Sustainable finance - There is progress on climate in banking and insurance supervision, but nature loss remains neglected

Deloitte is proud to have supported WWF with the production of their fourth annual Sustainable Financial Regulations and Central Bank Activities (SUSREG) report 2024. The report evaluates progress on the integration of climate, environmental and social risks into central banking as well as banking and insurance supervision activities.

Four key highlights:

1. Notable progress in banking and insurance supervision – From 2021 to 2024, banking supervision showed an 18% increase in climate-related measures, with a similar increase in insurance supervision of 17% since 2022.
2. High-income countries showing progress – 20 out of 29 high-income countries within the scope of the SUSREG assessment align with more than 50% of climate supervision indicators within banking. However, this is contrasted with 14 high-income countries showing less than 50% alignment on nature-related supervision indicators.
3. Nature risks challenges – As previously mentioned, there is low fulfilment of nature-related indicators, with 31 countries failing to align with more than 50% of SUSREG environmental indicators. Moreover, 7 of the top 10 biodiversity hotspot nations lag behind in banking supervision for nature-related risks, and all 10 are falling short in integrating these risks into insurance supervision.
4. Inadequate management of social risks – Alignment with the social criteria in SUSREG is significantly lower compared to the climate and environmental criteria, with only 32% banking supervision alignment and 27% for insurance supervision.

The assessment covers 52 jurisdictions representing over 89% of the global GDP, 75% of global GHG emissions and 13 of the 17 most biodiversity-rich countries in the world. Three new indicators have been added this year on the (i) integration of oceans and marine life in supervisory expectations or regulation, (ii) implementation and monitoring reports from supervisors publishing progress made by financial institutions in meeting their supervisory expectations, and (iii) interventions in financial institutions that fail to align with supervisory expectations.

It also includes examples of good practices, comparisons with key macroeconomic data 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:

The assessment covers 14 indicators for central banks, 68 indicators for banking supervision, 79 indicators for insurance supervision, and 13 indicators related to creating an enabling environment to support and promote sustainable finance.

Banking supervision
Although 64% of basic indicators are fulfilled, there remains a large gap with only 26% of advanced indicators showing fulfilment, such as the integration of nature-related risks and bank disclosures against a taxonomy. The low fulfilment of advanced indicators, such as environment or nature-related criteria is particularly visible in the Americas, Middle East, and Africa (MEA geographies) where progress slowed in comparison to previous years.

Central Banking
Across all assessed regions, central banking illustrated stagnant progress across climate, environment, and social criteria. However, climate still showed the greatest progress, particularly in Europe, where 12 countries achieved more than 50% indicator fulfilment.

Insurance supervision
Just over half (54%) of the basic insurance indicators are fulfilled, which include the integration of climate and environment considerations in internal policies and processes, as well as in supervisory monitoring mechanisms. Even fewer intermediate and advanced indicators are fulfilled (35% and 24% respectively).

Conclusion
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.