Green Finance Institute publishes report on nature degradation impact on economy
The Green Finance Institute has this week published a first-of-its-kind analysis that quantifies the impact that nature degradation, both domestically and internationally, could have on the UK’s economy and financial sector. The results show that damage to the natural environment is slowing the UK economy and could lead to an estimated 12% reduction to GDP in the years ahead – larger than the hit to GDP from the global financial crisis or Covid-19.
The outcomes of the report will not be a surprise to CIEEM members and those engaged in the environment. This work builds on the already extensive body of work (e.g. TEEB and the Gasgupta Review) that clearly says that the natural environment underpins our economies and societies.
The findings are a call for swift action from governments, central banks, regulators and the financial sector to proactively manage nature-related risks to strengthen the UK’s economic and financial resiliency, and to position the UK as a global leader in addressing them.
Key Findings
- The deterioration of the UK’s natural environment could slow economic growth and result in GDP being 6% lower than it would have been otherwise by the 2030s under two scenarios (domestic and international) and 12% lower under an anti-microbial resistance (AMR) pandemic scenario.
- The impact to GDP of chronic year-on-year environmental degradation is on par with that from physical climate change risks in the coming decade. Nature cannot be put second while we focus on emissions reduction.
- The compounding impacts of climate and nature loss would have a very material impact on UK GDP.
- Chronic risks, such as soil health decline, pollution or biodiversity loss, are having as big an impact on the economy as acute risks, such as the failure of crops in multiple cereal-growing regions.
- Around half of UK nature-related risks originate from overseas, through supply chains and financial exposures
- The highest risks across sectors are derived from nature’s provision of water and nature’s ability to regulate climate, moderating the risks of floods, storms and drought.
- The agricultural sector is most at risk in percentage terms, but the largest risks in absolute terms are to the services and manufacturing sectors.
- Looking across the portfolios of the seven largest UK banks, the analysis indicates possible adjustments in the values of domestic holdings (only) of up to 4% to 5% over the next decade for nature alone, depending on the bank.