Occasional Paper Series: The impact of the euro area economy and banks on biodiversity

European Central Bank, December 2023

Our economy and the financial system, as an enabler of the economy, are highly
dependent on nature and the ecosystem services it provides. Biodiversity – the
variety of life on Earth – is essential for sustaining the healthy ecosystems that our
economy and banks depend on. Despite the clear benefits of a healthy natural world
for people and the economy, humanity is putting immense pressure on nature.
Economic activities that rely on healthy nature are often responsible
for generating these environmental pressures. It is important to assess the impact of
firms and financial institutions on nature degradation in order to reveal their
exposure to reputational and transition risk and highlight the need to move towards
an economic system that values nature, rather than putting it at risk.
The scope of this study is to raise awareness of nature-related risks by assessing
the impact of the euro area economy – and the bank loans that enable economic
activity – on biodiversity. We quantify the extent to which the euro area economy and
financial sector are contributing to nature degradation by estimating their biodiversity
footprints. As climate change is a primary driver of biodiversity loss, this study also
explores the climate-nature nexus and demonstrates the importance of taking an
integrated view to fully capture the nature-related risk profile.
Nature affects firms and banks through two main channels: physical risks and
transition risks. This study focuses on transition risk.

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