Planetary financial policy and the riskification of nature

Abstract

This article puts forward a new account of the promise and potential pitfalls of recent prudential policies pertaining to climate change, biodiversity loss, and broader planetary boundaries. We describe recent developments in financial policy as a ‘riskification’ of nature – environmental degradation, as well as policies to protect nature, are conceptualised as drivers of measurable financial risk to firms or financial assets. We show that although the conceptualisation of nature as a source of financial risk fits well with the Basel Committee on Banking Supervision (BCBS)’s approach to financial policy, progress to date in riskifying nature has been mixed. Whereas climate transition risk has proven comparatively amenable to riskification, policymakers face mounting challenges for non-climate related environmental exposures. We also highlight the promise of new supervisory tools that focus on the ability of financial institutions to align with and navigate transition and adaptation scenarios, thereby partially sidestepping the need for riskification. We situate the limits to the effectiveness of these approaches in the jurisdiction-specific willingness to pursue supervisory and regulatory action, rather than their prudential focus per se.

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