Posted on 27 October 2021
BANGKOK, October 28, 2021
– Central banks and financial regulators across the globe, including Thailand are shoring up regulatory safeguards against biodiversity loss, environmental risks and climate-related impacts, according to the first Sustainable Financial Regulations and Central Bank Activities (SUSREG) annual report by the World Wide Fund for Nature (WWF).
The SUSREG annual report assesses central banks, banking regulators and supervisors in 38 countries across the Americas, Europe, Middle East, Africa and Asia-Pacific regions that increase their focus and integrate environmental and social considerations in their mandates and activities.
The results of the first 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,”
said Margaret Kuhlow, WWF´s Finance Practice Leader, adding that nature loss is as significant a threat as climate change and the two are interrelated.
“We can’t solve one without tackling the other,”
The countries featured in this report include most members of the Basel Committee on Banking Supervision (BCBS), accounting for more than 90% of global GDP and 80% of all the greenhouse gas (GHG) emissions. 11 of them are also considered among the world’s 17 most biodiversity-rich countries.
“In recent years, our financial sector has made concrete progress towards sustainability. Thai financial institutions have been actively embedding environmental, social and governance (ESG) principles and climate change considerations into their strategy, governance, and internal operations. Thai financial regulators and policymakers jointly established ‘Sustainable Finance Initiatives for Thailand’, which has been put in place as a holistic development framework for sustainable finance going forward,”
commented the Bank of Thailand.
“The Bank of Thailand stands ready to step up the pace by setting clear risk management practices and creating a financial ecosystem that could pave the way for a sustainable economy.
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.
“Our regulators have been strengthening their cooperation with international and leading organizations to develop guidelines and practices that align with international standards. They also engage and collaborate with the industry to exchange knowledge and insights, ensuring practicality and effective implementation in the Thai context,”
said Pornradee Tangkaseranee, Sustainable Finance Manager, WWF-Thailand.
Among key findings, 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.
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.
The key findings in the first SUSREG Annual Report are as follows:
- The results 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 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. None of them are using capital and liquidity requirements following a precautionary approach to mitigate climate and environmental related financial risks. This may affect the transitions such as implementation of policy and regulation that support the achievement of the UN Sustainable Development Goals (SDGs), decarbonization and net zero pathway.
- Given the urgency to act in the face of mounting climate and environmental crises, a precautionary approach is necessary. Nature loss being as significant a threat as climate change, and given their interconnectedness, they should be addressed concurrently.
WWF updates the online assessment on the SUSREG Tracker platform twice a year, and reports annually to evidence the progress made, highlighting areas of good practices as well as where improvements are needed.
Note to editor
About the SUSREG Tracker
The Sustainable Financial Regulations and Central Bank Activities (SUSREG) Tracker is an online tool based on a framework developed by WWF under its Greening Financial Regulation Initiative, intended to support central banks, financial regulators and supervisors in enhancing the financial sector’s stability and resilience to climate-related and broader environmental and social risks, while enabling the mobilization of capital for the transition to a low-carbon, resilient and sustainable economy. It facilitates the sharing of good practices and comparison between countries, and also highlights areas where more efforts are required. By providing a consistent and detailed assessment across key countries worldwide, central banks and supervisors are able to assess and benchmark progress on the integration of environmental and social considerations in their mandates and operations.
With an initial focus on banking supervision, the SUSREG framework will be gradually expanded to cover other key parts of the financial system, such as insurance, capital markets and asset management. More information: https://www.susreg.org/
About WWF´s Greening Financial Regulation Initiative (GFRI)
WWF´s Greening Financial Regulation Initiative seeks to put climate and environmental risk at the heart of the financial system. Through the 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