Oxford study warns of $5 trillion risk from nature-related economic shocks

December 15, 2023 09:38 AM PST | By Invezz

Oxford study warns of $5 trillion risk from nature-related economic shocks — Image source: Invezz

Nature as a risk amplifier

The Oxford researchers have identified key factors such as human-driven pollution, deforestation, land-use changes, and over-extraction that are eroding the very foundations of our societies and economies. Elements like water, clean air, fertile soils, and pollinators, which are crucial for the sustenance of human life and economic stability, are under severe threat. The study pinpoints how these factors act as ‘risk amplifiers’, exacerbating the impacts of climate change.

Long-term risks to society and economy

The Environmental Change Institute (ECI) at Oxford asserts that the erosion of natural capital, linked with biodiversity loss and environmental degradation, poses significant, long-term risks to society, the economy, and finance. The ramifications include increased risks of pandemics, floods, and droughts, all of which could have catastrophic consequences on a global scale.

The study’s findings coincide with recommendations from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), a global network of over 120 central banks and supervisors. The NGFS emphasizes the importance of assessing nature-related economic and financial risks, a sentiment strongly echoed in Oxford’s research.

Delving into specific risks, the Oxford study concentrated on three pivotal areas: water scarcity, pollution, and the critical role of pollinators. These elements are integral to the stability and continuity of global financial systems and food supply chains.

The report states,

A hypothetical but plausible scenario of an increase in extreme weather due to climate change leading to a breadbasket crop failure and significant global food and water shortages. Estimated $ 5 trillion global economic loss over 5 years ($3 trillion for the lowest severity scenario and $17.6 trillion in the most extreme scenario). The expected loss (the sum product of loss and probability of event) is estimated at $711 billion. Delving into specific risks, the Oxford study concentrated on three pivotal areas: water scarcity, pollution, and the critical role of pollinators. These elements are integral to the stability and continuity of global financial systems and food supply chains.

Dr Nicola Ranger, the lead of the study and Director of the ECI’s Resilient Planet Finance Lab emphasized the urgency of the situation.

Protecting and restoring nature is not just about preserving biodiversity; it’s fundamentally about the survival and functionality of our economies and an essential part of adapting to climate change.

Reflecting on the upcoming COP28 negotiations, Dr Ranger metaphorically described nature as a ‘huge green scorpion’ with the potential to amplify climate change impacts in unpredictable ways.

Professor Michael Obersteiner, Director of the ECI, highlighted the importance of the study in providing a pivotal point towards macro-resilience. He noted that the research visualizes and articulates the dynamic risks associated with the erosion of natural capital, offering a methodology that can empower the finance sector to address planetary health concerns.

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