How damage to the UK’s nature could knock £300bn off GDP
Damage to nature in the UK could contribute to a hit to the economy larger than the financial crisis or the Covid-19 pandemic, new research has shown.
Modelling from the Green Finance Institute (GFI), combining the impact of a range of different natural risks, shows that UK GDP could drop by 12 per cent by 2030.
The report, which received input from government departments and regulators, reveals the threats that natural degradation could pose to the UK economy.
It suggests that businesses, government and regulators need to take into account the impact on nature more broadly, rather than a narrow focus on carbon emissions.
“A lot of central banks and companies look at their dependencies on nature, but they’re not quantifying the actual risk,” Helen Avery, GFI director of nature programmes, told City A.M. “This report is brand new”.
“We really needed to show that this is a material risk, otherwise it’s going to keep being pushed back by companies,” she said.
The report maps the potential impacts of a range of scenarios of worsening severity. The first captures only the UK’s domestic scenario, including worsening air and water pollution, water shortages and biodiversity loss.
On its own, this could knock up to three per cent off GDP, or £70bn, by the late 2020s.
This aspect of the scenario was “already happening,” Avery said. “The three per cent loss to GDP: it’s done. If we don’t change in the next few years, that’s going to happen,” she continued.
The report then added international shocks like a pandemic, heatwave or floods. This would cause somewhere between six per cent and 12 per cent of GDP to be knocked off, as much as £300bn.
Avery said that these shocks “could happen tomorrow…Drought and wildfire are not out of the ordinary and so they’ve all been deemed to be likely to happen in the next decade”.
“These are all very conservative estimates,” Avery warned.
Sectors like agriculture will take a big hit but the report also highlighted how firms in the utilities sector are often dependent on surface water. Constraints in water supply could put up the costs of production, raising prices.
The scenarios were also applied to the loan books of the seven largest UK banks, showing the portfolios could fall by around five per cent.
Nature-related risks are not captured within the UK’s risk framework and companies do not routinely disclose their risks. The report hopes to support the adoption of nature-related risk assessment.
Miles Celic, chief executive officer of TheCityUK, said the report underlined “the significant financial
impact of nature degradation”.
“It is crucial that our industry works together to tackle nature and climate risks, as well as ensuring that nature-related considerations are factored into decision-making, risk management frameworks and transition plans,” he continued.
Chris Hayward, policy chair at the City of London Corporation said: “Government and the private sector must work together to reverse the erosion of natural capital that is increasingly hindering our economic growth”.