The new WWF report Sustainable Financial Regulation and Central Bank Activities Tracker (SUSREG) 2024 concludes that Banking and insurance supervision of climate-related issues has made steady progress over the past four years. However, efforts to include nature-related risks remain insufficient and its integration into monetary policy and central bank activities is clearly insufficient.
The WWF Financial Regulation Greening Initiative (GFRi) publish your evaluation today SUSREG 2024calling on the financial regulatory sector to take urgent collective action in the face of increasing nature loss that could trigger irreversible ‘tipping points’. The WWF Living Planet Report 2024 indicates one Catastrophic decline of 73% in average vertebrate population size -mammals, birds, amphibians, reptiles and fish- object of study in just 50 years (1970-2020).
Double climate and nature crisis
As the Earth approaches dangerous tipping points that pose serious threats to humanity, a massive collective effort will be needed over the next five years to address the problems. double climate and nature crisiswhat is key here is the fast one transition of the financial sector.
It is positive that this year’s evaluation confirms this Banking and insurance supervisory authorities are moving forward in tackling the financial risks posed by the climate crisis; In fact: the supervisory measures in 2021 and 2024 by 18% and 17% respectively.
However, it is important to note that supervision of the insurance sector systematically lags behind banking supervision. In particular, the European Union, Singapore, Malaysia, Hong Kong, the United Kingdom and Brazil impose strict regulations and supervisory measures on climate-related risks for the financial sector..
A growing number of regulators and regulators are now also requiring financial institutions to make public their climate targets and transition plans, in line with the Paris Agreement. Financial regulators, such as European Central Bankalso set strict deadlines, forcing financial institutions to fully adapt to their expectations monitoring climate and environmental risks by the end of 2024.However, in most jurisdictions, central banks and monetary policy are still not taking into account climate risks, let alone environmental risks.. A number of central banks, such as the Bank of England, the Bank of France, the Monetary Authority of Singapore and the Bank of Slovenia, have begun to phase out harmful assets from their investments in companies whose economic activities contribute significantly to the climate crisis . including those related to coal and fossil fuels. Faster action is needed, taking into account that current national climate commitments are not strong enough and could lead to a global temperature increase of 3°C by the end of the century. Furthermore, the accelerated loss of biodiversity could trigger several dangerous ‘tipping points’ that could trigger abrupt and irreversible changes on our planet, according to WWF’s latest Living Planet Report 2024.
Risks directly related to nature
Regarding nature-related financial risks, this year’s assessment concludes that Seven of the ten most biodiverse countries are lagging behind in banking supervision of these risks, and all ten are falling short in integrating these risks into insurance sector supervision.
This is a worrying trend, given that many of the economic activities that continue to cause nature loss in these countries are financed and supported by the banking and insurance sectors.
Investments that harm the environment, such as direct payments, tax breaks and subsidies that worsen the climate crisis, biodiversity loss and ecosystem degradation, are estimated at almost $7 trillion per year. On the other hand, positive financial flows for nature-based solutions alone amounts to $200 billiona considerably lower figure.Maud Abdelli, head of WWF’s Financial Regulation Greening Initiative (GFRi).points out that climate and environmental risks are not simply new risk categories; They are fundamental factors that permeate the existing prudential risk categories in the financial sector.
The action of central banks, financial regulators and regulators is too slow and falls short of what is needed to achieve global climate and biodiversity goals and avoid “dangerous tipping points” that will have devastating consequences for our planet and our economy.Siti Kholifatul Rizkiah, responsible for SUSREG and WWFnotes: The next five years are crucial to putting the world on a sustainable path. The costs of inaction are too high and the consequences are unthinkable.
Central banks and financial regulators must address nature-related risks in the financial system through stronger supervisory and enforcement measures. Only then can we ensure that the financial system becomes a powerful force to protect and restore our natural environment on which we depend.”
WWF recommendations in the new SUSREG Tracker 2024 report
In his new one SUSREG Tracker Report 2024WWF recommends that regulatory frameworks a precautionary approach and integrating nature-related risks into all prudential supervisory measures. These should focus on the risk management and control, additional capital requirements to take these risks into account and stress testing models that include natural risks and guarantee their resilience in the face of adverse scenarios.
Furthermore, it is important improving qualitative and quantitative information to hold the financial sector accountable. WWF recommends this improve financial disclosure regulations to include risks associated with the wildlife crisis and adopting best practice frameworks such as those developed by the Task Force on Wildlife Financial Disclosures (TNFD).
Finally, this is a crucial part of the mandate of central banks and financial supervisors set climate and environmental targets with a roadmap or a concrete and measurable action plan detailing how these objectives will be achieved.
This roadmap should prioritize the key milestones of halve greenhouse gas emissions compared to 2019 levels and reverse nature loss by 2030, limit global warming to 1.5°C and achieve full biodiversity recovery by 2050.
