A new report spearheaded by the Green Finance Institute (GFI) highlights a critical issue facing the United Kingdom: the degradation of natural environments could potentially shrink the nation’s GDP by an estimated 12%. This projected decline would surpass the economic impacts of the 2008 financial crisis and the COVID-19 pandemic, reducing the UK’s GDP by approximately 5% and 11%, respectively.
Assessing the Materiality of Nature-Related Financial Risks for the UK represents a groundbreaking analysis with numerous scientific and financial contributors, seeking to quantify the economic repercussions of ecological deterioration both within the UK and globally.
The analysis indicates that the risks from natural degradation are as significant as those from climate change but have yet to be sufficiently integrated into financial and business decision-making frameworks. This oversight leaves the UK’s economic and financial systems vulnerable to unchecked risks, particularly as the UK is noted as one of the most nature-depleted countries globally. The report states that many of the UK’s nature-related financial risks originate from international sources.
The report also unveils a new inventory of domestic and international nature-related risks, including threats to soil health, water scarcity, global food security, zoonotic diseases such as bird flu and COVID-19, and antimicrobial resistance. These risks pose environmental and financial threats for sectors like agriculture, manufacturing, and utilities, which depend heavily on natural resources.
The implications of these risks are profound for financial institutions, with some banks potentially seeing a reduction in the value of their domestic portfolios by as much as 4-5%, underscoring the necessity for a proactive approach in managing these risks to safeguard financial stability.
Recommendations from the GFI and its technical team stress the urgent need for public and private sectors to disclose nature-related risks and align their strategies with the Global Biodiversity Framework (GBF) targets. Such measures are essential to transition the UK’s economic and financial systems towards sustainability and resilience against environmental risks.
Helen Avery, Report Author and Director of Nature Programmes at the Green Finance Institute, says, “The erosion of natural capital generates significant and long-term risks to society, our economy and, therefore to financial institutions and potentially our financial resilience. This is the first time the material risk posed by nature degradation to the UK economy and financial stability has been comprehensively assessed. Evidencing this material risk is a vital step towards transitioning our economic and financial system to one that values and invests in the natural environment.” Lord Benyon, Minister of State at the Department for Environment, Food and Rural Affairs, and David Craig, Chair of the Taskforce for Nature-related Financial Disclosures, echoed Avery’s sentiment, highlighting the foundational role of nature in economic health and the importance of integrating nature and climate considerations in financial planning and reporting.
The insights from this report are a wake-up call and a roadmap for enhancing the UK’s economic and financial resilience by addressing the intertwined challenges of nature degradation and climate change.
