London: Finance for Biodiversity and SOAS Centre for Sustainable Finance
Awareness of nature and biodiversity risks to the global economy is on the rise among investors and policy-makers alike. Financial authorities and financial markets are deepening their scrutiny of the link between environmental risks and economic and financial outcomes. It is now critical that nature risks are properly integrated into macro-financial risk analysis in general, and debt sustainability analysis in particular. While the International Monetary Fund (IMF) has started to incorporate climate risks into its key surveillance and monitoring exercises, including its frameworks for Debt Sustainability Analysis (DSA), it has not yet started to address nature-related risks. By omitting them, the IMF’s DSAs miss significant economic and financial risk. This report highlights the importance of integrating nature-related risks into DSAs and shows how it can be done. It does not only demonstrate that including nature is possible, but also provides compelling quantitative evidence that the inclusion of nature collapse scenarios is necessary to provide a full picture of debt sustainability risks to sovereigns.