INSIGHT by the Greening Financial Regulation Initiative (GFRi), WWF
〉New findings of the WWF Sustainable Financial Regulations and Central Bank Activities (SUSREG) Tracker 2023 show that, since the first assessment took place in 2021, several central banks and financial supervisors are making notable progress to “green” their financial regulation and supervision. However, significant gaps remain, in particular in high income countries, countries with the largest GHG emissions and those that are the most biodiverse rich.
〉Current financial regulations and central banking activities focus on climate and do not fully account for broader environmental and social impacts, like biodiversity loss and its effects caused on communities who heavily depend on fragile natural resources for their livelihood.
WWF´s Greening Financial Regulation Initiative (GFRi) has today published findings from its annual SUSREG Tracker. The assessment shows that whilst significant progress has been made by several central banks and financial supervisors to implement sustainable regulatory and supervisory measures, key gaps remain, particularly in major economies where broader environmental and social risks are still being neglected.
Only 18% of central banks show exemplary progress in integrating climate-related risks into their monetary policy and central banking activities, whilst 68% of high-income countries have not yet adopted adequate climate and environmental banking supervision policies. Moreover, ambition and implementation of sustainable financial measures is unequal across central banks and financial supervisors.
Maud Abdelli, WWF’s Greening Financial Regulation Initiative lead, says: “Inaction or little action is fueling the dual climate-nature crisis. At the COP28 UN climate summit last week, countries agreed to transition away from fossil fuels, but they failed to commit to a full phase-out and to prioritise protecting nature. Central banks and supervisors need to take up a prominent role in directing finance away from the most environmentally harmful sectors like coal, gas and oil, and set minimum ESG expectations in financial regulation and supervision.“
SUSREG Tracker is WWF´s interactive online assessment tool that evaluates progress on the integration of climate, environmental and social risks into central banking, financial regulation and supervision activities. This year’s analysis covers 47 jurisdictions, which together, represent over 88% of the global GDP, 72% of global GHG emissions and 11 of the 17 most biodiversity-rich countries in the world.
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Some notable progress includes:
- The integration of biodiversity indicators into central banks own portfolios and pension fund disclosure.
- The development of supervision methodologies to tackle biodiversity loss.
- The growing requirements for financial institutions and corporations to disclose their climate transition plans.
- The set-up of sector-specific lending guidelines for high-risk sectors to help financial institutions assess client’s E&S risks.
But the assessment also finds that:
- The focus of central banking and insurance supervision activities remains primarily on climate.
- Only 18% of central banks have shown exemplary progress in integrating climate risks into their monetary policy and central banking activities.
- 68% of high-income countries have not yet adopted adequate climate and environmental banking supervision policies.
- Some of the highest emitting countries have not put in place strong climate-related banking and insurance supervision policies.
- More than half of the countries with net-zero targets (20 out of 37) that are covered in this assessment have considerably weak climate banking supervision policies.
- Sustainable banking and insurance supervision policies are falling short in the most biodiverse countries of the Asia-Pacific and Latin America, leaving them highly exposed to nature-related risks.
Building on its Roadmap for a climate safe and nature positive economy that recommends new nominal anchors for central banking and financial supervision mandates (-1.5ºC, full biodiversity recovery by 2050, 50% GHG emissions reduction, and nature positive by 2030), WWF urges central banks, financial supervisors and regulators to:
- Publish own transition plans for a low-carbon and nature-positive economy that are transparent and measurable, and encompass all central banking, financial regulation, and supervision activities.
- Apply a precautionary approach using all micro and macro prudential supervision tools available. Instead of waiting for the perfect data and models, financial supervisors need to prioritise preventive and impactful measures in the face of uncertain and potentially catastrophic environmental threats.
- Utilise their monetary policy toolkit to address environmental and social risks while phasing-out always environmentally harmful activities from their portfolios, i.e. those that do not adapt to business models that ensures a transition to a sustainable economy.
- Impose higher capital requirements to financial institutions’ lending, investing and insuring companies with always environmentally-harmful activities like coal, oil and gas expansion.
Explore the report
| about
In 2021, WWF launched the first Sustainable Financial Regulations and Central Bank Activities (SUSREG) assessment to evaluate how environmental and social risks are integrated in regulatory and supervisory practices, as well as in central banking and other financial activities. The aim of the assessment is to help central banks and financial supervisors benchmark their policies against emerging regional and global good practices with the overall goal of redirecting financial flows toward sustainable practices, and moving away lending, underwriting and investment from the most environmentally harmful businesses and sectors, in support of a net zero, nature positive economy. Countries assessed are mostly members and observers of the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), and the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Assessments are published on a yearly basis, with an accompanying annual report. Assessment indicators have been extended this year to cover issues such as just transition, central bank phase-out plan, water-related risk, availability of SME guidelines, and issuance of sovereign sustainable bonds. The assessment was expanded from 44 countries in 2022 to 47 in 2023. The individual country results of the assessment are available on the online platform SUSREG Tracker here. With an initial focus on banking supervision, the SUSREG framework will be gradually expanded over the years to cover other key parts of the financial system such as capital markets and asset management.
More information: https://www.susreg.org/
WWF´s Greening Financial Regulation Initiative seeks to put climate and environmental risk at the heart of the financial system. Through this initiative, WWF wants to evidence the link between financial risks and environmental risks like climate change, water scarcity and biodiversity decline, and engage policy makers, central banks and financial supervisors on the need to integrate those risks into their mandates and operations. In doing so, WWF provides the necessary tools, scientific research, assessments, and assistance to help enhance ambitions on the sustainable finance global policy agenda.
More information: www.panda.org/gfr
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
