A new analysis by the Green Finance Institute (GFI) has highlighted the severe economic and financial risks posed by the degradation of natural environments both in the UK and globally. The study reveals that nature-related deterioration could lead to a 12% loss in UK GDP, a figure that surpasses the economic impacts of both the 2008 financial crisis and the Covid-19 pandemic.
Conducted with input from the Environmental Change Institute at Oxford, Defra, HM Treasury, and the Financial Conduct Authority, the report stresses that nature-related risks are potentially as significant as climate change risks. Despite this, these risks remain insufficiently integrated into financial and business planning, increasing vulnerability in the financial sector and the broader economy.
The UK, one of the most nature-depleted countries globally, faces substantial threats from ecosystem degradation affecting sectors like agriculture, manufacturing, and utilities. For instance, the agriculture sector is at risk from declining soil health, water shortages, and pollution, which could hamper food production. Similarly, the utilities sector relies heavily on surface water for cooling power stations, with any reduction in water supply likely to disrupt production and increase energy costs. The analysis suggests that some banks could see up to a 5% reduction in the value of their domestic portfolios due to these risks, underlining the urgency for systemic change.
Recommendations include implementing disclosures of nature-related financial risks and taking decisive actions aligned with the Global Biodiversity Framework to enhance economic and financial resilience. This approach not only mitigates risks but also offers competitive advantages to proactive businesses, particularly through improvements in supply chain resiliency.
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