Biodiversity loss will decrease the future creditworthiness of nations

Biodiversity loss and deforestation are increasingly recognized as systemic economic risks. Yet, their implications for financial markets remain poorly understood. Here we study how biodiversity and ecosystem service loss affect financial risk for the world’s largest asset class, sovereign debt. Environmental degradation undermines the natural foundations of economic activity, reducing productive capacity and the ability of governments to service debt. Currently, sovereign credit ratings ignore these risks, meaning that markets may be mispricing, mismanaging and misallocating US$83 trillion of financial assets. We incorporate biodiversity risk into sovereign credit assessments by extending S&P Global’s methodology to include scenarios for future tropical timber, wild pollination and marine fisheries services across 23 countries, representing 5.5 billion people. A partial ecosystem collapse scenario increases annual debt servicing costs by US$49 billion in India, equivalent to 2.4% of median post-tax income, and by US$70 billion in China. Across countries, additional annual interest payments could reach US$162 billion, nearly reaching the US$200 billion per year target for conservation support under the Global Biodiversity Framework. Angola, Bangladesh, the Democratic Republic of the Congo and Madagascar could face gross domestic product losses of more than 15% by 2030. Our results suggest that financial markets are systematically underpricing nature-related risks, with consequences for public finances, nature and financial stability.