DNB and the OMFIF Sustainable Policy Institute have hosted a one-day conference on the relevance of biodiversity loss for the financial system and vice versa, and on the role of public and private finance in the preservation of biodiversity. The three most important takeaways of this conference are stated below.
Central bank representatives emphasized that while biodiversity loss occurs local, its impact can have consequences for the global financial system. To quote Klaas Knot: "Investments in companies that contribute to the fragility of nature create global transition and physical risks and make the financial sector part of the problem.” Failing to account for, mitigate and adapt to these implications imposes serious threats to global financial stability. During the conference Frank Elderson (member of the executive board of the ECB) and other speakers stressed that central banks and supervisors as independent entities should consider long-term risks such as biodiversity risks for the fulfilment of their mandates. However, governments have an important part to play by removing subsidies for harmful activities and implementing clear and credible transition plans and right incentives that help balance the demand and supply of ecosystems.
The Taskforce on Nature-related Financial Disclosures stressed that biodiversity loss and climate change interact and mutually reinforce each other. Because one cannot be solved without the other, governments, central banks, supervisors, standard setting bodies and financial institutions should further develop an integrated approach to these issues and holistic policies that address both simultaneously. Banque de France governor Villeroy de Galhau called for further international collaboration on biodiversity loss, for example through the taskforce on nature-related risks of the Network for Greening the Financial System (NGFS) co-chaired by DNB. Panelists stressed that institutions do not have to reinvent the wheel, but learn from the work that has already been done on climate change. A good starting point could be to integrate both issues into risk assessments and scenario analyses. Lastly, the importance of education was stressed throughout the conference. The Biodiversity Working Group of the Sustainable Finance Platform has recently published an e-learning on biodiversity loss.
Panelists noted that unlike climate risk measurement, biodiversity risks cannot be deducted back to one single impact metric (in case of climate: GHG-emissions) and one universal goal (in case of climate: limit the temperature increase to 1.5 °C). This complexity should, however, not lead to passiveness as all attendees agreed the time to act is now. Although, further developments on biodiversity-related disclosures and data standardization are required, there is a great variety of data on biodiversity available, ranging from sectoral impacts to very granular geo-spatial vulnerabilities. We need to structure, interpret and use this data to create a standardized biodiversity measurement approach with clear and intuitively interpretable metrics. Financial actors should not wait for perfect data, but rather start integrating biodiversity into economic decision-making today.
The time to act is now!
The loss of biodiversity is considered one of the greatest risks to society and the global economy, as it accelerates climate change and threatens the health of ecosystems that provide services to the economy. The stakes for the financial sector are high. As DNB pointed out in 2019, €510 billion investments (~35% of €1400bn examined) of Dutch financial institutions is highly or very highly dependent on one or more ecosystem services. The failure of certain ecosystems would cause a material disruption of business processes and bring about substantial losses.
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