The Implications of Interconnected Climate-Nature Risks

Together with the Bank of England, the Green Finance Institute, University of Oxford, University of Reading, and the UN Environmental Programme World Conservation Monitoring Centre, are exploring the nature-related financial risks to the UK financial sector through a prudential-regulatory lens. Research conducted in 2023 aimed to identify the potential scale of the risk and assess its materiality versus other risks. This research also provides information on potentially material drivers, risk transmission channels and timescales, and aims to offer a view on ‘how’ and ‘where’ nature-climate risks pose different challenges versus ‘standard’ shocks considered by central banks. In this way it seeks to highlight if a different approach to supervision is required and the similarities/differences to climate.

The collaboration with NIESR will explore the macroeconomic and financial modelling questions. This first stage is exploratory, so while the goal is some quantification of the potential financial risks, our aim is to ‘stress test’ the system with simple scenarios to assess its sensitivity and vulnerabilities to nature-related shocks and stress rather than produce a precise impact estimate based on a well-defined quantified scenario.