This is a report on the progress made on the advancement of sustainable finance by the 38 member countries of the Sustainable Banking Network (SBN) since June 2017. This is the second such report, the first report addressing progress made prior to that time. Its content is based on data provided by individual members and includes case studies that highlight best practice. The SBN comprises financial sector regulatory agencies and banking associations from emerging market countries that have committed to advancing sustainable finance in line with international best practice.

To assess progress, the SBN devised a measurement framework based on the practical experiences and lessons learned by members. The framework enables members to review their progress against global benchmarks and identify ways in which they can improve their approach to sustainable finance. The framework consists of three pillars, each one containing corresponding indicators and underlying questions. The first pillar, Strategic Alignment, reviews the degree of alignment between national sustainable finance frameworks and international standards. The second pillar, Climate and Green Finance, relates to the guidance provided by members to local financial institutions to introduce products like green bonds that support green economy goals. The third pillar, environmental, social and governance (ESG) integration, evaluates member strategies for financial institutions to effectively manage ESG risk in their operations. The results of the assessment against the framework are then fed into a matrix that maps members’ development across three stages, namely, preparation, implementation and maturing.

Overall, members have taken increasing steps to advance sustainable finance in their markets. There were increases in the number of members with sustainable finance frameworks, those members moving to implement frameworks and the number of members who progressed to a more advanced stage of the matrix. A feature of this progress was peer-to-peer knowledge sharing among members.

With respect to the three pillars, members were aligning their frameworks with global standards such as the United Nations Sustainable Development Goals and the Paris Agreement. For guidance, they made reference to the Equator Principles, the International Finance Corporation Performance Standards, and in terms of reporting, the Global Reporting Initiative, the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures. More members developed definitions and guidelines for green financial assets, especially for green bonds, which aligned with the Green Bond Principles and the Climate Bonds Initiative. Members widely adopted the practice of developing guidelines that set expectations for how financial institutions manage ESG risks.

The SBN recommends that for future action, sustainable finance needs to be the central focus of supervision by financial regulators who will need to establish robust reporting and monitoring frameworks for that purpose. To increase green and climate finance, members must continue to find methods of promoting consistency and credibility in those products including tracking their environmental and social impacts. Members must do more to improve the limited understanding their financial institutions have of climate related risks and opportunities. Private sector financial institutions in most cases have not yet shown comprehensive behaviour change toward sustainable finance.

1. Sustainable finance needs to be core to financial regulation and that means embedding ESG risk management and green and climate finance targets into the day-to-day activities of regulators.
2. Due to weaker regulation and enforcement, ESG risks are acute in emerging markets and it is crucial for regulators and financial institutions in those countries to understand the financial implications of climate change.
3. SBN members continue to make progress to advance sustainable finance in their markets, in particular, an increase in the number of members that have sustainable finance frameworks and those members moving to implement their frameworks.
4. Member progress in advancing sustainable finance is greatly assisted through knowledge sharing between those members at an advanced stage of implementing the frameworks and those at the very beginning who have yet to develop a framework.
5. The majority of members are developing guidelines that convey their expectations to financial institutions as to how those institutions are to manage ESG risks, including provision for reporting by those institutions, third party verification of this data being increasingly encouraged.
6. Establishing robust reporting and monitoring frameworks that require commitments to disclosure and transparency on ESG factors will strengthen financial institutions, create natural checks and balances and lead to standardised data necessary to home in on indicators that signal the risks that banks are trying to manage.
7. Members are developing definitions and guidelines for green financial assets like green bonds allowing capital to flow to that sector in emerging markets.
8. Taxonomies, in the form of guidelines, classifications, definitions or principles, are becoming an important part of the development of the global green bond market because they are a foundation on which investors and bond issuers will determine if projects and assets can be classified as ‘green’ or ‘climate friendly’.
9. Member countries still need to take steps to promote consistency and credibility in green and climate finance products by tracking the impacts of those products and establishing robust reporting and monitoring frameworks.
10. This report contains a collection of case studies from members and financial institutions in their markets, serving as examples of best practice in advancing sustainable finance.