Importance of international cooperation in managing nature-related risks

Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board, highlighted the importance of international cooperation in managing nature-related risks during the NGFS Annual Plenary Event.

He emphasized that the world faces unprecedented challenges, including conflicts, erosion of the international rule-based order, and declining cooperation across sectors.

The event demonstrated that cross-border collaboration is essential during times of disruption and volatility, especially regarding climate and nature crises.

The NGFS remains a vital forum for sharing best practices, consolidating knowledge, and supporting supervisors in integrating nature-related risks into their oversight.

Nature is fundamental to the economy, with estimates indicating that up to 50% of global GDP depends on biodiversity and ecosystem services. In the euro area, nearly 75% of bank lending supports firms dependent on ecosystem services.

Degradation of nature, driven by land use, pollution, climate change, and overexploitation, is depleting resources at a rapid rate. The world is operating with an ecological deficit, using natural resources 1.7 times faster than ecosystems can regenerate.

Healthy ecosystems act as natural carbon sinks and protect against extreme weather events, but ongoing degradation hampers climate mitigation and adaptation efforts.

Many banking supervisors are already incorporating nature-related risks into their prudential frameworks. Examples include Brazil, Hungary, and Switzerland, which have taken various measures to assess and manage these risks.

The upcoming NGFS guide will provide practical recommendations on metrics, data, scenario analysis, and stress testing to address nature-related risks effectively.

The ECB has been proactive since 2020, with increasing adoption of approaches to manage nature-related risks. Currently, 75% of banks have quantitative assessments, but further integration into risk management remains necessary.

Efforts are underway to improve understanding of how ecosystem degradation affects economic sectors, including water scarcity risks in the euro area and impacts on inflation and real estate in France and Spain.

Research by McKinsey and other studies show that coordinated action and transition scenarios can significantly reduce credit risks associated with environmental degradation.

Global pressures, such as soil erosion and biodiversity loss, threaten food productivity and economic stability. The IPBES report warns that biodiversity loss is among the most serious threats to businesses.

Inaction on nature’s decline risks surging economic and financial instability. Collaboration among central banks, supervisors, banks, and researchers is crucial to develop effective practices and tools.

The NGFS serves as a central platform to unify these efforts, ensuring that a comprehensive climate and nature toolkit is accessible for all stakeholders.

Continued progress, shared practices, and innovative solutions are essential to address the scale of the nature crisis. Inaction is never neutral, and proactive measures are vital to maintain resilience and stability.

Thank you for your attention and commitment to this critical issue.