Sustainable finance

Deloitte is proud to have contributed to the Worldwide Fund for Nature (WWF) Greening Financial Regulation Initiative's third edition of its annual Sustainable Financial Regulations and Central Bank Activities report 2023 (SUSREG). The SUSREG report was launched in December 2023 and 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.

Five key highlights

1. Slow progress, at an uneven pace, particularly in major economies - 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.
   
2. Basic E&S risks unaccounted for - The current focus remains primarily on climate. Broader elementary environmental and social issues are still lagging in banking & insurance supervision and in central banking activities.
3. Banking & Insurance supervision - More than 20 countries with net-zero targets still have notably low climate banking and insurance supervision policies fulfilling less than half of SUSREG criteria.
4. Central Banking - Out of 45 central banks in scope this year, only 9 have shown commendable progress in integrating climate risks into their monetary policy and central banking activities.

It also includes examples of good practices and comparison with key macroeconomic data, a list of main gaps in sustainable financial regulation, and specific recommendations for central banks and financial supervisors to achieve a net-zero and a nature-positive economy. The high-level framework can be seen below:

In total, the assessment covers 15 detailed indicators for central banks, 66 indicators for banking supervision, 81 indicators for insurance supervision and 14 indicators related to creating an enabling environment to foster sustainable finance. This year’s edition saw the addition of several new indicators such as the integration of water-related risk or ‘just transition’ initiatives, thus highlighting the dependencies between climate, nature and social issues.

Below follows a selection of interesting conclusions drawn from this year’s assessment:

Banking supervision

While 57% of the basic indicators are met (e.g. mentioning environmental issues in regulation and supervisory expectations), significant gaps remain with only 22% of the more advanced indicators fulfilled (e.g. reference to scenario analysis and stress testing). Banking supervision on climate-related risks is generally more mature than the oversight of broader environmental and social issues.

68% of all high-income countries in scope have, according to the assessment, not yet adopted adequate climate and environmental banking supervision policies.

Central Banking

Out of 45 countries in scope, only 9 show meaningful progress (with more than 50% fulfilment) in integrating climate risks into their monetary policy and central banking activities, howing limited progress in integrating climate and environmental risks into collateral frameworks, reserve requirements, and phase out plans on high-risk assets.

Despite the ultimate reliance of many economic activities on nature and ecosystem services, most countries have yet to incorporate nature-related risks into their monetary policy and central banking activities.

Insurance supervision

On average, less than half of the basic indicators, and even fewer for intermediate and advanced indicators for climate and environment (e.g. double materiality considerations), are fulfilled for climate and environmental assessment. Climate risk insurance supervision is stronger than broader environmental and social risks, however, most climate regulatory frameworks are still missing important elements. In general, insurance supervision is slightly lagging behind its banking counterpart.

Climate- and nature-related considerations in insurance supervision are missing or falling short in many mega-biodiverse countries, leaving exposure to nature-related risk at high levels for the financial system.

As seen above, there is still a long way to go, but momentum is gained and WWF continues to be in dialogue with regulatory bodies to support the mandate of central banks and financial supervisors as the financial and economic driving force toward a net zero, nature-positive and socially equitable economy. We at Deloitte are very happy to be in the position to contribute to this mission.

Discover the executive summary of the findings and the full report. The full country-by-country, indicator-by-indicator results are available in an online tracker published by WWF.