NGFS Unveils Dual Reports on Nature-Related Financial Risks and Litigation

• NGFS releases comprehensive reports on nature-related financial risks and emerging litigation trends.
• The Conceptual Framework offers actionable guidance for central banks and financial supervisors.
• Nature-related litigation is gaining traction, posing new risks for the financial sector.

The Network for Greening the Financial System (NGFS) has published two pivotal reports addressing nature-related risks, underscoring the urgency for central banks and financial supervisors to integrate these risks into their frameworks.

The first report finalizes the Conceptual Framework for Nature-Related Financial Risks, designed to guide policies and actions by financial institutions. This framework has been well-received since its beta release in September 2023, offering a common language for addressing nature-related risks. Sabine Mauderer, Chair of the NGFS, emphasized its significance:

“The first report shows real-world examples of how to apply our conceptual framework for nature-based risks. This will give us very valuable insights as supervisors start to take action.”

Two illustrative cases on forest and freshwater ecosystems are included, showcasing practical applications of the framework. Emmanuelle Assouan, Co-chair of the NGFS Taskforce on Biodiversity Loss, stressed the importance of this tool:

“The new developments included in the final version… provide a convincing demonstration that immediate action to start assessing these risks is both possible for central banks and supervisors and useful to their missions.”

The second report highlights the growing trend of nature-related litigation, drawing parallels with climate-related cases. This report warns that legal actions concerning biodiversity loss, deforestation, and other environmental issues are likely to expand, posing new challenges for the financial system.

Chiara Zilioli, Chair of the Experts’ Network on Legal Issues, explained the report’s significance:

“Strategic nature-related litigation is a growing trend, which is becoming increasingly relevant for the financial system… This report seeks to raise awareness of nature-related litigation among central banks, supervisors, and financial institutions.”

The NGFS calls on central banks and financial supervisors to closely monitor these trends, as they represent a critical intersection of legal and financial risks.

These reports from NGFS mark a significant step in mainstreaming nature-related risks into financial stability considerations. The integration of these risks is essential for fostering a resilient financial system in the face of growing environmental challenges.