London School of Economics Grantham Research Institue on Climate Change and the Environment

Nature

CETEx’s work on nature builds on our earlier initiative, INSPIRE, which in 2021 partnered with the Network for Greening the Financial System (NGFS) to establish a joint Study Group on Biodiversity and Financial Stability. This collaboration produced the first comprehensive report outlining the transmission channel from biodiversity loss to financial stability, and policy options for central banks and financial supervisors. Today, we continue to advance this agenda.

Nature degradation—such as deforestation, biodiversity loss, and ocean pollution—can significantly affect economic outcomes including output, investment, employment, consumption, and trade. These impacts may in turn give rise to material financial risks as well as potential consequences for price, financial, and macroeconomic stability.

CETEx’s work in this area focuses on integrating nature-related risks and dependencies into core economic and financial policy frameworks. This includes examining how monetary, prudential, economic and fiscal policies can support efforts to halt and reverse nature loss, while maintaining economic and financial stability.

We focus on three research and policy areas:

  • Foundational research – building the evidence base of the materiality of nature degradation, through analysing case studies and identifying potential transmission channels from nature degradation to economic and financial impacts. This includes taking a closer look at ecosystems like forests and the ocean.
  • Monetary and Prudential policy – investigating the implications of nature degradation for the economy and price stability, exploring the balance and prioritisation between central bank and governmental objectives, and calibrating prudential supervision frameworks to better integrate and mitigate nature-related risks.
  • Economic and Fiscal policy – identifying risks and mitigation opportunities from the ecological transition, investigating the relationship between sovereign debt and nature loss, articulating how subsidies and taxes can lead to ecologically harmful activities in the economy, and exploring how governments can fund and finance nature restoration.
Meet the Nature Team