Nature, Finance and the Macroeconomy: Risks, Impacts and Feedback Effects

The Asia School of Business, Bank Negara Malaysia, the Council on Economic Policies, INSPIRE and sustainable macro co-organized a conference on Nature, Finance and the Macroeconomy: Risks, Impacts and Feedback Effects at the Asia School of Business, Kuala Lumpur, Malaysia.

The event addressed the challenges posed by nature loss, including deforestation and land-use change, and the related environmental risks and impacts for the macroeconomy and finance, as well as the implications for monetary policy, financial supervision and climate policy.

Keynote speakers:

Norhana Endut, Assistant Governor, Bank Negara Malaysia
Allan Hsiao, Assistant Professor, Economics and Public Affairs, Princeton University

For more details, please contact [email protected]. You can download the program and abstracts HERE.

  • Quotes from Bank Negara Malaysia’s Assistant Governor Dr. Norhana Endut Speech:

    “Given its role and importance to the economy, the failure for economic agents to account for and respond to nature related risks is a source of vulnerabilities to households, businesses and the financial and economic sectors. At the same time, economic decisions with regard to spending and investments in themselves will have repercussions on nature. Failing to incorporate the consequences of an economic activity on nature as factors in financial and investment models would only expedite the nature crisis.

    Regulators need insights into how financial institutions are exposed to nature-related risks and how these risks might affect financial stability.”


    Topics and takeaways:

    Nature degradation

    • Nature degradation impacts economic welfare and financial stability
    • Financial institutions are intrinsically linked to the natural environment, they either support or undermine the provision of ecosystem services
    • Central bank estimates show considerable direct nature dependencies of the economic and financial system, but underestimate the amount of exposure since they do not take indirect effects, feedback loops and tipping points into account
    • Business as usual means that degradation continues at the current pace, with exponentially increasing risks and impacts for economic welfare and financial stability

    Central banks and financial supervisors

    • Monetary policy, and micro- and macrofinancial supervision needs to take climate and nature risks into account to avoid blind spots and risk build-up
    • Climate and nature-adjusted collateral valuations and capital requirements are a key building block for more financial stability and economic welfare, since they shield other sectors from non-performing loan spillovers

    Policy coordination 

    • Climate and nature transition risks emerge from unexpected policy shifts, not from a climate and nature policies with predictable ratcheting up steps (for example carbon pricing in Singapore)
    • Biodiversity loss could considerably worsen sovereign credit ratings and access to affordable capital
    • Central banks and financial supervisors would be advised to ask the government to develop national climate transition and biodiversity strategies to maintain and restore nature for sustained economic welfare and financial stability

  • The global economy faces new risks due to the degradation of nature and the unsustainable extraction of renewable and non-renewable resources. The micro- and macro-economic impacts of nature loss have received increasing attention in the last few years and the importance of addressing the degradation of different aspects of nature (soil, water, forest, biodiversity), their interactions with each other and interconnections with climate change is increasingly understood. However, the financial implications are still largely unexplored.

    The uncertain future development of nature degradation poses several questions for research in macroeconomics, finance, and environmental policy studies as a whole. To advance insights in the field, both for academia and practitioners, this conference aims to gather early researchers to present new studies, discuss the state of current knowledge and identify new areas for future research.

    The degradation of nature, particularly through economic activities such as deforestation and land-use change will have significant macroeconomic implications, calling for further research along a range of research questions. This conference aims to address topics including, but not limited to:

    Metrics and measurement

    • Assessing nature-related economic and financial risks at global, regional, national and local level
    • Understanding biophysical aspects and interactions, including for example deforestation and reforestation, soil degradation, invasive species, biodiversity and climate change

    Micro- and macroeconomic implications of the net-zero transition and nature degradation

    • Integration of environmental services and degradation into macroeconomics and financial models
    • Understanding socio-technical transition pathways and/or public support for climate or nature policies in emerging economies
    • Assessing energy transition policies in emerging economies
    • Mitigation and adaptation measures, to reduce risk exposures for the economy

    The role of financial regulators and central banks

    • Impact of nature loss on economic and financial stability, and on financial and fiscal risk for governments and sovereigns
    • Impact of nature loss on monetary policy effectiveness and monetary governance
    • The analysis and calibration of prudential instruments reflecting nature and climate risks

    Corporate finance and investment implications

    • Opportunities of nature-positive and net zero strategies for corporates and investors
    • No regret strategies and policies
    • The role of alternative financing systems and solutions

  • You can download the program and abstracts HERE.

    Thursday 19 October, 2023
    9.30-10.00Arrival and registration
    10.00-10.30 Welcome and introductory remarks
    10.30-11.00Keynote speech by Dr Norhana Endut, Assistant Governor, Bank Negara Malaysia

    11.00-12.00Session 1: Supervising financial risks

    Meri Papavangjeli, Bank of Albania
    From Skies to Markets: Exploring the Macroeconomic and Financial Implications of Extreme Weather Events in Central Eastern and South-Eastern European Countries

    Elene Nikuradze, National Bank of Georgia
    Biodiversity-related Financial Risks – why it matters and how can we measure them? Case study of Georgia
    13.30-15.00Session 2: Understanding macrofinancial implications

    Anna Freeman, University of Oxford
    Assessing nature-related financial risks at global and national scales: moving from dependencies to scenarios and risk

    Maria Theresa Punzi, Singapore Management University
    The Role of Macroprudential Policies under Carbon Pricing

    Patrycia Klusak, University of East Anglia and Cambridge University
    Nature Loss and Sovereign Credit Ratings
    15.30-16.00Day 1 recap and closing remarks
    18.00-20.00Conference Dinner at Asia School of Business Atrium
    Friday 20 October, 2023
    11.30-13.00Session 3: Supervising financial risks

    Keith Jin Deng Chan, Hong Kong University of Science and Technology
    Leakage in the Common Ground: How Misalignment in Sustainable Finance Taxonomies Impacts Cross-Border Capital Flows

    Siti Kholifatul Rizkiah, WWF Malaysia
    Charting the Path to Sustainability: An Overview of Sustainable Financial Regulations and Central Bank Activities in 2023

    Monica DiLeo, University of Queensland
    The greening of central banks through a Chinese mirror: The politics of the People’s Bank of China’s environmental turn
    14.30-15.30Session 4: Harnessing economic opportunities

    Pieter Stek, Asia School of Business
    Malaysia’s New Voluntary Carbon Market: Origins, Ecosystem and Prospects

    Fatin Zani, WWF Malaysia
    Towards a nature-positive Malaysia: Assessing the vulnerability and resilience of Malaysian corporates towards nature-related risks
    16.00-17.00Keynote Presentation by Prof. Allan Hsiao, Princeton University

    Closing remarks

    • Scientific committee
      Aziz Durrani (ASEAN+3 Macroeconomic Research Office), Ben Filewod (London School of Economics), Charlotte Gardes-Landolfini (IMF), Darian McBain (London School of Economics), Elsa Allman (Banque de France), Felicia Liu (University of York), Ho Sui-Jade (Bank Negara Malaysia), Markus Leippold (University of Zurich), Nicola Ranger (University of Oxford), Ole Jens Rummel (SEACEN), Skand Goel (S&P Global), Ulrich Volz (SOAS).
    • Organising committee
      Elena Almeida, Julia Bingler, Chiara Colesanti Senni, Simon Dikau, Adrian von Jagow, Natasha Jalil, Ozer Karagedikli, Alain Naef, Nur Syairah Husna Mohd Ridzuan, Fathin Rusliza, Nathalie Marins, Nicole Toftum, Zhai Gen Tan, Thessa Vasudhevan.