In early 2023, the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC), University of Oxford, University of Reading and the National Institute of Economic and Social Research (NIESR), in a project led by the Green Finance Institute (GFI), set out to develop the first analysis of the financial risks posed by nature degradation and the erosion of ecosystem services, both domestically and globally, to the real economy and financial sector in the UK.
This first of its kind analysis aims to advance understanding of the materiality of nature-related risks in the UK – moving us beyond assessing nature-related dependencies on ecosystem services, to gauging whether, and to what extent, those dependencies are resulting in a material financial risk to the UK macroeconomy and financial stability.
It furthers current understanding in several ground-breaking ways. The UK analysis:
- provides a first-of-its-kind UK Nature-Related Risk Inventory,
- estimates the dependency of UK banks and insurers on ecosystem services,
- estimates the upstream (indirect) and spatial exposure of those dependencies,
- provides a methodology to translate dependencies into financial risk to the real economy,
- provides three scenarios that integrate plausible yet extreme futures of nature and climate risks and their transmission channels into the UK economy,
- tests the scenarios and their channels over a time horizon to result in an estimated percentage impact on UK GDP, and
- calculates value at risk for typical UK lending and investment portfolios.
The development of the methodology and analysis described in this brief has been informed by contributions from several sources, including public data and governance around the use of this data from the Bank of England. In addition, input has been provided by the Department for Environment, Food and Rural Affairs (DEFRA), the Financial Conduct Authority (FCA), HM Treasury and the Taskforce on Nature-related Financial Disclosures (TNFD), as well as targeted input from scientific experts and the financial sector.
An analysis update, ahead of the final results and detailed publication of this research in April 2024 can be accessed here.
