NGFS on Addressing Financial Stability Issues from Biodiversity Loss
The NGFS Study Group on Biodiversity and Financial Stability published a Vision paper exploring the case for action in addressing the financial stability concerns arising from biodiversity loss. The report notes that central banks and prudential supervisory authorities are increasingly recognizing the potential for biodiversity loss to threaten macroeconomic stability as well as the stability of the financial systems that they oversee. However, the complexity of the issue, the lack of regulations and policy guidance, and the limited tools to measure, disclose, and manage nature-related financial risks create a range of challenges to overcome.
The paper sets out links between the biodiversity loss and the macroeconomic and financial systems, also considering the impact of the financial sector in exacerbating the degradation of natural systems. It then poses a series of questions regarding whether and how central bankers and supervisors should, in the context of pursuing their mandates, address the issue of biodiversity loss. The paper points out that, given the scale of both the challenge of biodiversity loss and the knowledge gaps around it, a strategic and structured approach by central banks and financial supervisors is needed. The Study Group plans to explore the potential role of central banks and supervisors across a range of functions, including the following:
- Looking at the role of financial authorities in assessing the relationship between biodiversity and financial stability and exploring whether the traditional methods adequate (such as stress testing) are adequate
- Identifying what key biodiversity indicators should central banks and supervisors be monitoring, evaluating and reporting on and what disclosure they should require from regulated entities
- From the micro-prudential perspective, reviewing whether and how biodiversity factors can be included in routine activities to assess the safety and soundness of financial firms and what role might scenario-based tools play in analyzing and stress-testing biodiversity risk exposures
- Investigating the incorporation of biodiversity risks into macro-prudential policy frameworks and instruments
- Reviewing whether and how central banks and supervisors should support the scaling up of innovative financial tools to help support biodiversity and strengthen financial stability
The Study Group would welcome feedback on the initial approach set out in this Vision document and would welcome suggestions or examples of research and analysis that can help to deepen its thinking. Based on this as well as its own research, the Study Group will publish an interim report ahead of COP15 Convention on Biological Diversity in October 2021 and this report will be open for further feedback. The Convention is expected to agree on a post-2020 global biodiversity framework, which aims to halt and reverse biodiversity loss. The study group will publish its final report in February 2022, along the the research agenda for the following years.
Related Links
Keywords: International, Banking, Climate Change Risk, ESG, COP 15, NGFS, Biodiversity Loss, Financial Stability, Stress Testing, Macro-Prudential Policy, Micro-Prudential Policy, NGFS
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
HKMA Requires Banks to Submit Plans for Fintech AdoptionRelated Articles
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
IOSCO Welcomes Work on Sustainability-Related Corporate Reporting
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BoE Allows One-Day Delay in Statistical Data Submissions by Banks
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
ACPR Amends Reporting Module Timelines Under EBA Framework 3.2
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
APRA to Modernize Prudential Architecture, Reduces Liquidity Facility
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.
