The financial regulatory sector must act swiftly to address the rapid decline of nature, by taking actions including mandating targets, WWF said in a report published on Monday.

While banking and insurance supervision on climate-related issues has steadily advanced over the past four years, efforts to address broader environmental concerns, like nature loss, remain inadequate, according to WWF’s sustainable finance regulation report 2024.

“Central banks and financial regulators should start tackling nature-related risks in the financial system through stronger financial supervision,” said Siti Kholifatul Rizkiah, WWF report lead.

“Only by doing so can we ensure that the financial system becomes a powerful force in protecting and restoring our natural environment,” she said.

Nature-related risk drivers – such as deforestation, land conversion, freshwater management, and the protection of marine life – are insufficiently addressed by supervisors, the report said. Additionally, key policy instruments such as target-setting remain under-utilised.

Some 20 out of 29 high-income countries aligned with more than 50% of the report’s climate criteria in banking supervision, but only 14 of them showed less than 50% alignment on nature-related issues, it said.

Furthermore, seven of the top 10 biodiversity hotspot nations are lagging in banking supervision for nature-related risks.

RECOMMENDATIONS

Regulatory frameworks should adopt a precautionary approach by integrating nature-related risks into all supervision measures, the report said.

WWF set out a series of key recommendations. These included:

• Require institutions to publicly disclose science-based targets
• Ensure private sector investments align with a 1.5C climate pathway and the Kunming-Montreal Global Biodiversity Framework
• Develop metrics and stress tests for risks linked to biodiversity, water, and ecosystems
• Explore obligatory insurance for high-risk, environment-related liabilities
• Use supervisory enforcement actions and require external assurance for sustainability disclosures

“Climate-related and environmental risks are not simply new risk categories, they are fundamental drivers that permeate existing prudential risk categories within the financial sector,” said Maud Abdelli, greening financial regulation initiative lead at WWF.

“Action by central banks, financial regulators, and supervisors is much too slow, falling short of what’s needed to … avoid ‘dangerous tipping points’ that will cause devastating impacts to our planet and economy,” said Abdelli.

Over the last few years, some parts of finance have increasingly acted in favour of nature, but more action needs to happen to achieve the scale of change necessary to tackle the biodiversity crisis.

In July, the Finance for Biodiversity Foundation launched the second edition of its nature target-setting framework for asset managers and owners with three target types.

By Thomas Cox – t.cox@carbon-pulse.com

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