The call to action, signed by organizations such as the UN Environment Finance Initiative, the European Environment Agency, NatureFinance (formerly Biodiversity Finance), NRDC and the New Economics Foundation, sets out tangible measures for central banks and financial supervisors to limit the impacts on the environment and climate, hedge against future risks and use their role as market shapers to influence wider change. The call to action emphasizes that today’s environmental impacts create tomorrow’s risks and therefore it is the mandate of central banks and financial regulators to take preventive action.
The call comes as international economic policymakers meet for several important meetings in the coming months, including the G20 Finance Ministers and Central Bank Governors and the G20 Heads of State Summit , as well as COP27 on climate and COP15 on biodiversity. Signatories to the call to action call on central banks and financial supervisors to:
- Embracing the 2030 Nature Positive target, limiting global warming to 1.5ºC and achieving net zero emissions by 2050 as key anchors of their mandates.
- Promote economic transformation by ensuring that monetary policies and financial regulatory instruments better reflect the economic cost and financial risk of “always bad for the environment” economic activities, companies and sectors, as these assets pose the greatest financial risks.
- Require all regulated financial institutions to publish credible transition plans for biodiversity and climate change.
Monetary policy and financial regulatory instruments must address the significant price and financial volatility caused by biodiversity loss and global warming, which will continue to increase, according to the call for action. In particular, WWF argues that the meeting of finance ministers and central bank governors to be held in Bali on 13-14 October represents a key opportunity for countries to turn commitments into concrete action and to:
- Treat biodiversity loss and climate change as a single twin crisis and recognize the massive destabilizing effects it has on prices and financial stability
- Use a precautionary approach and work proactively and decisively to prevent future risks
- Recognize that today’s impacts are tomorrow’s risks and adapt financial regulation and supervision to a longer time horizon (10-30 years).
The world economy and financial system are deeply rooted in nature, but nature is being lost at an unprecedented rate. By sequestering greenhouse gases, healthy ecosystems could provide 37% of the mitigation needed to limit global temperature rise to 1.5°C. But climate change, human-caused habitat and biodiversity loss, and deforestation and land conversion, among other key drivers of nature loss, are undermining this process and releasing more CO2 than can be absorbed. New data on the impact of very high temperatures on prices also reveals that extreme temperatures have a significant impact on price developments.
Central banks and financial supervisors have recognized the threat that environmental crises pose to financial stability and the general price level, and have committed to tackling climate change, biodiversity loss and supporting the transition to a low-carbon economy. The call to action makes clear that current actions – such as the disclosure of climate-related information – are not sufficient to protect against the risks posed by this twin crisis:
- Current rates of nature loss could cost the global economy $2.7 trillion annually by 2030.
- Up to $24 trillion in assets could be at risk from 2.5°C warming.
- Unchecked global warming could create an “uninsurable” world due to climate risks and impacts.
Margaret Kulow, head of WWF’s financial practice, said: “Central banks and financial supervisors exist to ensure price and financial stability. Unless urgent action is taken to better understand and manage climate and nature-related risks, these risks will have significant macroeconomic consequences.
Jessica Smith, Director of UNEP’s Nature Financing Initiative, noted: “The leadership we are seeing from the private sector on this issue, for example in the Working Group on Nature Financial Disclosure and the Biodiversity Financing Commitment, is encouraging. It is now crucial that central banks and regulators step up when it comes to biodiversity and nature and go beyond disclosure to mainstream what is increasingly being done on a voluntary basis across the industry. They must act quickly so that we can reverse the trend of nature loss by 2030 and bring our economies into harmony with nature by 2050.
Marian Breu, WWF Chile’s Senior Coordinator of Ecological Footprint and Markets, pointed out that “in Chile, the Central Bank and other financial regulators have already shown interest and are making progress on issues such as macroeconomic models for the valuation of ecosystem services and the integration of natural capital, and there are multilateral committees for the so-called greening of financial regulation, as well as Table of public-private finance to incorporate climate change risks and opportunities into business strategies. We hope that the country will deepen these actions, which today seem very necessary to achieve sustainable and lasting development.”