Introduction

The report develops integrated climate–nature scenarios to improve financial risk assessment, emphasising the interdependence of climate change and biodiversity loss. It highlights that climate-only scenarios underestimate risks, particularly in agriculture and ecosystem services, limiting their usefulness for central banks and supervisors.

Integrated climate-nature scenario narratives

Three scenarios are presented: an orderly transition, a disorderly/delayed transition, and a ‘hot house world’. Each combines climate policy pathways with biodiversity outcomes, including land-use change and ecosystem degradation. The narratives align with global climate and biodiversity targets, illustrating how policy timing and ambition influence both environmental and economic outcomes.

Methodology

The framework integrates climate models, biodiversity indicators and macroeconomic data. It incorporates metrics such as agricultural productivity, habitat condition and ecosystem service provision. Environmental shocks are linked to sectoral outputs and macroeconomic variables, enabling application in financial risk modelling and stress testing.

Innovative methodological elements and limitations

The report introduces a novel integration of biodiversity metrics with climate scenario analysis, capturing interactions between land use, ecosystems and economic systems. However, limitations include data gaps, uncertainty in biodiversity measurement, and challenges in modelling complex ecosystem dynamics. Simplifications may affect precision, particularly in long-term projections.

Results

Integrated scenarios show more severe impacts than climate-only approaches. Agricultural output declines are amplified by biodiversity loss, while ecosystem degradation intensifies physical risks. Transition risks increase under delayed policy action, leading to sharper economic adjustments. Quantitative findings indicate material effects on GDP, sectoral performance and asset valuations.

Evaluation and implications of results

The results demonstrate that excluding nature risks leads to underestimation of financial exposure. Key transmission channels include reduced productivity, supply chain disruption and asset repricing. Financial institutions, particularly those exposed to agriculture and land-use sectors, face elevated credit and market risks. The framework supports more comprehensive supervisory stress testing.

Conclusions and recommendations for future research

The report concludes that integrated climate–nature scenarios provide a more accurate basis for financial risk assessment. It recommends improving biodiversity data, refining modelling techniques and expanding scenario applications. Future research should enhance alignment with policy frameworks and support the development of practical tools for financial institutions and regulators.