“Along with the climate crisis, the degradation of nature is an existential threat facing our planet. Addressing nature-related risks and its broader implications for the financial sector is no longer just prudent – it is an imperative. Finance can be a powerful force for helping to bend the curve of nature degradation.” – Ravi Menon, former Chair of the NGFS
Based on the recent research by Campiglio et al. (2025), central banks are increasingly discussing climate-related issues such as ‘green finance’ and ‘climate-related risks’, with the study revealing that these actions are driven more by institutional factors such as supervisory responsibilities, membership frameworks (NGFS, for example), rather than their country’s direct exposure to climate risks. In parallel, though slower, discussions around nature-related risks are emerging, with central banks viewed as key influencers in this space. At the launch of the NGFS’s Conceptual Framework on Nature-related Financial Risks in 2023, Klaas Knot, at that time President of DNB and the Chair of the Financial Stability Board, called for urgent action to assess and reduce the risks the nature crises poses to the economy and the financial system saying that “…as central banks and supervisors, we have every reason to be concerned, because it’s an illusion to think we can preserve financial stability if this degradation continues.”
From experiences by companies, local communities and other land stewards, we know that it is technically possible to follow core accounting principles and put nature on the balance sheet. To make this the new normal that guides investment decisions worldwide, critical enablers such as accounting, auditing, contracting, ratings, regulation, and national policies must align. Indeed, beyond companies, the financial sector and governments must act to put nature on the balance sheet through regulatory action, which will work in parallel to company and sector action. Naoko Ishii, Director for the Center for Global Commons and co-founder of Nature on the Balance Sheet Initiative, discussed these topics with the Deputy Governor of the Bank of France, Agnès Bénassy-Quéré
- Naoko) What is your view on the role of central banks to address nature risks. Does it fall within the central banks’ mandate?
Agnès) Addressing nature risk falls within central banks’ core mandate because, if material, it poses a direct threat to both price and financial stability. The consensus among leading institutions is firm: if a risk, be it cyber, non-bank financial institutions, climate, or nature, affects the fundamental stability of the financial system or the stability of prices, then the central bank must act. The Bank of France (BoF), for instance, considers the risks related to climate and nature as clearly being part of its mandate. Research from both the BoF and the European Central Bank (ECB) has established the materiality of these risks. On price stability, a temporary shock to major crops due to nature degradation could raise food inflation in France by over two percentage points, contributing a 0.5% increase to headline inflation—a material factor for a central bank with a 2% target. On financial stability, the ECB has shown that 72% of EU companies exhibit a high dependency on at least one service provided by natural ecosystems, creating a clear systemic risk that must be managed by supervisors. Guided by this clear mandate, central banks are compelled to act. - Naoko) The Nature on the Balance Sheet Initiative aims to account for natural capital to its full economic value and bring it to every level of economic decision-making. The core of this work is to shift the accounting system, but it needs to be fully supported by financial ecosystems. Within this context, the initiative hopes that central banks will develop methods for conducting nature-stress tests, as they have with climate stress tests. In your opinion, will nature risk stress tests soon impact financial decisions like risk ratings and lending?
Agnès) While the mandate is clear, implementing concrete measures for nature risk is proving significantly more complex than climate risk, resulting in demonstrable delays in policy development. This lag is due not to the central bank’s disinterest but to the inherent difficulty of modeling nature, which is a multi-dimensional risk. Indeed, nature degradation is more complex and local than climate change. It lacks a single, clear metric like carbon emissions, and involves a vast multitude of targets, making the acquisition of knowledge necessary for robust modeling and scenario exercises much slower. This complexity has slowed the development of concrete policy actions, such as nature stress tests. Although the NGFS (Network for Greening the Financial System) has published a conceptual framework to help assess the economic and financial risks stemming from nature, developing the necessary methodology, data, and models for definitive policy conclusions—such as setting capital requirements— is a multi-year effort, estimated to take at least 2 years. To make a practical start, we at the Banque de France are currently focusing on the natural hazards with the most dramatic economic impact, such as freshwater supply and quality. - Naoko) Almost all approaches are from the risk side. What needs to happen for central banks and related actors to take nature from the investable asset side? How can central banks help recognize nature as economic capital?
Agnès) Despite the complexities in policy implementation, nature risks and values are already, either implicitly or explicitly, finding their way into existing financial products and assessments. As public investors, we are working to lead by example. For instance, our own funds portfolio is partly invested in an equity fund targeting best in class companies for nature and ecosystems restoration. This fund was launched in partnership with the French public investment bank, Caisse des Dépôts et Consignations. More broadly, the positive assessment of nature is already implicitly incorporated in statistical and economic analysis in areas like hedonic prices; for example, the value of nature is reflected in higher property or hotel prices near a forest. This highlights a shift toward recognizing nature’s value, leading to a more ambitious, long-term goal: shifting the conversation from nature loss/risk to viewing nature as an investable asset and a source of new growth. Achieving this goal requires a mechanism for internalizing externalities, since simple carbon pricing is not feasible due to nature’s complexity and the risk of overestimating its value. This underscores the need for credible, verifiable, and simplified sustainable reporting standards.
Nature loss directly translates into systemic financial risks—physical, transition, and reputational—that can be transmitted to and destabilize banks, insurers, investors, and the economy as a whole. The escalating crisis of nature loss and ecosystem degradation indeed poses a direct and material threat to the global financial system, challenging the core mandates of central banks and financial regulators. By leading by example, central banks can create the incentives needed to scale this approach across the entire financial system. Their unique mandates for price and financial stability, combined with their toolkits (supervision, stress tests, collateral rules) and global networks, position them perfectly to guide the financial world up the staircase: from recognition to measurement to prudential integration and finally, to capital reallocation at a systemic scale.
