By I. Hansana, Jadetimes News
Financial regulators and supervisors in some G20 nations are neglecting the financial risks associated with biodiversity loss and deforestation due to a lack of adequate data, instead prioritizing climate risks, according to a recent report by the G20's financial watchdog, the Financial Stability Board (FSB).
The FSB report, released on Thursday, highlights that while some regulators have started assessing nature related risks, identifying potential financial threats such as credit losses, defaults, and abrupt price corrections, many have yet to address these issues. The report emphasizes the need for improved data and methodologies to accurately measure these risks.
Financial institutions are exposed to physical risks through their investments and financing activities in nature dependent sectors like food production. The FSB noted the importance of translating financial exposure estimates into tangible risk measures. Physical risks stem from environmental degradation, such as the decline of pollinating insects crucial for agriculture or the deterioration of farmland. This is distinct from transition risks, which arise from policies and actions aimed at protecting the environment.
The World Bank has projected that a partial collapse of ecosystems could reduce global GDP by 2.3% in 2030, disproportionately affecting the poorest nations. Under Brazil's current G20 presidency, the FSB was tasked with conducting the first comprehensive assessment of global regulatory and supervisory efforts to identify and manage nature related financial risks. The findings revealed that financial authorities, including central banks and finance ministries, are at different stages in evaluating the significance of biodiversity loss and other nature related risks as financial threats. Some are implementing policies and guidelines, while others lack the necessary data and capacity.
This report precedes the United Nations' COP16 biodiversity conference in Colombia in October, where global leaders face increasing pressure to curb the destruction of critical ecosystems. FSB Chair Klaas Knot stated, "This report contributes to international discussions on whether, and if so how, nature degradation, such as biodiversity loss, is a relevant financial risk.
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