The UK economy’s nature-related risk will be published later this year for the first time, with backing from the Bank of England to try and calculate how much financial disruption could be in store if natural resources including oceans, rivers and soil are further depleted.
With three-quarters of FTSE All-Share firms are already said to be ‘highly dependent’ on natural capital and resources, including water and soil, last week the government published a document outlining how private investment in ‘nature markets’ could work and how they will be regulated.
Incorporating highly dependent sectors such as agriculture, forestry, utilities and mining, the UK’s natural capital assets were estimated by the Office for National Statistics to be worth £1.2trn in 2019 (over half the current market valuation of the FTSE 100 and more than Amazon alone, but less than Apple or Microsoft).
Calculating a value enabled the ONS to work out that there would be at least £45bn of net benefits from restoring 55% of peatlands to near natural condition, for example, or that more than £6.2bn of value is derived from the health benefits associated with outdoor recreation.
The new analysis will be led by the Green Finance Institute, backed by the Department for the Environment, Food and Rural Affairs (Defra) and the Bank of England, alongside the Universities of Oxford and Reading.
Publishing the report later this year will reveal the precise amount of nature-related financial risks and the potential financial impact of biodiversity loss and ecosystem degradation on UK businesses and financial institutions, the Green Finance Institute said.
Both French and Dutch central banks have carried out similar studies to understand and quantify their exposure to nature degradation, while the Green Finance Institute has also helped the UK government set up the Taskforce on Nature-related Financial Disclosures (TNFD), which is working towards developing a nature-related risk management and disclosure framework to be launched in September.
The TNFD is designed to enable organisations to report and act on evolving nature-related risks in a consistent way.
Sarah Breeden, a member of the Bank of England's Financial Policy Committee, said the financial system's exposure to declines in nature "is clear", be that though deterioration of air, water or soil quality, deforestation or the depletion of fish stocks, but establishing nature-related financial risks has never been done before.
By quantifying the cost of nature-related financial risks to the UK, she said the new analysis aims to "fill that gap".
Green Finance Institute chief executive Dr Rhian Mari-Thomas said the report later this year will show the impact on the economy of neglecting nature, "making it clear that conserving and enhancing the natural environment is the only intellectually coherent path to growth".
Last week, Thérèse Coffey, secretary of state for environment, food and rural affairs, said the UK’s strengths in environmental science and green finance had enabled the development and piloting of a range of models for mobilising investment into nature projects, with a current government goal of growing annual private investment flows to nature to at least £500mln every year by 2027 in England, rising to more than £1bn by 2030.
"To translate this innovation into well-functioning markets however, participants are looking for trusted standards and robust governance arrangements to support transactions and keep costs low," she said.
Defra has also commissioned the institute to develop an online toolkit to help farmers identify and navigate opportunities to access private sector investment to pay for nature-positive outcomes, which is expected to be available this summer.
Last year, several recommendations were made by the Financing UK Nature Recovery report, including for increased pressure on UK corporates to reduce negative nature-related impacts and invest in nature-positive outcomes, while the Get Nature Positive awareness-raising campaign for UK industry was supported by the likes of Accenture (NYSE:ACN), Berkeley Group, Biffa, Thames Water, Virgin Atlantic and Unilever.