According to recent Oxford University research, shocks to the global economy resulting from ecosystem degradation and biodiversity loss might cost upwards of $5 trillion.
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These findings coincide with central bank guidelines about the assessment of risk associated with nature.
The natural capital that supports the economies and societies, such as water, clean air, fertile soils, and pollinators, is being systematically eroded by human-caused pollution, deforestation, land-use change, and over-extraction. These factors also act as “risk amplifiers” for the effects of climate change.
The global network of more than 120 central banks and supervisors, known as the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), released guidelines for evaluating the financial and economic risks associated with environmental degradation.
Oxford’s Environmental Change Institute conducted research on the creation of climate-nature shock scenarios and gathered data on the macro-criticality of nature for the world financial system as part of this project. Three threats were the focus of the analysis: pollination, pollution, and water.
The ECI analysis comes to the conclusion that there are major, long-term dangers to society, the economy, and finance from the erosion of natural capital associated with biodiversity loss and environmental degradation, including an increased risk of pandemics, floods, and droughts.
Protecting and restoring nature is essential for the functioning of our economies and a vital component of adaptation to climate change.
Dr. Nicola Ranger, Study Leader and Director, Resilient Planet Finance Lab, Environmental Change Institute
Reflecting on the negotiations at COP28, she explains, “Nature is not the elephant in the room, it’s the huge green scorpion running towards us. The sting in its tail will significantly amplify the impacts of climate change in ways that are difficult to predict. It is not just about birds and butterflies, we are fundamentally eroding the natural capital upon which our societies and economies are built.”
This study provides an inflection point towards macro-resilience by visualizing and credibly articulating the forward-looking dynamic risks associated with the erosion of natural capital. Our methodology will empower the finance sector to deliver Planetary health.
Michael Obersteiner, Professor and Director, Environmental Change Institute
The stability of global food systems faces considerable jeopardy due to soil erosion, land-use alterations, and declining pollinator populations, exacerbating the effects of climate change. Additionally, the integrity of global supply chains is under substantial threat due to issues such as water scarcity and pollution.
The research underscores the difficulties faced by financial institutions in comprehensively addressing these risks, which are presently not fully integrated into the financial framework.
The study recommends a cautious approach for governments and regulators, stressing the imperative need to promptly recognize and evaluate these risks. It aligns with the recent suggestions of the Taskforce on Nature-Related Financial Disclosures and urges the identification of possible regulatory deficiencies.
Leclère, D., et al. (2023). Climate change induced transformations of agricultural systems: insights from a global model. IOP Science. doi/10.1088/1748-9326/9/12/124018