on the previous one", suggesting that the addition of new 'good practices' has made it possible to better determine what is expected of a pension fund from a supervisory perspective.

"Where the focus in the previous version was mainly on the identification of risks, there is now a shift to the implementation of applicable control measures," it stated.

"The adjustments in the current version therefore provide an improved description of the total process, as well as the substantiation and governance of risk management."

However, the federation said that there are still concerns around the application of the guidance in practice.

In particular, the group raised concerns over the possible interpretation by third parties of the 'good practices' in the guide as a legal standard and the possible false sense of security due to trust in potentially incomplete data.

"Pension funds have already found that a good practice, for example in the interaction with the accountant or because it is included in an audit, can easily take on a life of its own when answering the question of whether or not a pension fund complies with laws and regulations," the federation stated.

"The risk is that a number of good practices may be seen too quickly as the standard prescribed by DNB. Furthermore, in our view, the good practices are examples that are still in full development, in a playing field that is itself constantly evolving."

Given this, Pensioenfederartie suggested that the guide could make it even clearer that the good practices are "inspiring examples" rather than legal standards, and that legal requirements can be fulfilled in many other ways.

"A good, ongoing dialogue with DNB about the interpretation of the good practices and alternatives to them would therefore be welcomed by us," it stated.

In addition to this, the federation raised concerns over the lack of attention for the considerations that pension funds must make when applying risk management.

The limited interpretation of the concept of proportionality was another area of concern, as the federation suggested that this has made the guide less useful for smaller pension funds in particular.

The association said that the large amount of information also makes it difficult to distinguish between main and secondary issues and to work with a step-by-step approach, while the broadening of climate and environmental risks to environmental, social and governance (ESG) risks in a broader sense makes the connection with financial risk management less obvious.

In addition to this, Pensioenfederartie raised concerns over the limited attention paid to physical risks compared to transition risks.

"We would like to point out that physical risk can have far-reaching consequences for all investment categories and macro factors such as growth and inflation," it stated.

"We recommend that physical risks (including the impact on macro factors) be described in more detail in the guide."

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