Nature degradation could wipe 12% from the UK economy

Damage to the natural environment threatens to erode the UK’s economy more than “the hit from the 2008 global financial crisis or Covid-19” by the 2030s according to a report on a study led by think tank, the government- and City-funded Green Finance Institute (GFI) and academic partners.

Utilities are among the sectors most at risk according to the report – Assessing the Materiality of Nature-Related Financial Risks for the UK – which presents findings from a study of the impact that domestic and international nature degradation could have on the UK’s economy and financial sector. Its authors estimated that destruction of nature could lop 12% off the UK’s gross domestic product (GDP).

The authors added: “Three quarters of the UK has a high level of ecosystem degradation, with risks to financial services and the wider economy as a result. The analysis shows however, that half of the UK’s nature-related financial risks originate overseas.” They go on: “The highest risks across sectors are derived from nature’s provision of water and nature’s ability to regulate climate, moderating the risks of floods, storms and drought.” 

According to the researchers, their study is the first “independent, aggregate financial ‘stress test’ of banks for nature, based on publicly available data.”  They found that “some banks could see reductions in the value of their domestic portfolios of up to around 5% in some cases”. But they emphasise that different banks show “very different risks in terms of their scale and characteristics depending on the structures of their portfolios,” and, depending on the bank, they have calculated that the most at-risk sectors include agriculture, utilities, real-estate and manufacturing. 

According to the report: “While the economic costs of climate change are becoming increasingly accepted, the risks posed by nature degradation amount to a material cost that has not been sufficiently factored into financial and business decision-making. This is leaving the economy and financial sector exposed, while these risks continue to rise unchecked.

The study included input from the scientific and financial community, as well as direction from the Department for Environment, Food and Rural Affairs; HM Treasury;  the Taskforce on Nature-related Financial Disclosures; and the Financial Conduct Authority. Other partners were the universities of Oxford and Reading and  the National Institute for Economic and Social Research.