A new report by WWF highlights the urgency for central banks and financial supervisors to act on the risk of unprecedented nature loss. With biodiversity loss not only compounding climate-related risks but a global crisis in its own right, the new report “Nature‘s next stewards: Why central bankers need to take action on biodiversity risk” warns that current practices of only integrating climate-related risks and impacts in existing mandates of central banks and financial supervisors, and not including risks from nature loss, fall short in ensuring a sustainable financial system.
The WWF report – with contributions from I4CE, F4B, ECOFACT, CEP and IUCN – highlights that “while the human-induced alteration of ecosystems and habitats is the major driver of biodiversity loss, the latter is in turn reducing the resilience of ecosystems to shocks in a self- reinforcing vicious loop. This is further accentuated by cli- mate change, as increases in temperatures and shifts in precipitation are fundamentally affecting both ecosystems and species. This creates another vicious circle, as it reduces the capacity of nature to sequester carbon, hence accelerating climate change 1. In short, biodiversity loss and cli- mate change are inextricably tied”.
“Meanwhile, biodiversity loss is increasingly fueling economic vulnerabilities and risks by undermining key ecosystem services and natural resources on which the economic system depends. Indicatively, a 2020 World Economic Forum report estimates that over 50% of the Gross Value Added of six key global industries depend on nature to varying degrees. Likewise, the Natural Capital Finance Alliance estimates that more than 60% of market capitalization in the FTSE 100 is highly de- pendent on nature. The economic cost of nature degradation is already significant and is expected to increase if no decisive action is taken to curb current trends. Indeed, recent research suggests that, under a business-as-usual scenario, biodiversity loss could cost up to $9.8 trillion of global GDP by 2020”, the report warns.
Olivier Vardakoulias and Ivo Mugglin, WWF
Central banks and financial supervisors have a critical role to play in the transition to a more sustainable and resilient financial system that benefits people, climate and nature.
Chiara Colesanti, Fellow at the Council on Economic Policies
Central banks and financial supervisors have built up significant expertise to start addressing climate-related risks. They must now leverage this capacity to scale up their engagement and include further interrelated environmental dimensions into their decision-making.
Michel Cardona and Romain Hubert, I4CE
As climate changes, the loss of biodiversity results in material financial risks for financial actors. In addition, it may create systemic risk stemming from a major economic and social disruption linked to the emergence of zoonoses.