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

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

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.

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  • Hadji-Lazaro, Paul & Salin, Mathilde & Svartzman, Romain & Espagne, Etienne & Gauthey, Julien & Berger, Joshua & Calas, Julien & Godin, Antoine & Vallier, Antoine, 2024. "Biodiversity loss and financial stability as a new frontier for central banks: An exploration for France," Ecological Economics, Elsevier, vol. 223(C).
    • Handle: RePEc:eee:ecolec:v:223:y:2024:i:c:s0921800924001435
    DOI: 10.1016/j.ecolecon.2024.108246
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    1. Sebastien Gallet & Antje Hendricks & Julja Prodani, 2024. "The ecosystem service degradation sensitivity indicator (EDSI): A new framework for understanding the financial risk repercussions of nature degradation," Working Papers 814, DNB.

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    More about this item

    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;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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