Exploring the interactions between nature loss drivers, vulnerabilities and economic impacts

Nature loss presents significant economic and financial risks by disrupting the ecosystem services essential for economic stability and societal wellbeing. Its impacts vary widely across regions and sectors, often exacerbated by vulnerabilities such as supply chain interdependencies and resource dependence.

This paper analyses 14 case studies to understand recurring patterns from historical nature loss events and create insights for developing proactive and integrated strategies to address these multifaceted challenges. Incidences of olive tree disease, harmful algal blooms and cod species demise stand out in particular for the diverse and ongoing challenges they present. These examples underscore how the same drivers can yield vastly different macroeconomic outcomes depending on the vulnerabilities present.

Nature loss reduces total factor productivity, a fundamental driver of GDP growth, while also disrupting labour dynamics and population growth. Weak institutions, limited economic diversification, and overdependence on natural resources amplify these effects, creating cascading risks. The heterogeneity of nature loss impacts, both regionally and across agents, complicates economic recovery and risk management.

Recommendations

• Adopt advanced multi-agent economic models to better capture the heterogeneity of impacts.
• Implement targeted financial and fiscal interventions to enhance resilience.
• Strengthen prudential regulation to manage nature-related financial risks.
• Integrate ecosystem services into risk assessments and economic planning to anticipate and mitigate potential crises.

This paper is part of the CETEx Discussion Paper Series: Land and Ocean, which aims to support financial and economic policymakers as they contend with and make considerations for environmental degradation issues, in addition to climate change. The papers have been written and peer-reviewed by leading experts from academia, think tanks and central banks and are based on cutting-edge research. Check here for details of other papers in this series.