Understanding the climate–nature nexus and its implications for the economy and financial system

Nature degradation and climate change are deeply interconnected crises that reinforce each other, exacerbating risks for the economy, financial system and societal wellbeing. This relationship is often described as the climate–nature nexus. • We identify five interactions within the climate–nature nexus: (1) the physical impacts of climate change contribute to nature degradation; (2) the physical impacts of nature degradation contribute to climate change; (3) climate mitigation and adaptation efforts can contribute to nature degradation; (4) environmental policy and legislation can delay the roll-out of climate mitigation projects; and (5) conserving nature can contribute to climate adaptation, mitigation and resilience. • For policymakers, adopting a systemic approach to the climate–nature nexus is no longer optional: considering climate and nature separately or sequentially in monetary, financial, economic and fiscal policymaking will leave blind spots in risk assessments, reduce the effectiveness of policy interventions, and overlook opportunities for co-benefits. • Central banks and financial supervisors need to improve their understanding of the risks and opportunities associated with the climate–nature nexus and adapt current tools or create new approaches to better take them into account. For example, nature degradation should be incorporated alongside climate change in supervisory expectations, risk assessments and scenario analyses. • Ministries of Finance sit at the heart of government decision-making and have a range of levers at their disposal to address the climate–nature nexus, including developing better decision support tools (e.g. natural capital accounting), broadening green taxonomies to include nature, catalysing cross-departmental work on harmful subsidy reform, and integrating nature criteria into public spending screening.