Posted on 28 October 2021
First results of the WWF Sustainable Financial Regulations and Central Bank Activities (SUSREG) assessment show growing awareness about the financial impacts of climate change and biodiversity loss, with an increasing number of central banks, banking regulators and supervisors taking steps to create a more sustainable financial system. However, only very few of them are starting to use monetary, regulatory and prudential tools to ensure that financial institutions do not continue to support activities that are incompatible with climate, environmental and broader sustainability objectives. Given the urgency to act in the face of mounting climate and environmental crises, a precautionary approach is necessary.
Following the publication of the SUSREG framework and related online tracking tool in April 2021, WWF today launches its first SUSREG Annual Report. The report looks into the findings of the assessment of measures taken and progress made by central banks, banking regulators and supervisors to integrate environmental and social considerations in their mandates and activities. It covers 38 countries across the Americas, Europe, Middle East, Africa and Asia-Pacific regions, incl. most members and observers of the Basel Committee on Banking Supervision
. Together, they account for more than 90% of global GDP, 80% of total GHG emissions and 11 of the 17 most biodiversity-rich countries.
The results of the assessment indicate that while central banks and banking supervisors are developing their strategy and starting to take concrete measures to address climate-related risks, broader environmental and social risks are significantly less well covered.
“The progress made by central banks, banking regulators, and supervisors is encouraging. We need to accelerate such efforts to address the environmental and social challenges we face if the world is going to deliver the commitment of the Paris Agreement and the promise of the Sustainable Development Goals,” says Margaret Kuhlow, WWF´s Finance Practice Leader. “Nature loss is as significant a threat as climate change, and the two are interrelated. We can’t solve one without tackling the other.”
Regulations and supervisory expectations are now starting to be rolled out globally, with 35% of the assessed jurisdictions mandating banks to develop and/or strengthen their climate, environmental and/or social risk management practices. Notable examples include the European Central Bank and the Monetary Authority of Singapore issuing new climate and environmental risk management guidelines, as well as Banco Central do Brasil strengthening its existing risk management regulations, covering the full spectrum of environmental and social risks.
There is also a noticeable acceleration in the conduct of studies to better understand and quantify the exposure to banks to risks such as those associated with climate change and biodiversity loss, and on the development of taxonomies to define ‘sustainable’ activities. However, there remains a lack of evidence of specific regulatory actions being taken or supervisory tools being used to ensure compliance with enacted rules and expectations and to guard the financial system against climate and broader environmental and social risks.
From a central banking perspective, environmental and social considerations are not yet fully integrated in key monetary policy measures, such as asset purchases, collateral frameworks or refinancing programs, with only 22% of the relevant central banks having some of these measures in place, and none of them fully satisfying the related SUSREG indicators. Although more progress can be seen in foreign exchange reserves and overall portfolio management, making better use of these tools would ensure central banks contain environmental and social risks and do not slow down the transition to a more sustainable economy.
“We need a profound transformation of our financial system, one that systematically considers environmental and social risks and that follows a precautionary approach”, says Maud Abdelli, WWF´s Greening Financial Regulation Initiative Lead.
“We expect that central banks and financial supervisors will take prompt action commensurate with the challenges we are facing and to support a timely, orderly and just transition towards a resilient, sustainable and low-carbon economy”, says Sylvain Augoyard, WWF’s SUSREG technical lead and author of the 2021 Annual Report.
Given their leadership role, WWF urges central banks and supervisors to take a stronger public stance on the need to respond to environmental and social challenges. This would support more ambitious action from governments and send the right signals to financial institutions, notably over upcoming regulatory and supervisory changes. In this critical decade of action, ambitious intervention and international coordination will be the key to success.
WWF will update the online assessment on the SUSREG Tracker platform twice a year, and report annually to evidence the progress made, highlighting areas of good practices as well as where improvements are needed.
More Information on WWF´s SUSREG Tracker here.
More information on WWF´s Greening Financial Regulation Initiative here.