Biodiversity loss and financial stability as a new frontier for central banks: An exploration for France

Paul Hadji-Lazaro, Mathilde Salin, Romain Svartzman, Etienne Espagne, Julien Gauthey, Joshua Berger, Julien Calas, Antoine Godin and Antoine Vallier

Ecological Economics, 2024, vol. 223, issue C

Abstract: As a first step to assess the financial risks associated with biodiversity loss, this paper develops a method to evaluate the exposure of the financial system to biodiversity-related - physical or transition - shocks. We apply it to the security portfolio held by French financial institutions at the end of 2019. Employing the ENCORE database, we assess physical risks by examining how the firms that issued the securities in the portfolio depend on ecosystem services to produce. Our results indicate that they significantly depend on water-related ecosystem services and that 42% of the value of securities held by French financial institutions were issued by firms highly or very highly dependent on at least one ecosystem service. Using the Global Biodiversity Score tool, we assess transition risks by quantifying the biodiversity footprint of the security portfolio and of the firms that issued the securities. We find that the portfolio footprint is equivalent to the loss of 130,000km2 of pristine nature and that 38.5% of the portfolio value comes from firms belonging to sectors in the top 10% of biodiversity footprints. This offers new methodological tools to address the relationship between finance and biodiversity from a financial stability perspective.

Keywords: Large data sets: modeling and analysis; Financial markets and the macroeconomy; Financial Institutions and Services: Government Policy and Regulation; Environment and development; Environment and trade; Sustainability; Environmental accounts and accounting; Ecological economics: ecosystem services; Biodiversity conservation (search for similar items in EconPapers)
JEL-codes: C55 E44 G28 Q56 Q57 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:223:y:2024:i:c:s0921800924001435

DOI: 10.1016/j.ecolecon.2024.108246

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