2 August 2023
Last year, the MNB launched a two-year research methodology project as part of its Green Programme to assess the financial risks stemming from biodiversity loss and to develop a financial supervisory methodology framework addressing them. The results of the EU-funded project’s first phase were presented at an international webinar.
Last year, the Magyar Nemzeti Bank (MNB) launched a research methodology project under its Green Programme to assess the financial risks of biodiversity loss and to develop a financial supervisory methodological framework aimed at addressing them. The project, funded by the European Union’s Technical Support Instrument (TSI), has been implemented in partnership with the European Commission’s Directorate General for Structural Reform (DG REFORM) and the Organisation for Economic Co-operation and Development (OECD). The results of the two-year project’s first phase were presented at an international webinar organised jointly by the MNB, the European Commission and the OECD in the summer under the Chatham House rule.
The event was attended by 150 participants from around 40 countries, representing the European Commission and the OECD, as well as central banks such as the European Central Bank and supervisory authorities such as the European Supervisory Authorities from the international scene. From Hungary, ministries, commercial banks, NGOs and the MNB were represented at the webinar.
During the project’s first phase, the OECD Secretariat started preparing of an overview report titled "Assessing biodiversity-related financial risks: Navigating the landscape of existing approaches". The report maps existing biodiversity risk management tools and practices, definitions, transmission channels, contexts, and key metrics. Building on this, the OECD Secretariat developed a draft methodological prudential framework, which was presented as a confidential draft at the webinar and which aims to be published in September 2023. The framework will enable central banks to identify and prioritise biodiversity-related financial risks, analyse them and produce assessments in order to understand the associated economic and financial risks.
As a specific case study, the economic impact of mining in Chile was presented at the event, where intensive water use by mining and agriculture poses a problem for the country’s salmon farmers and aquatic wildlife and influences these sectors' ability to operate and and their solvency.
Accelerating biodiversity loss also poses a significant risk to the economy and the financial sector. However, measuring these impacts is much more complex than measuring the risks arising from climate change. There is currently little but growing global knowledge of risks to the financial sector from biodiversity loss. This leads to inaccurate pricing in markets, inappropriate allocation of capital and overall increased exposure to these risks, with the resulting losses threatening social welfare. Therefore, policymakers, financial supervisors and central banks need to assess in more detail than today the impacts and vulnerabilities associated with these risks and the possible ways to address them. As a second phase of the project, the OECD will work in close collaboration with MNB to implement the methodological framework for the Hungarian financial system.
Organisation for Economic Co-operation and Development
Magyar Nemzeti Bank