In a global Call to Action launched recently, World Wildlife Fund (WWF) and more than 90 organizations, NGOs, think tanks and individual thought leaders call on central banks and financial supervisors to use all available tools to address the inter-related crises of biodiversity loss and climate change, recognizing the financial risks they create.
The Call to Action, co-signed by organizations including NRDC, Sierra Club, E3G, UN Environment Programme Finance Initiative, the European Environment Bureau, Nature Finance (formerly Finance for Biodiversity), Finance for Biodiversity, 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 emphasizes 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.
“The climate crisis, which is being exacerbated by nature loss, is already having a profound impact across every corner of the world and every sector of the global economy, and is already costing money and, more tragically, lives,” said Marcene Mitchell, senior vice president, climate change, WWF. “Climate change and nature loss are both “pay now or pay later” propositions, and exactly the kind of risks that financial institutions and policymakers should be acting upon with urgency. This is risk that can be addressed, if we can muster the will and mobilize all the tools at our disposal, including those available in the marketplace. Financial institutions can either help lead this effort or be left at the mercy of what transpires if we do nothing.”
This Call to Action comes as international economic policymakers 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:
- Reversing biodiversity loss to achieve a nature-positive world by 2030, limit global warming to 1.5 degree Celcius, 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 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 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 1.5 degree Celsius. 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 2.5-degree Celsius warming.
- Unabated global warming could create an uninsurable world due to climate risks and impacts.
