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Nature degradation could cause financial losses to the UK economy greater than Covid-19 and 2008 financial crash

Bees land on wildflowers in a garden designed for environmental conservation
The GFI research highlighted the impact of nature loss on the global food system associated with risks including a decline in pollinators, such as bees (Photo: Ben Brewer/Bloomberg)

Nature degradation could result in a 12% drop in UK GDP by 2035, analysis by the Green Finance Institute shows

Damage to the UK’s natural environment could result in a 12 per cent loss in gross domestic product by 2035, according to research by the Green Finance Institute. This would outstrip the losses caused by the financial crisis of 2008, which resulted in a 5 per cent drop in UK GDP, and the Covid-19 pandemic, which cost the UK 11 per cent of GDP in 2020. 

The analysis also found that nature-related risks are as, or more, detrimental to the UK economy as climate change risks.

The GFI, which conducted the research alongside teams from the universities of Oxford and Reading, the UN Environment Programme World Conservation Monitoring Centre and research institute the National Institute of Economic and Social Research, identified three nature-related risk scenarios.

The UK domestic scenario captures continued chronic risks from nature loss, such as soil health decline, water pollution, water scarcity, air pollution and biodiversity loss, as well as acute risks of heatwave, drought and wildfires.

The international supply chain scenario, meanwhile, encapsulates the impact on the global food system of similar risks, as well as a decline in pollinators, the over-exploitation of fisheries, biofuel-land use tensions and fiscal issues. It also incorporates geopolitical instability and trade wars.

The third scenario explores how an increase in anti-microbial resistance and outbreaks of major livestock and poultry disease — driven by changes in agricultural practices — could result in a global pandemic and lockdown.

Across the three scenarios, the GFI predicts that chronic nature-related risks will result in a slowdown in economic growth, equivalent to an erosion of 1.5 to 3 per cent of GDP (£35bn to £70bn) by the late 2020s. When adding acute risks to the analysis, starting in 2030, this loss to GDP increases to 6 per cent (for the domestic and international scenarios) and 12 per cent for the health scenario, equivalent to a GDP reduction of £140bn to £300bn.

Highlighting critical risks to government

The GFI says the analysis is a “first-of-a-kind” attempt to quantify the impact that domestic and international nature degradation could have on the UK economy.

“These are really hard-hitting numbers,” Kathryn Brown, director of climate change and evidence at The Wildlife Trusts, tells Sustainable Views. “It’s incredibly important to put, as [the GFI] has done, a GDP loss number on nature degradation because it highlights to government institutions like the Treasury just how critical addressing the risk is.”

According to the GFI, decision makers in the private and financial sectors are not yet factoring nature degradation into their financial projections to a sufficient extent, leaving them exposed to unexpected risks.

Brown says that by providing a GDP loss figure, the GFI is “speaking the language” of the Treasury, “which hasn’t taken this issue nearly as seriously enough as it should have done over the past five years”.

Alicia Gibson, director of nature finance advisory at consultancy Finance Earth, agrees there is value in “speaking that [financial] language” to help government departments and the corporate and financial sectors “understand what nature means in practice”.

“This is the start of the journey to link the financial sector with how they actually invest in the protection and the restoration of nature,” she adds. 

Creating a pathway for investment 

Tony Goldner, executive director of the Taskforce on Nature-related Financial Disclosures, tells Sustainable Views that research such as the GFI’s can stimulate a “mindset shift” from understanding nature as a “corporate responsibility issue” to a “strategic risk management issue” with tangible impacts.

“The central concept is investing in nature resilience — because it is resilient ecosystems that will continue to provide the ecosystem services on which business depends,” says Goldner. “There’s a very natural and compelling case to invest in the resilience of nature.”

The TNFD this week welcomed the International Sustainability Standards Board’s decision to research disclosure about risks and opportunities associated with biodiversity, ecosystems and ecosystem services.

TNFD co-chair David Craig said the ISSB announcement was “another important step forward to realising the need for an integrated global baseline for sustainability reporting and the aspirations of the Global Biodiversity Framework”.

The Wildlife Trusts’ Brown also hopes that quantifying nature risks will help to mobilise investment. Being nature positive should be seen as a “sister target” to net zero, given that they carry similar risks to the economy, as shown by the GFI analysis, she says.

“I think we will start to see the business sector catching up on understanding nature-related risks, and the action and the financial investment that are needed,” she adds.

There is also an important role for the UK government to capitalise on the private sector’s increasing understanding of nature risk, says Gibson at Finance Earth. “There’s finance out there, but we still need that portfolio of [conservation] projects that can meet the requirements of those sources of finance,” she tells Sustainable Views.

She suggests moving away from a system of voluntary nature-based investments by companies towards a mandatory “compliance-based system” that establishes a clear route for private sector investments into nature restoration projects.

A service from the Financial Times