The Green Scorpion: Study Confirms Climate and Nature Crises Act as 'Risk Multipliers' on Financial Stability

Macro-Criticality of Nature for Finance

The report establishes that the ongoing degradation of natural capital, including biodiversity loss and environmental decline, is not merely an environmental concern but a macro-critical risk that poses a fundamental, long-term threat to global economic stability and financial institutions (FIs).

Overview and Framework

Over half of the world's Gross Domestic Product (GDP) is dependent on critical natural services (like clean air, water, and pollination). However, human activities are rapidly weakening this fundamental support system, with reports indicating a decline in 14 of 18 assessed critical ecosystem services since the 1970s.

The document's primary goal is to use the science and economics of nature to create the foundational scenario approaches and framework necessary for Central Banks and FIs. This innovation shifts the focus from simply identifying "dependencies" on nature to quantifying the resulting physical nature-related financial risks.

Financial and Economic Impact

The report's preliminary analysis clearly demonstrates the macro-critical impact of these risks, which are considered initial, lower-bound estimates:

• Systemic Financial Exposure: The financial system is exposed to instability due to the widespread nature of the threat to the real economy.

  
  

• Quantified GDP at Risk: Water-related risks alone could put 79% of global GDP at a 5% Value at Risk (VaR), indicating massive potential losses across sectors like manufacturing.

  
  

• Agricultural Losses: The agricultural sector faces major economic losses, with up to 18% of output at risk due to the decline of critical services like water scarcity and pollinator loss.

  
  

• Amplified Economic Cost: The interaction between climate and nature crises significantly amplifies the total economic cost beyond assessing each factor in isolation.

While the report is fundamentally a warning about escalating financial risks, the most positive note is found in the purpose and ambition of the work itself and the transitional path it enables:

Opportunities for a Nature-Positive Future

• The Power of Measurement and Action: The most significant positive aspect is that the report moves past simply identifying environmental problems. By developing a framework and quantitative methodologies, it provides Central Banks and financial institutions with the necessary tools to measure, price, and manage these risks. This ability to assess risk is the crucial first step toward effective mitigation and resilience.

  
  

• Enabling the Nature-Positive Transition: The ultimate goal of this work is to support the transition to a nature-positive future. By forcing financial markets to accurately price nature-related risks, the framework helps re-align capital flows. This means investment can be redirected away from environmentally destructive activities and toward solutions that restore natural capital, driving positive economic and environmental change.

  
  

  

  
  

• A Clear Path for Collaboration: The fact that this report was commissioned as a contribution to the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) demonstrates a powerful positive commitment from global regulators and supervisors. It shows a collective international effort to integrate nature into the core of financial stability oversight.

  
  

• Opportunity for Resilience: By anticipating and quantifying the cascading effects of nature loss, the financial system and governments can take precautionary action now. This provides a clear opportunity to build greater economic and financial resilience to future shocks, ensuring long-term stability rather than waiting for crises to occur.

Resource: Ranger, N., Alvarez J., Freeman, A., Harwood, T., Obersteiner, M., Paulus, E. and Sabuco, J. (2023). The Green Scorpion: the Macro-Criticality of Nature for Finance – Foundations for scenario-based analysis of complex and cascading physical nature-related risks. Oxford: Environmental Change Institute, University of Oxford. https://www.eci.ox.ac.uk/sites/default/files/2023-12/INCAF-MacroCriticality_of_Nature-December2023.pdf