Frank Elderson, a member of the European Central Bank (ECB) Executive Board, emphasized the urgent need for international cooperation to address nature-related risks during his speech at the NGFS Annual Plenary Event. He highlighted that nearly half of the world’s GDP relies on biodiversity and ecosystem services, yet human activity continues to deplete these vital resources, leading to significant economic risks.
The implications for the financial markets are profound. As nature degradation accelerates, businesses dependent on ecosystem services face increasing credit risks, which could impact loan repayments and bank balance sheets. Elderson noted that 75% of banks now have a quantitative approach to assessing nature-related risks, up from 40% in 2022, signaling a shift towards integrating these risks into financial practices. The upcoming NGFS guide will provide further recommendations for managing these risks.
For market professionals, the key takeaway is clear: as nature-related risks become more quantifiable and impactful, financial institutions must enhance their risk management frameworks to ensure stability. Ignoring these risks could lead to rising prices and increased volatility across markets.
Source: ecb.europa.eu