The G20 holds a pivotal role in leading climate and broader environmental action. Its members are responsible for 85% of global GDP and 75% of global emissions, so policies and requirements set by the group will have an impact around the world.
The priorities set for its Sustainable Finance Working Group (SFWG) show how the G20 sees its role in addressing the climate crisis and biodiversity loss. These include facilitating access to climate funding, ensuring a robust and just transition, sustainability reporting practices for large corporations and small- and medium-sized enterprises, and fostering solutions-based nature and culture.
More recently, the Task Force for the Global Mobilization Against Climate Change (TF-Clima) – established under the Brazilian presidency – aimed to develop a high-level, policy-oriented agenda to drive structural transformations aligned with the Paris Agreement’s 1.5°C target. In a ministerial statement in October 2024, the taskforce underlined the importance of progress towards making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development, among others.
However, it still needs to be seen how this translates into concrete action, as leadership transitions from Brazil to South Africa for the coming year. Hence, tracking progress is a priority, and the latest edition of Sustainable Financial Regulations and Central Bank Activities (Susreg) assessment – conducted by WWF’s Greening Finance Regulation Initiative – shows how financial regulators, supervisors and central banks within the G20 are integrating climate and environment risks into their financial regulations.
Assessing progress on financial regulation for climate and nature risk
When it comes to climate risk, its integration into banking regulation and supervision shows notable disparities across different jurisdictions within the G20. On banking regulation and supervision, Brazil, the EU, France, Germany, Italy, and the UK demonstrate relatively strong progress, compared to countries like Saudi Arabia, Mexico, and Turkey.
On average, G20 nations show moderate progress on the integration of climate risks, achieving 55% alignment with Susreg’s climate criteria. However, broader environmental risks – such as deforestation, land conversion, freshwater degradation, and threats to ocean and marine life – receive considerably less attention. Alignment on these environmental aspects among G20 countries remains low, averaging just 37%.
Figures 2 and 3 highlight that while progress is prevalent in some micro prudential aspects, integrating climate and environmental risks into rule-based micro prudential supervision remains a significant challenge for G20 countries, particularly when it comes to translating these risks into Pillar 1 capital and liquidity ratios.
Macroprudential supervision also shows low levels of fulfillment, especially in areas like having an indicator risk monitoring, setting exposure limits, and establishing systemic risk buffers. There is still a substantial gap between climate and biodiversity commitments and translating these commitments into national action.
Ensuring credible, robust and just transition within the financial sector
On the SFWG’s second priority – achieving a credible, robust and just transition – the Susreg assessment shows that G20 nations increasingly expect their banking industries to set climate targets and publish transition plans. The EU leads in this area through its corporate sustainability reporting directive (CSRD).
The directive mandates large companies, including banks and other financial institutions, to disclose actions and plans to align business models with the Paris Agreement goals as well as to encourage the disclosure of transition plans in alignment with Kunming-Montreal Global Biodiversity Framework and EU Biodiversity Strategy for 2030.
Countries like Australia, Canada and Japan now require banks to set climate targets. However, these requirements are not always mandatory and often lack alignment with science-based targets.
Canada also requires supervised institutions to publish transition plans in line with the Task Force on Climate-related Financial Disclosures guidance, which is expected to be fully implemented by the end of 2025. Brazil is also making progress, with its central bank launching public consultations to integrate climate transition plans into the banking regulatory framework.
A just transition to a low-carbon and nature-positive economy is essential to ensure that no one is left behind, and some G20 have made significant progress. South Africa, for example, has set up the presidential climate commission to lead its equitable transition efforts. The commission’s Just Energy Transition Investment Plan for 2023–2027 focuses on decarbonising the energy sector while also creating jobs and addressing social challenges.
Including climate and nature in meaningful reform of the financial system
These results show that the global financial system must still undergo wholesale reforms to be able to address the intertwined crises of climate change and nature loss. Central to this transformation is articulating and embedding climate and nature into the mandates of central banks and financial regulators, enabling them to leverage their policy tools in support of national climate and biodiversity goals.
This also means integrating climate and nature into all regulatory, supervisory and monetary policy frameworks, and progress in this regard has been limited and slow.
As well as reforms in individual countries, it will demand a coordinated effort among leading international standard-setting bodies including the Financial Stability Board (FSB), the Coalition of Finance Ministers, the Basel Committee on Banking Supervision (BCBS), and the International Association of Insurance Supervisors.
Financial standard setters and regulators should particularly consider imposing higher capital requirements for activities that are always harmful to the environment. Existing frameworks like Basel 3 require banks to calculate minimum capital based on risk-weighted assets but fail to account for climate and nature risks.
The G20 also has an opportunity to direct the FSB and BCBS to integrate climate and nature-related risks into the regulatory frameworks for global systemically important banks. Systemically important banks are particularly exposed due to their size, complexity and interconnectedness with the global economy.
These banks not only face climate and nature-related risks, but also indirectly contribute to environmental degradation through their financial investments. The G20 countries could apply the stronger standards set for systemically important banks after the financial crisis to the ongoing climate are nature crisis: closer risk monitoring, additional capital requirements, and stress testing to withstand adverse scenarios.
Finally, central banks and financial supervisors in G20 countries should have a strong enforcement policy and monitoring mechanism to ensure that regulated entities are meeting the supervisory expectations set on climate and nature. While most supervisory action and dialogue takes place outside the public eye, supervisors should publicly share their approach to enforcement and how they will act against financial institutions that do not align with their expectations, for instance by using warning letters and fines. They should also report on the progress of financial institutions in meeting these expectations annually, highlighting the gap and corrective actions taken to meet the intended goal.
Addressing the intertwined risks of climate change and biodiversity loss is no longer optional but an urgent priority for the financial sector. Financial institutions are under increasing scrutiny due to their portfolios’ contributions to both the warming climate and degradation of natural ecosystems.
More ambitious and decisive actions need to be taken by the G20 and other global standard setters before the window of opportunity to mitigate these risks closes irreversibly.
This page was last updated December 16, 2024
Written by
Siti Kholifatul Rizkiah is sustainable finance manager at WWF Malaysia and leads the Sustainable Financial Regulations and Central Bank Activities (Susreg) assessment.
Maud Abdelli leads the Greening Financial Regulation initiative at WWF.
