Tuesday

28th Sep 2021

Analysis

French central bank says: It's the ecology, stupid!

  • France's central bank has published a study on financial damage due to biodiversity loss, which aims to show the damage to the natural environment if our financial system keeps operating business as usual (Photo: Pictures of Money)
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How to quantify nature? How to define its worth? - these are central themes world leaders are grappling with going into the virtual UN conference on biodiversity (COP-15 - not to be confused with the UN climate conference Cop-26) a little over a month from now.

Biodiversity is fundamental to earth's life-support systems humans depend on. But governments, financial institutions and policymakers have failed to act accordingly for decades.

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According to the UN chief for biodiversity earlier this week, global goals agreed upon in Aichi, Japan, back in 2010 failed on all 20 accounts.

This week countries are preparing to raise the bar even further.

To motivate governments to make the necessary investments, the updated UN draft for a global biodiversity framework being discussed this week now proposes that governments must 'internalise the value of nature and recognise the cost of inaction.'

The direct adverse financial and societal effects of climate change have been brought home by natural disasters in populated areas in recent years and are broadly accepted by economists.

But the effects of the loss of biodiversity - the loss of bees, the loss of prime forests - on our socio-economic systems are not yet well understood.

According to the OECD, more than half of the world's total gross domestic product, or $44 trillion [€37 trillion], involves activities that are moderately or highly dependent on nature. But governments and financial institutions will need more exact figures to base their policy's on.

The value of nature

Last week (27 August), the Bank of France, the country's central bank, published a paper titled A Silent Spring for the Financial System?, invoking Rachel Carston's eponymous 1962 book about the damaging effects of pesticides (most importantly DDT) on natural ecosystems.

The central bank attempts to quantify the risk biodiversity loss poses to the economy. It aims to show the damage to (or the silencing of) the natural environment if our financial system keeps operating business as usual. It is only the second study of its kind that does so on a national scale, following an earlier effort by the Dutch central bank last year.

According to the bank's findings, the way money currently invested in France results in the loss of 4,800km of 'intact' nature a year - or about 48 times the area of Paris.

Some 42 percent of the value of bonds and equities currently held by French financial institutions comes from issuers that are highly or very-highly dependent on one or more ecosystem services.

The biodiversity footprint of these bonds and equities is comparable to the loss of at least 130,000km of 'pristine' nature - about a quarter of the area of metropolitan France.

But the paper raises another question.

Although financial exposure might help policymakers "internalise the value of biodiversity", the report suggests that it may prove problematic to express ecological loss in monetary terms.

Unlike climate change, where universal metrics (tons of CO2 equivalent) are relevant, "it is illusory to hope to describe biodiversity by a single indicator."

By extension, in an editorial, the influential magazine Nature called on governments and the UN to consult with IPBES, the international panel of leading biodiversity researchers, currently not included in the decision-making produces, on how best to measure species loss.

A system that takes into account the complexities of the natural world while giving policy makers a feasible tool to work with.

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