This report from environmental charity WWF argues that scientific evidence of climate change impacts and biodiversity collapse requires that central banks and financial supervisors take immediate action using all tools at their disposal.
Published in support of a call to action from over 90 NGOs and senior academics, it outlines a path to reach net-zero emissions and the full recovery of biodiversity by 2050. The document also offers a series of principles and recommendations to initiate and drive the transformation to long term sustainability and stability.
Humanity is under threat, the report begins, referencing scientific evidence from the Intergovernmental Panel on Climate Change and the Intergovernmental Science-Policy Panel on Biodiversity and Ecosystem Services. Failure to act to mitigate climate change and biodiversity loss would be “fatal, catastrophic, and irreversible”, it says, and even exceeding the 1.5°C Paris Agreement target may result in catastrophic impacts on the natural world and human society.
The authors say that, while central banks officially recognise that climate change and the degradation of nature are drivers of financial risks and price instability, their action to ameliorate these threats remains limited. Part of the problem is an “outside in” concept of materiality that focuses only on losses that can be measured, so the report calls for a more holistic “inside out” approach that acknowledges the double materiality of environmental exposures and impacts.
Highlighting the scale and uncertainties involved in the climate and biodiversity crises, the report also calls on financial authorities to act preemptively rather than wait for complete information about the impacts of environmental destruction.
“Given the speed and scale of the degradation we are facing, the risks and uncertainties involved, and the particular nature of climate change and biodiversity loss resulting in irreversible changes for human living conditions on Earth, central banks,and financial supervisors need to embrace a precautionary approach,” it says.
The authors then outline a series of principles which provide a common framework for concerted action. Central banks and financial supervisors should “acknowledge the reality and the scientific basis of climate change and biodiversity loss and the imminent risk of tipping points”, and should stop distinguishing between financial risks and impacts. Financial authorities should act today with the data and solutions currently available, the authors say, stressing that waiting for perfection will result in high risks for financial and price instability.
Central banks and financial supervisors should also communicate the urgency of the twin climate and biodiversity crises, and set short, medium and long-term goals to reduce greenhouse gas emissions and restore biodiversity.
The report also outlines a three-phase pathway for action, beginning with the public declaration of expectations to send the necessary signals to financial markets. Phase one would involve a 15% emissions reduction and stabilisation of biodiversity levels by 2025, while phase two would target a 50% emissions reduction and the reversal of biodiversity loss by 2030.
By the completion of the third stage in 2050, central banks and financial supervisors should be “proactively and effectively contributing to and encouraging net-zero CO2 emissions, and be on track to the full recovery and restoration of biodiversity”.
This page was last updated September 13, 2022
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