In a policy paper launched today the Environmental Change Institute (ECI) joins world leaders in urging international regulatory bodies to integrate nature-related risks into the regulatory frameworks governing Global and Domestic Systemically Important Banks (G-SIBs and D-SIBs) and strengthen major banks’ resilience to environmental shocks.
Researchers at the ECI’s Global Finance & Economy Group and Resilient Planet Finance Lab were on the advisory group working with the WWF´s Greening Financial Regulation Initiative (GFRI) and CDP, a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.
The new policy paper launched today urges international regulatory bodies like the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision, as well as national regulatory and supervisory authorities, to take action.
The WWF and CDP argue that many of the stronger standards set for G-SIBs after the financial crisis must apply to the current nature crisis: closer risk monitoring, additional capital requirements and stress testing to withstand adverse scenarios. The same holds true to its national-level counterpart, D-SIBs.
Dr Nicola Ranger, Director of the Global Finance and Economy Group and Resilient Planet Finance Lab at the Environmental Change Institute at the University of Oxford, said:
Systemically important banks are those banks classed as ‘too big to fail’. From our own research we know that our natural systems are similarly too big to fail, yet many are approaching critical tipping points as a result of human activities like deforestation that are financed by those same banks. Banks are ‘shooting themselves (and us) in the foot’.”
Maud Abdelli, WWF Greening Financial Regulation Initiative Lead said: “International financial regulation needs to evolve to account for nature-related risks and impacts. G-SIBs play a crucial role in the stability of the financial system and their resilience is vital to preventing failures that could lead to widespread financial crises. At the same time, G-SIBs have a significant environmental footprint and consequently have a large opportunity to mitigate their negative impacts on nature. To that end, a coherent, coordinated approach among supervisors and the intervention of international standard setters is needed.”
Pietro Bertazzi, Global Director for Policy and External Affairs at CDP said: “CDP data shows that major banks are still flying blind to the swathe of risks posed by nature loss. We have heard before that big banks are ‘too big to fail’, but a failure to disclose and act on nature is likely to prove the opposite. Regulators must show they have learned the lessons of the financial crash and act swiftly to mandate comprehensive, holistic environmental disclosures and safeguard financial stability."
Read the full announcement and download the policy paper: Addressing the Giants: integrating nature in regulations for systemically important banks