Beyond climate: addressing financial risks from nature and biodiversity loss

Beyond climate: addressing financial risks from nature and biodiversity loss

There is increasing evidence that central banks and supervisors need to expand their environmental agendas beyond climate change. Globally, the richness and diversity of nature has declined at unprecedented rates over recent decades, posing far-reaching systemic risks for the financial sector.

The impacts of biodiversity loss call for urgent and transformative changes to economic and financial systems. This requires central banks and supervisors to collaborate with other policymakers to determine how the financial sector can manage nature-related financial risks, including how climate change and biodiversity loss interact. While only a limited number of policy tools have been developed to date, there are a range of options for integrating nature and biodiversity loss considerations into existing policy frameworks. These include updates to microprudential policies and disclosure requirements, and the use of macroprudential assessments and scenario analysis.

Building on the work of the NGFS-INSPIRE study group on Biodiversity and Financial Stability, this paper discusses the theoretical and practical need to extend the scope of central banks’ approach to the environmental crisis beyond the current focus on climate change implications to also include the drivers of biodiversity loss, the climate–biodiversity nexus, and the transmission channels of nature-related risk.


SOAS Centre of Sustainable Finance, LSE Grantham Research Institute on Climate Change and the Environment

Published December 9, 2022