Browsing by Subject "financial risk"

Biodiversity loss and ecosystem service degradation and the related economic costs are increasingly recognized as sources of financial risks. The risks are arising through physical and transition sources of risks caused by dependencies and impacts upon biodiversity and ecosystem services. Therefore, it has become increasingly important for both individual financial institutions as well as central banks and financial supervisors to better understand and manage these risks. However, biodiversity loss is associated with unique complexity and uncertainty, making it a challenging task. The purpose of this thesis was to study the linkages between biodiversity loss and financial stability in Finland. This was done by assessing the financial exposure of Finnish credit institutions to sectors dependent on ecosystem services for their production processes. A quantitative analysis was conducted in order to combine loan data obtained from the Bank of Finland and ecosystem service data obtained from the ENCORE database. The results showed that 23% of loans provided by Finnish credit institutions are exposed to high or very high biodiversity-related financial risks. The sectors associated with most value at risks were real estate and agriculture, forestry and fishing sectors. Disruptions of ecosystem services providing surface water and climate regulation were posing the highest financial risks. The findings represent a first step towards assessing the exposure of the Finnish financial system to biodiversity-related financial risks. The results and previous literature indicate that physical biodiversity-related financial risk exposures are significant for individual financial institutions and for the whole financial system, despite the prevailing methodological challenges and gaps in knowledge. In order to complete a comprehensive biodiversity-related financial risk assessment, further research is needed.