Biodiversity loss and financial stability: interim NGFS report published

The "nature-positive transition" is likely to become as much part of our vernacular as the "net zero transition" in coming years.

As we discussed mentioned in our previous post on TNFD, policymakers have begun to extend their focus beyond climate change to nature-related risk.  Earlier this year, the NGFS and the International Network for Sustainable Financial Policy Insights, Research, and Exchange (INSPIRE) launched a joint study into the implications of biodiversity loss for financial stability.

Today's interim report has been published ahead of next week's CBD COP15, the equivalent of COP26 for biodiversity. It concludes that the financial system is potentially vulnerable to:

• the physical risks of biodiversity loss, which can be chronic, such as the gradual decline in pollinators reducing crop yield, or acute, such as where disease spreads as a consequence of reduced natural resistance; and
• transition risk, which could arise from policymaker intervention, litigation and changing consumer preferences. The report finds an acceleration in policy action to address the biodiversity crisis at multiple levels, and notes that financial institutions could be impacted if they do not align their portfolio allocations and strategies accordingly.

The study group recommends a number of actions that central banks and financial supervisors, including signalling the importance of understanding the risks of both their dependencies and impacts on biodiversity to financial institutions through the supervisory process.

The final report of the study group is expected to be published in early 2022. CBD COP15 starts next Monday.