15 September 2022

Under its Green Programme, the MNB has launched a research methodological project to assess the financial risks related to the decline in biodiversity and to develop financial supervisory methodologies to address those risks. The nearly two-year project is financed by the European Union through the Technical Support Instrument (TSI) with the OECD serving as consultative partner in the implementation process, in cooperation with the European Commission's Directorate-General for Structural Reform Support (DG REFORM).

The Magyar Nemzeti Bank has successfully applied for technical support coordinated by the Directorate-General for Structural Reform Support (DG REFORM) of the European Commission in order to map the financial risks arising from the decline in biodiversity in the Hungarian financial system and to assess those risks by developing a supervisory framework.

As a result, a nearly two-year project has been launched with the financial assistance of the European Union and through the consultative partnership of the Organisation for Economic Cooperation and Development (OECD), in cooperation with theEuropean Commission's Directorate-General for Structural Reform Support (DG REFORM), during the implementation process. Amongst other things, the project will develop a supervisory framework to assess biodiversity-related financial risks, including transmission channels for physical and transition risks, and help improve awareness from MNB and banks with retail activities in Hungary about their exposures, impacts and dependencies to such risks.

The launch event and technical exchange on the project, attended by representatives of ministries, the Hungarian Academy of Sciences, commercial banks, NGOs, DG REFORM, the OECD and the MNB, was held at MNB’s Supervisory Centre and Money Museum on 6 September 2022.

The accelerating speed with which biological diversity is declining presents a significant risk for both the economy and the financial sector. However, these effects are much more complicated to measure than those arising from climate change. Currently, knowledge about risks to the financial sector related to biodiversity loss is scarce but improving around the world. All this leads to inaccurate pricing in markets, inadequate distribution of capital and ultimately to increased exposure to those risks, the resulting loss of which jeopardises social welfare. For this reason, decision makers, financial supervisory authorities and central banks must better assess the effects and vulnerabilities related to these risks and the possible ways of dealing with them.

Related to the project, the Parties to the Convention on Biological Diversity (CBD) will meet at the UN Biodiversity Conference (COP15) in Montreal in December 2022 to agree on a post-2020 Global Biodiversity Framework. International consensus on the conservation and sustainable use of biodiversity will expectedly raise pressure on financial institutions to take into account of these risks in their internal risk management processes, and to reduce and eliminate harmful practices.

The launch of the programme also means that the MNB will continue its Green Finance Programme launched in 2019 even in the current period of high global inflation and the negative economic impacts.

European Commission
Organisation for Economic Cooperation and Development
Magyar Nemzeti Bank