There is increasing evidence that central banks and supervisors need to expand their environmental agendas beyond climate change. Globally, the richness and diversity of nature has declined at unprecedented rates over recent decades, posing far-reaching systemic risks for the financial sector.
This paper discusses the theoretical and practical need to extend the scope of central banks’ approach to the environmental crisis beyond the current focus on climate change implications to also include the drivers of biodiversity loss, the climate–biodiversity nexus, and the transmission channels of nature-related risk.
While only a limited number of policy tools have been developed to date, there are a range of options for integrating nature and biodiversity loss considerations into existing policy frameworks, such as disclosure requirements or micro-prudential policies.