Nature loss: an emerging challenge for central banks and supervisors?

For decades, environmental scientists and biologists have urged policymakers to recognise the fundamental role of nature and biodiversity in the economy and society, but unlike climate change the risks of nature loss have only recently begun to gain relevance in policy and financial regulatory discourse.

When the Network for Greening the Financial System (NGFS) was established in 2017, there was discussion over whether nature-related issues should be included in its scope. Initially, the focus was mainly on climate risks and on the role of finance in supporting the ‘green transition.’ However, the areas of focus have changed and broader topics have been incorporated, including nature loss. The core of the narrative that led to this has mainly been based on the following questions. How limited are our natural resources? How dependent are we on natural capital? What happens when an ecosystem declines or collapses? What are the credit, market and operational risks if a natural asset can no longer deliver its services?

Nature loss is complex. Even a single ecosystem comprises numerous interdependent elements. As degradation accelerates – driven by pollution, land-use change and species extinction – the ability of the ecosystem to provide essential services like clean air, water and fertile soil declines. This can affect economic productivity and create ripple effects such as credit, market, operational and liquidity risks. For example, soil degradation may lower agricultural yields, reduce land collateral value and weaken the ability of borrowers to repay debt (NGFS 2023:16).

As awareness grows, these issues have started to raise red flags among regulators. Against this background, some central banks around the world have taken a first step by attempting to understand the concepts and the metrics used in natural sciences to measure nature loss and how they interact with economic and financial stability (Cf. Sandoval Velasco & Falchi 2025). Unsurprisingly, the same institutions that were pioneers in integrating climate change risks in their financial stability mandates are the ones that are beginning to explore the financial risks associated with biodiversity loss, such as Dutch and French Central banks. In 2021, the DNB published a study entitled ‘Indebted to nature.’ The same year, the French Central Bank began assessing the financial risks of biodiversity loss in its financial system (Svartzam et. al, 2021).

Nevertheless, the level of engagement on the topic varies (Best et. al, 2025). While some central banks take proactive roles – also driving NGFS efforts – others pay less attention. In many jurisdictions, particularly in the EU, nature- (in particular biodiversity-) related risks are not yet widely understood or prioritised by central banks. Broader global shifts, including geopolitical tensions and rapid technological change, are also reshaping central banking agendas, sometimes pushing climate and nature-related risks down the list (Idem).

There is still a need to strengthen research on the links between nature loss and financial risks, especially concerning impacts, dependencies and exposures. Promoting dialogue between public and private actors, natural scientists and financial experts is essential to deepen understanding of key concepts, available data and measurement tools. Clarifying the key roles that financial regulators can play in their mandates is equally important. As with climate, incorporating nature loss in central banks’ financial stability frameworks will be gradual. Enhancing outreach efforts of work on the topic – including by the NGFS, pioneering central banks, the TNFD and the EU Commission’s Business and Biodiversity Platform – could also be relevant to this endeavour.