In her keynote speech, the President of the European Central Bank, Christine Lagarde, noted that climate and biodiversity represent two sides of the same coin. “There is no economic and financial stability without respect for nature and without nature’s contribution, because our economies depend on it. That’s why we need to make sure that economic decisions internalize the damage inflicted by our societies on biodiversity.”
To substantiate her argument, Christine Lagarde referred to the recent study on the French financial system produced by the Banque de France, in collaboration with Agence française de développement and the French Biodiversity Agency. This study estimates that approximately 42% of French financial assets are highly dependent on at least one ecosystem service (such as the supply of surface or ground water through the maintenance of water cycles and their environmental remediation) and indicates that the deterioration of biodiversity caused by the impact of France’s financial portfolio is equivalent to a quarter of the French territory.
Biodiversity: the IUCN calls for global mobilization
The IUCN congress has kick-started a highly important political sequence that should result in a global agreement at COP15 in Kunming (China), now scheduled for spring 2022. It allowed key points of consensus to be stated loudly and clearly. The rate of species extinction is currently 100 to 1,000 times higher than the baseline rate over the last few million years, and vertebrate species populations have declined by an average of 68% over the last five decades. We are currently (or soon will be) the cause of the sixth mass extinction event in Earth’s history, the last of which took place 65 million years ago.
The effects of biodiversity loss on human societies, without even considering ecosystems for their intrinsic value, could be at least as severe as those resulting from climate change, and these impacts are likely to interact with each other.
The IUCN congress also highlighted, in terms of financial challenges, the magnitude of the task ahead and the transformations that must be undertaken. The financial community has only recently begun to take an interest in the economic and financial consequences of biodiversity loss. Christine Lagarde appears to be ready to take on the mantle of former Bank of England Governor Mark Carney who sounded the alarm about climate change in 2015.
Loss of biodiversity: financial institutions blind to a potential catastrophe
The Dasgupta review on the economics of biodiversity emphasizes that the risks posed to economic and financial systems by biodiversity loss could be catastrophic. The Network for Greening the Financial System has recently launched a study on the links between biodiversity loss and macroeconomic and financial systems. In the meantime, France, like the Netherlands, has produced an initial assessment of the potential financial risks associated with biodiversity loss.
To date, there has been little to no assessment work done on similar risks in the developing world. According to a recent study by the World Bank, it is believed that developing and emerging economies will bear the brunt of these impacts, with GDP losses of up to 10% in 2030 if ecosystem services begin to collapse.
Sub-Saharan Africa and South Asia are at particularly high risk, as the primary sectors in both regions are dependent on ecosystem services relating to crop pollination. In addition, Sub-Saharan Africa is reliant on agriculture and forest products, and has limited capacity to switch to alternative modes of production and consumption or to adapt to degraded surface and groundwater cycles, or to ecosystem services for disease control.
Development trajectories: a crucial next decade
International financial flows could suddenly grind to a halt on a global scale due to a localized collapse, or financial assets may be subject to complete re-evaluations with significant welfare losses that should be studied in more-depth ahead of time. Escaping from poverty seems to be incompatible with the world’s current trajectory towards a collapse of biodiversity.
The next decade thus represents a crucial window of opportunity in which to radically overhaul our development trajectories. In 2022, the Kunming conference will no doubt give rise to a movement similar to that of COP21 in the financial sector, while the COP26 summit of the United Nations Framework Convention on Climate Change will bring new impetus to the coordination of climate and biodiversity agendas.
In the coming years, the international development agenda must therefore include financial stress tests for developing and emerging economies amid scenarios of both biodiversity loss and the implementation of future protection policies. Lastly, in order to mitigate these impacts, these economies will need to arm themselves with political tools that allow for environment-friendly investments and development trajectories.