According to research from the Green Finance Institute, damage to the natural environment could cause a 12% loss to UK GDP in the future.
The report assesses the impact that nature degradation could have on the economic and financial sector, revealing that nature degradation could lead to a greater loss to UK GDP than the Covid-19 pandemic (11%), and the 2008 financial crisis (5%).
One lead author of the report, Tom Oliver, professor of applied ecology at the University of Reading, stated: “This analysis shows that nature is not a luxury– it provides the foundations for a stable economy. We found that nature-related risks, such as soil health decline, antimicrobial resistance and animal-borne disease interact with each other and present significant threats to UK citizens within the next decade. This highlights the need to really step up implementation of domestic environmental protection as well as working internationally to mitigate risks at their source.”
Deterioration of the natural environment will have real impact on the economy due to an increase in nature-related risk that occur as a result of climate change, such as soil health decline, food shortages, natural disasters, water deficiencies, and more. The report found that the agricultural sector is facing a high level of risk in terms of soil, water, pollution, and climate regulation that could affect quality of products, the utilities sector is similarly at risk due to water shortages needed for cooling and water supplies.
In terms of financial impact, the research estimates that the domestic portfolios of banks could face reductions of up to 4-5%, which would affect financial resilience. These findings indicate that the government and regulators should be taking action to limit the damage of nature-related and biodiversity risks and address changes in the natural environment.
Lord Benyon, Minister of State at the Department for Environment, Food and Rural Affairs, commented: “Nature underpins the health of our economy, and it is under threat from a global nature crisis. The responsibility to conserve nature lies with all sectors and sections of society, and green finance has a crucial role to play. The findings in this report will help people and institutions across the corporate and finance sectors understand that it is in their own interests to go further and faster for the planet to protect it for future generations.”
Another lead author of the report, Nicola Ranger, director for greening finance at the UK Integrating Finance and Biodiversity Programme and the Environmental Change Institute, University of Oxford, said: “Over the last decade, central banks and financial institutions woke up to the risks posed by climate change and we’ve seen meaningful steps to address them, including mandating disclosures, and beginning to shift capital flows toward green sectors and technologies. With this report, we comprehensively demonstrate that risks from environmental degradation and biodiversity loss are at least as severe and urgent, and indeed that if not addressed, will double climate change losses.”
The research was conducted as a joint study with the Green Finance Institute, Environmental Change Institute at the University of Oxford, University of Reading, UN Environment Programme World Conservation Monitoring Centre, and the National Institute of Economic and Social Research, with input from the Financial Conduct Authority, Food and Rural Affairs, HM Treasury, and Taskforce on Nature-Related Financial Disclosure. The findings were accumulated through the practice of risk-based and scenario-based approaches to assess risk of nature and biodiversity loss to the UK economy.