The global acceleration of nature loss is drawing increased focus from policymakers, regulators, and financial institutions regarding its economic and financial stability implications. It is estimated that failing to address ecosystem service losses, such as pollination and water quality regulation, could result in economic costs of up to $2.15 trillion over the next five years.
Read More
A recent UNEP FI policy brief titled “Nature-related Regulation of Banks in China and the EU: A Comparative Landscape Analysis” examines how nature-related factors are being integrated into banking regulations in these two significant economic regions. This publication contrasts developments in both China and the European Union across three main areas: environmental policy context, corporate regulations, and prudential oversight.
As the financial sector increasingly considers nature-related factors alongside traditional climate-related ones, institutions operating in multiple jurisdictions must adapt to a complex array of regulatory expectations, disclosure requirements, and supervisory frameworks. Understanding these regulatory trends is crucial for banks and their regulators.
The brief emphasizes the interplay among various regulatory layers. Environmental policies and biodiversity objectives establish the framework within which banks operate, affecting their clients. In addition, corporate disclosure requirements and taxonomy influence how banks report and manage information regarding environmental risks. Prudential regulators are progressively integrating considerations of nature-related risks into their oversight of financial institutions.
In terms of governance, both China and the EU have committed to implementing the Kunming–Montreal Global Biodiversity Framework and other international environmental agreements. China employs a strategy highlighted by the concept of “ecological civilization,” relying on centralized guidance and local experimentation. The EU functions through a multi-tiered governance model, balancing EU-wide regulations with national adaptations. These frameworks shape the lending and investment behaviors of banks by affecting their clients.
When examining corporate regulation, the policy brief notes that both regions are expanding their regulatory frameworks to encompass environmental issues beyond just climate change. Although the structures and legal foundations of the frameworks differ, they are increasingly utilized by financial institutions to assess nature-related risks in their lending and investment activities.
Finally, the brief discusses prudential regulation, indicating that while nature-related supervisory measures are still in nascent stages compared to climate considerations, they are evolving and gaining significance in the regulatory landscape.
Despite differing approaches, cooperation through international platforms allows for consistent regulatory development and the sharing of best practices, which can enhance transparency and improve comparability in the regulation of nature-related financial risks.
This policy brief is part of UNEP FI’s Asia Pacific Policy Brief series and contributes to the broader discourse on regulatory frameworks addressing sustainable finance and nature-related financial risks.