Strengthening policy and regulatory frameworks

GIZ assists governments, central banks, regulatory and supervisory authorities, and public development banks with their reform processes. This assistance enables GIZ partners to create state-of-the-art regulatory frameworks and strengthen their capacities to implement them effectively. The goal of all these measures is to align financial systems with global sustainable development, climate, and biodiversity targets. GIZ always aims to bridge the alignment of international practices with local and regional contexts.

Sustainable finance strategies and roadmaps are strong testaments of a government’s commitment to transform the financial sector. Outlining the long-term strategic framework, they describe a clear pathway to make the financial system more sustainable. A roadmap can help prioritise actions and coordinate activities across the different stakeholders involved. These include financial and environmental policymakers at the national and regional level, supervisors, regulators, and private sector participants.

A sustainable or green taxonomy provides clear definitions and classifications of sustainable economic activities. Taxonomies typically contain a detailed list of economic sectors and activities and a corresponding set of qualitative or quantitative criteria for determining the alignment of activities with the objective(s) of the taxonomy. Taxonomies support financial actors in making informed decisions, help protect against “greenwashing”, and provide a consistent starting point for standard setters and product developers.

Sustainability-related disclosure and reporting regulations require companies and/or financial institutions to provide information on their ESG practices, impact, and risk exposure. This supports investors and lenders in assessing sustainability- or climate-related risks and opportunities and to align their capital accordingly. Disclosure and reporting requirements enhance market transparency and understanding of sustainability-related risks and opportunities.

The inclusion of sustainability-related aspects in prudential regulation, supervision, and monetary policy recognises the financial and systemic risks associated with climate change and biodiversity loss. The consideration of sustainability-related risks may be systematically integrated in prudential and supervisory settings by requiring financial institutions to disclose their risk exposure, stress-test their portfolios, and set capital requirements accordingly. Monetary policy may also be adapted to include sustainability factors in the assessment of economic conditions and decision-making related to interest rates or asset purchases.

Standards and guidelines for green and sustainable financial products define criteria for such products, including green bonds, to ensure transparency and consistency. These include, for example, the use of proceeds, the project selection process, reporting, and external verification.