A recent paper co-authored by researchers from the Network for Greening the Financial System (NGFS) has raised the alarm regarding the impact that declining biodiversity will have on the economic and financial sectors.
Titled Biodiversity and Financial Stability: Building the Case for Action, the report stated that biodiversity loss is happening at an alarming rate. If not reined in, this could pose a number of issues tied to the decline of ecosystem services. This decline may hold physical risks for economic entities that depend on these services.
Central banks and independent financial supervisors are seen as prime movers when assessing the risks posed by biodiversity loss and how these can be mitigated in both the short and long terms.
According to Professor Nick Robins, one of the teams co-leaders behind the report, central banks and financial professionals are beginning to recognize the risks that climate change poses on the financial stability of nations.
“Biodiversity loss poses risks of similar, and perhaps greater magnitude to many countries,” he said. “It is also clear that climate and biodiversity are interlinked and often self-reinforcing issues.”
A four-step process
The authors of the NGFS report recommended a four-step process by which these institutions could deal with the issue:
- Skill and capacity building about addressing any economic or financial risks caused by biodiversity loss are both deemed mandatory, along with the formulation of tools and institutional collaborations related to the matter;
- On a national level, central banks need to assess the ecological dependencies and impact that financial institutions operating within their countries have on local ecosystems. These may be determined by the economic activities supported by these institutions. Likewise, familiarization with existing models showing the correlation between local biodiversity and the economy will enable financial professionals to devise more sensible approaches to capture the risk of impacts on economic systems;
- Central banks must emphasize the importance of understanding risks related to their dependence and impact on the financial institutions within their remit, as well as to other policymakers and entities which may also be affected by biodiversity loss; and
- As long as it’s within the remit of their individual mandates, both central banks and financial supervisors may support any government-driven efforts regarding the mitigation or reversal of biodiversity loss. This may be done by addressing financial risks as well as setting up the necessary infrastructure for nature-positive financing.
