Policymakers recognize that the widespread degradation of natural systems (“nature loss”) will increasingly jeopardize social, economic, and financial stability. Indeed, both nature loss and the transition policies meant to halt and reverse it can generate significant macroeconomic impacts and pose major risks to the financial system.

Ministries of Finance are particularly concerned by nature-related risks and impacts, which may be large, non-linear, and irreversible. Nature loss and transition policies will increasingly shape national development trajectories, affecting employment structure, investment needs, consumption possibilities, trade balance, and the availability of financial and economic resources (e.g., tax revenue, foreign investment, debt sustainability, etc.).

Ministries of Finance also play a crucial role in accounting for, mitigating and adapting to nature loss and nature-related risks. They have many tools (taxation, policy guidance, regulation, planning, and budgeting) that can drive sustainable economic reforms to halt and reverse nature loss.

Yet they face key challenges in their efforts to engage in positive and effective action. First, the available nature-related scenario frameworks provide limited meaningful insights for policymaking. Second, the macro-financial and environmental implications of different financial instruments (e.g., SDG bonds, biodiversity credits, debt-for-nature swaps) for nature mitigation and adaptation are uncertain. Finally, existing models for assessing the macro-financial impacts of nature-related scenarios tend to underestimate or misrepresent the economic relevance of nature loss and the major changes needed to address it.  

It includes:  

• Contributing to global understanding of the roles of Ministries of Finance in mitigating and adapting to nature-related risks and impacts, including highlighting the opportunities to be found in the transition;
   
• Supporting the development of analytical tools, scenarios and models for assessing the macro-financial implications of nature loss and the nature transition to better inform policy choices faced by Ministries of Finance;
   
• Building capacity for further development and use of these analytical tools, together with other C3A hubs, Ministries of Finance, and affiliated institutes and universities in diverse countries. 

Nature scenario and transition policy analysis

• Develop scenario tools adapted to help Ministries of Finance identify the key nature-related policies, trends and macroeconomic variables to better assess macro-financial impacts. This will help Ministries of Finance to build scenarios to show how different countries and sectors could be impacted by the sustainability transition, while integrating potential trade-offs between climate and other environmental goals;
   
• Create a taxonomy of various international financing mechanisms available for low- and middle-income countries to gain fiscal space and mitigate nature loss to determine if, when, and under what conditions, these are most useful.  

Integrating nature into economic models and tools

Improve existing models and develop new analytical tools to analyze the macro-financial implications of nature-related risks, impacts and opportunities. The choice of models and tools will be informed by the question at stake, rather than being pre-defined. 

Trainings for Ministries of Finance

Develop ad hoc activities and create a course that teaches cutting-edge frameworks, tools and research to build Ministries of Finance’s capacity on nature-related issues.