Ravi Menon: Bending the curve of nature loss
Keynote remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of
Singapore and Chair of the Network for Greening the Financial System, at the COP15
Finance and Biodiversity Day, Montreal, 14 December 2022.
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Ladies and gentlemen, I am honoured and delighted to be able to address you on this
important occasion of COP15 of the Convention on Biological Diversity.
The world is getting painfully acquainted with the impending climate crisis. There are
promising efforts at mitigating this crisis, though far from what is necessary to avert
disaster.
But the planet faces a second crisis -- nature and biodiversity loss. The nature crisis is
no less threatening than the climate crisis. But it is much less appreciated and much
less is being done to mitigate it.
We assiduously measure and seek to grow our physical and human capital. We speak
of the importance of social and political capital. But we fail to appreciate let alone
measure natural capital - the world's stock of natural resources, comprising soils, air,
water, plants, animals, and minerals. These are assets that sustain our food supplies,
underpin our economy and society, and enable human life.
We are collectively depleting our natural capital and degrading the ecosystems
that support it.
We are consuming more resources than the Earth can produce in a year.
At current rates of consumption, we use up 1.6 Earths' worth of resources.
By 2050, our annual resource use will rise to 2 Earths' worth.
We are degrading the ecosystems that support this natural capital.
The drivers of biodiversity loss have worsened.
None of the 20 Aichi Biodiversity Targets agreed at COP10 twelve years
ago have been fully achieved - only six were partially achieved.
The depreciation of natural capital will affect our standard of living and quality of
life.
Over three-quarters of the world's food crops, worth almost 600 billion US dollars,
rely on insect and animal pollination. The loss of pollinators like honeybees in
Europe and the Americas directly threatens our food security.
Hidden supply chain dependencies on nature account for more than half of gross
value added in industries that are foundational to the global economy, including
consumer goods, real estate, and transportation.
Nature loss also poses a major threat to public health by worsening air and water
pollution. The 2015 Indonesian forest fires cost 151 million US dollars in
immediate health impacts, while long-term costs remain unquantified.
The loss of natural capital exacerbates climate change.
Nature loss removes carbon sinks and disrupts natural temperature-regulating
systems.
Conversely, healthy ecosystems help to slow climate change while protecting
communities from its impacts, like extreme weather.
There is growing recognition of the climate-nature nexus: that we need to protect
and restore nature to achieve a net zero world and avoid catastrophic climate
change.
The Network of Central Banks and Supervisors for Greening the Financial System
recognises the importance of reversing nature loss for a successful net zero
transition.
The NGFS was founded five years ago on the recognition that climate-related risk
is a threat to the financial system and that the financial sector can play a role in
enabling the transition to a low-carbon economy.
We number 140 members and observers now, comprising central banks, financial
supervisors, and international financial institutions from across the world.
Nature-related risks have material macroeconomic, macroprudential, and
microprudential consequences.
Central banks and supervisors therefore cannot afford to ignore nature and
biodiversity loss.
The NGFS has produced three research papers on biodiversity and financial
stability, together with the International Network for Sustainable Financial Policy
Insights, Research, and Exchange, or INSPIRE.
The research shows that nature-related shocks can transmit to the financial
system. Corporate dependencies on natural capital pose market and credit
risks to individual financial institutions' portfolios, which can potentially
aggregate into systemic financial exposures.
The NGFS has thus created aTaskforce for Biodiversity Loss and Nature-related
Risks, to help mainstream nature-related financial risks across our work on
supervision, financial stability oversight, and monetary policy.
The Taskforce will develop a comprehensive framework to identify the
transmission channels from nature-related risks to central banking and
supervisory activities.
For its part, the Monetary Authority of Singapore has published environmental risk
management guidelines for banks, asset managers, and insurers operating in
Singapore. The Guidelines set out the expectation that financial institutions should
manage environmental risks such as those arising from biodiversity loss.
Finance can be a powerful force for helping to bend the curve of nature
degradation.
We need financing for more sustainable supply chains, less disruptive
infrastructure, and better farming practices that preserve yield while minimising
land degradation.
The Nature Conservancy estimates that the nature funding gap may be as high as
824 billion US dollars per year.
So, what is needed for effective transition finance for natural capital?
First, a clear set of goals to galvanise collective action to restore our natural
capital.
The goals must be ambitious yet realistic.
Just as the Paris Agreement catalysed the push towards net zero, so can the
Global Biodiversity Framework provide a nexus for science and finance to come
together to tackle the systemic risks that nature loss poses.
Goals to protect key biodiversity areas and integrate nature-related risk
management into sustainable production will help to focus the financial sector's
efforts.
Second, forge public-private partnerships to mobilise financing for
naturepositive outcomes.
Public capital can help to mitigate project risk and catalyse private capital,
especially for marginally bankable nature-related projects.
We also need to combine financing with capacity building, technology transfer,
and institutional support, to reduce risk and enhance the bankability of such
projects.
At the same time, financial institutions must dis-incentivise production processes
that are harmful to biodiversity while ensuring equitable development.
Third, strengthen the quality, availability, and comparability of nature-related data.
Good-quality data enables effective allocation of capital towards transition finance,
and combats greenwashing.
Unlike climate risks, nature-related risks are often location-specific. We can take
advantage of emerging geospatial tools to monitor assets in real time, such as to
track the degradation of carbon sinks or high conservation value lands.
The NGFS Taskforce that I mentioned earlier will include guidance for future deep
dives into nature-related metrics, data, and scenario development.
Fourth, reliable, consistent, and comparable nature-related disclosures.
Standards will help to guide companies in creating much-needed transition plans
for nature.
Key stakeholders like the International Sustainability Standards Board, the Task
Force for Nature-Related Financial Disclosures, and jurisdictional standard setters
must work closely together.
Along with the climate crisis, the nature crisis is the existential challenge of our
times. We cannot focus on one and hope the other will take care of itself. We need to
address them both in a holistic manner. This is the growing conviction of the NGFS and
the financial industry. With the nature crisis, the financial sector must now translate that
conviction into determined action, as it has begun to do with the climate crisis. A good
way to start would be to harness the power of finance to help implement the post-2020
Global Biodiversity Framework.
Thank you.