Nature degradation and the macroeconomy: insights from Latin America and the Caribbean
Aiming to examine the economic and financial dimensions of environmental degradation in Latin America and the Caribbean, policymakers, central banks, financial supervisors, academics and practitioners convened at the Nature and the Economy: Environmental Change, Economic Adjustment, and Policy Challenges conference in Mexico City on 2-3 October 2025. Elena Almeida and Rob Patalano detail three key insights that emerged from the discussions.
When we designed the 2025 CETEx conference, Nature and the Economy: Environmental Change, Economic Adjustment, and Policy Challenges, our aim was simple but ambitious — to understand how nature degradation shapes the macroeconomic landscape. On 2 and 3 October, over one and a half days of research presentations, energetic discussion, and a highly engaged policy panel, it became clear that ecological stability is inseparable from economic and financial stability — and central banks are actively seeking to assess and address this.
It was clear that tangible progress has been made over the past few years across both policy and academia in connecting socio-ecological realities with economic outcomes. We have moved beyond abstract references to ‘nature-related risks’, into the evidenced realm of datasets and models, building compelling narratives that make visible how nature degradation can impact the economy and society. The learnings converged around three key insights that capture the scale of the challenge and point the way forward for policy and research on nature degradation and the economy.
Environmental shocks transmit directly into the real economy
The first major insight is that nature-related risks are undeniably critical at the macroeconomic level and comprehensive policy design cannot treat them as separate to climate-related risks. Across multiple studies, we saw how environmental shocks transmit directly into the real economy. Climate-related physical impacts such as droughts and floods are often worsened by deforestation, and this fuels inflation, posing direct challenges to monetary and fiscal policy. Furthermore, a paper presented demonstrated that nature degradation can increase macroeconomic vulnerability, with direct consequences for a nation’s balance of payments and exchange rate stability. As with climate change, the impacts and burdens of nature degradation are distributed unevenly, with the Global South facing the steepest economic and social costs. Yet these are the same countries that shoulder the difficult responsibility for conserving the critical ecosystems that remain, often while navigating challenging trade-offs between resource extraction for economic growth and conservation of nature.
Nature-related risks are transmitted via multiple channels
The second insight further illustrates this picture by revealing the multiple channels through which these nature-related risks are transmitted into the real economy. A paper presented showed how nature degradation can disrupt labour markets and workers’ wellbeing, with informal and low-skilled workers being particularly vulnerable. Research at a more local level traced how deforestation drives short-term growth in some municipalities even as it erodes long-term productivity and resilience; and analysed the productive and environmental misallocations of resources in the mining sector. As the impacts of nature degradation intensify, it will compel a spatial reallocation of economic activities, making adaptation — primarily through migration — one of the only viable responses to mitigate costs. Finally, the effects of addressing nature loss are also felt through global integration, as new international trade regulations on issues like deforestation create significant transition risks for commodity-exporting nations, such as those in Latin America and the Caribbean.
Finance and regulation can be part of the solution
Finally, the third insight was one of cautious optimism: finance and regulation can be part of the solution. The financial system, both vulnerable to nature-related risks and a powerful catalyst to address nature degradation, has begun to slowly respond to these environmental shifts. Papers presented examined how environmental law enforcement affects credit — with stronger environmental protection laws leading to a contraction of credit to environmentally risky firms — revealing the importance of strong institutional frameworks. This shows that it is possible to align finance with ecological integrity, and ultimately, this rests on strong institutions and supervisory follow-through.
Latin American central banks are not on the sidelines of this agenda
The policy panel, which comprised four central bankers from across the Latin American region, increasingly recognises nature degradation as a macro-financial risk, integrating it into their policy, risk management and data frameworks alongside climate change. These central banks are developing new tools such as taxonomies, geospatial monitoring, scenario analysis and natural capital valuation, while emphasising coordination, capacity-building and interdisciplinary collaboration to manage the economic and financial impacts of ecosystem degradation. The richness of the discussions from this panel made it clear that Latin American central banks are not on the sidelines of this agenda: they are moving towards institutionalising nature-related risk assessment, developing new taxonomies, tools and collaborations, and positioning the region to shape the global conversation on nature and finance, particularly ahead of COP30 in Brazil.
The way forward
If there was a unifying message from the conference, it was this: our economic models and policy frameworks must be fundamentally reshaped to reflect our ecological realities. On the policy front, this means developing financial regulations that explicitly account for environmental risks beyond carbon emissions.
From a research perspective, the path forward is equally ambitious. We need to: enhance global datasets with greater regional specificity; expand the evidence base and quantify the macro-financial impacts of nature degradation; integrate nature into macroeconomic modelling through integrated assessment models, dynamic stochastic general equilibrium models, gridded Earth–economy frameworks, and machine learning techniques; and design sustainable development pathways that are both resilient to environmental shocks and socially inclusive, using nature scenarios to guide decision-making towards a more stable and prosperous future.
As we closed the conference, the mood was both reflective and forward-looking. There was a shared recognition that our collective work stands at the frontier of a necessary transformation, one that places ecological stability at the core of economic ambition. As Brazil’s Environment Minister Marina Silva reminds us, “either we integrate the economy and ecology in the same equation, or we will not be able to resolve this issue adequately”. That integration must extend across disciplines as much as across institutions — bringing together economists, ecologists and policymakers to co-design the tools and frameworks needed to guide this transition. Achieving such interdisciplinary collaboration across research, regulation and real-world policy is the defining challenge that lies ahead.
Nature and the Economy: Environmental Change, Economic Adjustment, and Policy Challenges was jointly organised by the Centre for Economic Transition Expertise (CETEx), El Colegio de Mexico (ColMex), Sustainable Macro, and Sureal, and took place in Mexico City on 2-3 October 2025. The authors would like to thank the speakers and participants whose contributions have informed this commentary. The authors would also like to thank Chiara Colesanti Senni whose closing remarks at the conference helped shape this commentary.