The Network for Greening the Financial System (NGFS) has decided to create a task force to mainstream the consideration of nature-related risks across its various work streams, saying that the risks should be considered by central banks and supervisors for the fulfilment of their mandates.
The group’s decision follows publication of a final report by a study group it co-established to develop a research-based approach to how central banks and supervisory authorities can fulfil their mandates in the context of biodiversity loss.
Ravi Menon, chair of the NGFS and managing director of the Monetary Authority of Singapore, said the study group had delivered rigorous research.
“The NGFS-INSPIRE Study Group’s work has enabled NGFS Members to better understand the consequences of economic decisions and financial flows that do not integrate nature-related risks and opportunities,” he said.
“Nature-related risks can potentially be a threat to financial stability. This is why we have decided to launch an NGFS task force to mainstream these considerations across our activities.”
Ma Jun, chair of the NGFS workstream on research and special adviser to the governor of the People’s Bank of China, co-chaired the study group and welcomed the NGFS’s formal response to the final report.
“We hope this 100-page report will inspire more concrete steps by central banks and regulators in the coming few years to align our financial system with the future health of the planet and to address an Anthropocene reality with complex and dynamic interactions between people and nature,” he said.
Five recommendations, three key tasks
The report, ‘‘Central banking and supervision in the biosphere: An agenda for action on biodiversity loss, financial risk and system stability”, recommended that central banks and supervisors:
- recognise biodiversity loss as a potential source of economic and financial risk and commit to developing a response strategy;
- build the skills and the capacity to analyse and address these risks;
- assess the degree to which financial systems are exposed to biodiversity loss;
- explore options for supervisory actions to manage biodiversity-related risks and minimise negative impacts on ecosystems; and
- help to build the necessary financial architecture for mobilising investment that helps to conserve biodiversity.
The NGFS said the key tasks ahead for central banks, financial supervisors and financial institutions were to:
- build a scientifically-grounded analytical framework to assess the interactions between nature, the macroeconomy and the financial system, in a way that is both comprehensive and actionable;
- bridge the likely data gaps that will emerge from such a framework;
- use this new framework and datasets to align policies with environmental sustainability and inform the assessment of nature-related financial risks.
Publication of the study group’s final report and the NGFS’s response comes after the Taskforce for Nature-related Financial Disclosures published the first beta version of a proposed disclosure and governance framework.
Launched in 2017, the NGFS has grown to bring together 108 central banks and supervisors and 17 observers.
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