Posted on 07 September 2022
In a new call to action, WWF and more than 90 organisations and thought leaders urge central banks and financial supervisors to manage climate and biodiversity related financial risks as part of their primary mandates. Mandatory climate-related disclosures are a critical first step but not sufficient to protect against the risks posed by climate change and biodiversity loss. Based on a new roadmap that sets out what central banks and financial supervisors should do, the Call to Action stresses the importance of treating climate change and nature loss as a financial twin crisis.
The Call to Action, co-signed by organisations including the UN Environment Programme Finance Initiative, the European Environment Bureau, Nature Finance (formerly Finance for Biodiversity), NRDC and New Economics Foundation, sets out tangible steps for central banks and financial supervisors to take to limit environmental and climate impacts, protect against future risks, and use their market-shaping role to influence broader change. The Call to Action emphasises that today’s environmental impacts generate tomorrow’s risks, and therefore it is in the mandate of central banks and financial regulators to take precautionary action.
This Call to Action comes as international economic policy makers are due to meet for several critical gatherings over the next few months, including the G20 Finance Ministers and Central Bank Governors meeting and G20 Heads of State Summit, Climate COP27 and Biodiversity COP15. The signatories of the Call to Action urge central banks and financial supervisors to:
Adopt nature positive by 2030, limit global warming to 1.5ºC, and achieve net-zero emissions by 2050 as key anchors for their mandates.
Encourage economic transformation by ensuring monetary policies and financial regulatory instruments better reflect the economic cost and financial risk of ‘always environmentally harmful’ economic activities, companies and sectors’ as these assets represent the highest financial risks.
Require all regulated financial institutions to publish credible transition plans for biodiversity and climate change.
Monetary policy and financial regulation instruments need to address the significant financial and price instability that is caused by biodiversity loss and global warming that will continue to increase, according to the Call to Action. In particular, WWF argues that the Finance Ministers and Central Bank Governors meeting taking place in Bali on October 13-14, presents a key opportunity for countries to translate commitments into concrete action and:
Treat biodiversity loss and climate change as a single twin crisis and recognize the massive destabilizing effects it has on financial and price stability
Use a precautionary approach, and work proactively and decisively to prevent future risk
Recognise that today’s impacts are tomorrow's risks and adapt financial regulation and supervision to a longer time horizon (10-30 years).
The global economy and finance system are deeply embedded in nature, but nature is being lost at unprecedented rates. By absorbing greenhouse gases, healthy ecosystems could provide 37% of the mitigation needed to limit global temperature rises to 1.5ºC. But climate change, human-caused habitat and biodiversity loss such as deforestation and land conversion, and other key drivers of nature loss undermine this process and release more CO2 than can be absorbed. New evidence on the impact of very high temperatures on prices also finds that extreme temperatures have noticeable effects on price developments.
Central banks and financial supervisors have acknowledged the threat environmental crises pose to financial stability and overall price levels and have committed to tackle climate change, biodiversity loss and support the transition to a low-carbon economy. The Call to Action highlights that current actions - like climate-related disclosure - are not sufficient to protect against the risks posed by the twin crisis:
Current rates of nature loss could cost the global economy $2.7 trillion annually by 2030
Up to $24 trillion worth of assets could be at risk from 2.5ºC warming
Unabated global warming could create an ‘uninsurable’ world due to climate risks and impacts
WWF´s Finance Practice Leader Margaret Kuhlow: “Central banks and financial supervisors exist to provide financial and price stability. Without urgent action to better understand and manage climate- and nature-related risks, these risks will have significant macroeconomic impacts.”
Jessica Smith, UNEP Finance Initiative Nature Lead: “It's encouraging how much leadership we are seeing from the private sector on this topic, for example in the Taskforce on Nature-related Financial Disclosures and the Finance for Biodiversity Pledge. Now it’s critical that central banks and regulators step up to the plate on biodiversity and nature - and go beyond disclosure - to ‘bake in’ what’s increasingly done on a voluntary basis across the industry. They must act rapidly so that we can turn the tide of nature loss by 2030 and bring our economies into harmony with nature by 2050.”