Central banks should support governments on biodiversity loss, says NGFS

October 11, 2021|Written by David Clarke|Bank of England, European Central Bank, Federal Reserve

A new report published by the Network for Greening the Financial System (NGFS) and Inspire research platform says central banks should, within their mandates, support government initiatives to reverse biodiversity loss.

The report, Biodiversity and Financial Stability: Building the Case for Action, finds growing evidence that biodiversity loss could have significant economic and financial implications, because the decline of ecosystem services poses physical risks for the economic actors that depend on them. Central banks and supervisors should take note and respond accordingly, the authors argue.

The release of the report comes as the UN’s COP15 biodiversity conference gets underway in China this week, with countries expected to agree on a new global framework for improving society’s relationship with biodiversity. The NGFS paper says that central banks and supervisors should note the implementation of the framework by addressing financial risks and preparing the infrastructure necessary for its financing.

The report makes a series of recommendations which include the development of biodiversity-related scenarios, as well as new tools to address biodiversity-related risks. It says that in addressing biodiversity loss central banks and supervisors should extend and complement their work on climate change.

Nick Robins, professor of practice at the Grantham Research Institute on Climate Change and the Environment at LSE and co-author of the report, said: “This report shows the severity of the macroeconomic consequences of biodiversity loss and profiles the increasing efforts by central banks and supervisors to understand the implications for both financial institutions and for the system as a whole.

“As we head towards the COP15 on biodiversity and COP26 on climate, it’s clearer than ever that these two imperatives need to be addressed in an integrated way, thereby helping to reduce the rising physical and transition risks from environmental depletion that are now facing the financial system.”

In a nod to the double materiality principle, the authors stress the importance of considering not only the impacts on financial actors of biodiversity loss or the measures taken to reverse it, but also the impacts that financial actors have on biodiversity.

This interim report sets the stage for a final report due for publication in early 2022, which is expected to contain a more comprehensive set of recommendations, as well as setting out a research agenda.

This page was last updated November 2, 2021

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