Legal & Regulatory News

​Network for Greening the Financial System publishes statement on nature-related financial risks

On 24 March 2022, the Network for Greening the Financial System (NGFS) published a statement on nature-related financial risks, recognising that without mitigation these risks could have significant macro-economic implications for financial stability.

The NGFS statement concludes that the key tasks ahead for central banks, financial supervisors and financial institutions are as follows: (i) to build a scientifically-grounded analytical framework to assess the interactions between nature, the macroeconomy and the financial system; (ii) to bridge the likely data gaps that will emerge from such a framework; and (iii) to use this new framework and datasets to align policies with environmental sustainability and inform the assessment of nature-related financial risks.

In its statement, the NGFS also welcomed the following five recommendations from the NGFS-INSPIRE Study Group:

1. Recognise biodiversity loss as a potential source of economic and financial risk and commit to developing a response strategy to maintain financial and price stability.
2. Build the skills and capacity among central bank and supervisory staff as well as market participants to analyse and address biodiversity-related financial risks.
3. Assess the degree to which financial systems are exposed to biodiversity loss, by, for example, conducting assessments of impact and dependency, developing biodiversity-related scenario analysis and stress-tests.
4. Explore options for supervisory expectations for financial institutions’ governance, risk management, strategy, disclosure and financial conduct in relation to biodiversity-related financial risks and opportunities.
5. Help build the necessary financial architecture for mobilising investment for a biodiversity-positive economy, including by considering how central banks’ monetary policy operations and non-monetary policy portfolio management should be conducted in the context of biodiversity loss.

The NGFS will look to establish a task force to mainstream the consideration of nature-related financial risks across its activities and act as an incubator that explores and develops relevant nature-related considerations.

Click here to access the statement.