$5 Trillion Nature-Related Economic Risks Will Amplify Climate Change, Oxford Study Says

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Shocks to the global economy from biodiversity loss and ecosystem damage could cost up to $5 trillion, according to new research from the University of Oxford, which appeared alongside central banks’ advice on assessing nature-related risks.

Researchers have found that human-caused pollution, deforestation, land-use change and over-mining are fundamentally eroding the natural capital on which our societies and economies are built – including our water, clean air, fertile soil and pollinators – and act as “risk amplifiers” on the effects of climate change.

The ECI study concludes that the erosion of natural capital, coupled with biodiversity loss and environmental degradation, creates significant and long-term risks for society.

The Network of Central Banks and Supervisors for the Greening of the Financial System (NGFS) – a network of more than 120 central banks and supervisors worldwide – has released its recommendations on the assessment of economic and financial risks related to nature.

As part of this work, the Oxford Institute for Environmental Change studied the development of scenarios for climate shocks and gathered evidence of macrocriticism for the global financial system. The analysis focused on three risks: water, pollution and pollination.

The ECI study concludes that the erosion of natural capital, coupled with biodiversity loss and environmental degradation, creates significant and long-term risks to society, the economy and finance through increased risk of pandemics, floods and droughts.

Dr. Nicola Ranger, who led the study and is director of ECI’s Resilient Planet Finance Lab, said: “Conserving and restoring nature is essential to the functioning of our economies and is a vital component of adapting to climate change.”

Nature is not the elephant in the room, it is a huge green scorpion running towards us. The sting in its tail will greatly amplify the effects of climate change in ways that are hard to predict

Dr. Nicola Ranger

Reflecting on the negotiations at COP28, he explains: “Nature is not the elephant in the room, it is a huge green scorpion running towards us. The sting in its tail will greatly amplify the effects of climate change in ways that are hard to predict. It’s not just the birds and the butterflies, we’re fundamentally eroding the natural capital on which our societies and economies are built.”

Professor Michael Obersteiner, ECI Director, added: “This study provides an inflection point towards macro-resilience by visualizing and credibly articulating forward-looking dynamic risks associated with the erosion of natural capital. Our methodology will enable the financial sector to deliver planetary health.”

Global food systems have been shown to be particularly threatened by soil erosion, land-use change and pollinator loss, exacerbating the effects of climate change. Global supply chains have been shown to be at significant risk due to water scarcity and pollution.

This study provides an inflection point towards macro-resilience by visualizing and plausibly articulating forward-looking dynamic risks associated with the erosion of natural capital.

Professor Michael Obersteiner

The study also highlights the challenges faced by financial institutions in managing these risks, which are currently not fully accounted for in the financial system. It recommends a proactive approach to governments and regulators, including the urgent need to identify and assess risks in line with the recent recommendations of the Nature-Related Financial Disclosure Task Force and to identify potential regulatory gaps.

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