Biodiversity loss ‘threatens financial stability’

Governments are struggling to agree on a framework to better protect biodiversity, but companies and financial players are beginning to recognize the urgency of the problem, Nick Robins, a London School of Economics professor for whom “biodiversity loss threatens financial stability,” tells AFP.

Financial issues and cuts to environmentally damaging subsidies were at the center of international talks that ended in Geneva on Tuesday ahead of COP15 on biodiversity in China. Nick Robins participated in a report recently published by the NGFS (Network of Central Banks and Supervisors for Greening the Financial System) network of central banks.

Question: What is the potential impact of biodiversity loss on the economy?

Decreased biodiversity (AFP – Gal ROMA)

Answer: Biodiversity loss threatens financial stability. People are beginning to realize that biodiversity loss and nature degradation are important issues in their own right, but they are also closely related to climate change.

It’s important to start thinking about how these two threats converge, if only because some of the drivers are the same – land-use change and deforestation – but also because healthy ecosystems are really important for resilience.

Q: How should central banks and financial institutions change their approach?

A: Central banks are taking a cautious approach. Being careful means looking at the evidence and acting in time to avoid irreversible risks that you cannot manage.

We need to invest in climate and nature, otherwise, at some point, ecosystem services will be disrupted. The key message is that we are undermining the resource base of our prosperity. Many believe that soils, drinking water, oceans are inexhaustible, but (…) they depend on the protection of biodiversity.

Q: What structural problems in the financial system are destroying nature?

Use of nitrogen fertilizers in the world (AFP - Valentin RAKOVSKY)
Use of nitrogen fertilizers in the world (AFP – Valentin RAKOVSKY)

A: A number of systemic failures – political, market, institutional – lead to this degradation. Due to climate change and environmental concerns, we need to ensure that the products we buy in markets are based on the sustainable use of nature and that prices reflect environmental reality.

Gross domestic product (GDP) is not always a useful indicator because it is not related to the physical realities of our planet.

Q: What are the financial institutions under the UN process looking at with respect to the new biodiversity agreement?

Answer: The topic is being raised politically, scientifically and environmentally, and we all hope that this year there will be a big step forward in terms of government response to this global framework for biodiversity. All this makes the conservation of biodiversity a priority financial issue.

We have a negotiating text with different objectives, one of which highlights the need to align financial flows with what they call biodiversity values. (…) We also need companies and the financial sector to measure, communicate and communicate their impact and their dependence on biodiversity.

The third point concerns impact. How to ensure that financial institutions allocate capital, loans, investments with a positive effect? We also need to ensure that financial institutions reduce their negative impact on biodiversity.

Q: What have central banks learned from climate risk analysis?

A: The commitment of the NGFS network of central banks to combating natural financial risks is historic.

Thanks to the work done over the past five years on climate risk, I think the financial system can respond more quickly to biodiversity loss.

Biodiversity is certainly a very complex issue. But we have the tools, we don’t start from scratch.

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