Staff Climate Notes

Embedded in Nature: Nature-Related Economic and Financial Risks and Policy Considerations

By Charlotte Gardes-Landolfini, William Oman, Jamie Fraser, Mariza Montes de Oca Leon, Bella Yao

October 3, 2024

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Charlotte Gardes-Landolfini, William Oman, Jamie Fraser, Mariza Montes de Oca Leon, and Bella Yao. "Embedded in Nature: Nature-Related Economic and Financial Risks and Policy Considerations", Staff Climate Notes 2024, 002 (2024), accessed December 11, 2024, https://doi.org/10.5089/9798400288548.066

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Summary

The economy is embedded in, and dependent on, nature. Yet economic activity is degrading nature at an unprecedented pace. Interacting with climate change, nature loss and transformation generates significant threats to the global economy and financial system. However, work on the implications of nature-related risks for macroeconomic and financial sector policies remains at an early stage. This note seeks to contribute to this emerging policy space in three main ways: (i) it proposes a conceptual framework for understanding nature-related risks by mapping out macroeconomic transmission channels, emphasizing their impact on the economy and financial systems through “double materiality;” (ii) it conducts empirical analysis, finding that nearly 38 percent of bank loans of the 100 largest global banks are to harmful subsidies-dependent sectors and 44 percent are exposed to conservation areas under the Global Biodiversity Framework, and that industries most exposed to nature degradation are not well prepared to manage these risks; and (iii) it discusses takeaways for macroeconomic and financial sector policies and frameworks.

Subject: Climate change, Climate finance, Environment, Environmental policy, Natural resources

Keywords: Banks, Climate change, Climate finance, Ecosystem services, Environment, Environmental policy, Environmental sustainability, Financial regulation, Financial stability, Financial supervision, Global, Macroeconomic policies, Macroeconomics, Minsky moment, Natural resources, Nature, Nature-related risks, Planetary boundaries.

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