Nature degradation could slash UK GDP by 12%, research finds

The UK, despite its global standing, ranks among the most nature-depleted nations.

This is based on a new analysis from the Green Finance Institute (GFI), with input from the scientific and financial community as well as the Department for Environment, Food and Rural Affairs (Defra), the Financial Conduct Authority (FCA), HM Treasury (HMT) and the Taskforce on Nature-related Financial Disclosures (TNFD).

This projected economic impact surpasses the blows dealt by both the 2008 global financial crisis and the Covid-19 pandemic, underlining the urgent need for action to mitigate these risks.

Moreover, the findings highlight that nature-related risks pose a level of economic threat comparable to, if not more significant than, those stemming from climate change.

According to research, the climate crisis could shrink the UK economy by more than 7% by the end of the century, unless global efforts to reach net-zero emissions are ramped up.

However, despite the increasing recognition of the economic costs associated with climate risks, the impact of nature degradation has not been adequately factored into financial decision-making processes, leaving the economy vulnerable.

A recent edie survey found that despite an increasing global focus on mitigating corporate impacts on biodiversity and nature, just one-third of sustainability professionals think their employer sees biodiversity action as a priority.

Minister of State at Defra Lord Benyon said: “Nature underpins the health of our economy, and it is under threat from a global nature crisis.

“The findings in this report will help people and institutions across the corporate and finance sectors understand that it is in their own interests to go further and faster for the planet to protect it for future generations.”

The impact of nature degradation on financial resilience

The UK, despite its global standing, ranks among the most nature-depleted nations, with three-quarters of its land experiencing significant ecosystem degradation.

Major sectors such as agriculture, manufacturing and utilities are particularly susceptible to nature-related financial risks. For instance, agriculture faces threats to water availability, climate regulation, soil quality and pollution, jeopardising food production.

Similarly, the utilities sector, reliant on surface water for cooling power stations, faces disruptions in production and potential energy price hikes due to water supply constraints.

The analysis also highlights the considerable financial implications for banks and other financial institutions, with potential reductions in the value of domestic portfolios estimated at around 4-5%.

It bears noting that these estimates are likely to be conservative, indicating that nature-related risk will not just impact the economy, but potentially financial resilience.

Additionally, as per the report, half of the nature-related financial risks originate from overseas, emphasising the interconnectedness of global ecosystems and economies.

The GFI and technical team are calling for action from governments, central banks, regulators, and the financial sector to proactively manage nature-related risks, emphasising that nature preservation and restoration provides opportunity for businesses to gain advantages by enhancing resilience, particularly within their supply chains.

GFI’s nature programmes director Helen Avery said: “The erosion of natural capital generates significant and long-term risks to society, our economy and, therefore to financial institutions and potentially our financial resilience.

“Evidencing this material risk is a vital step towards transitioning our economic and financial system to one that values and invests in the natural environment.”