Quantitative Easing and Nature Loss: Exploring Nature-Related Financial Risks and Impacts in the European Central Bank's Corporate Bond Portfolio

Abstract

This report explores the interactions between nature-related financial risks and monetary policy, focusing on the ECB’s corporate asset purchase operations (also described as corporate ‘quantitative easing’ or ‘QE’). Using the ENCORE framework, we find that the sectors the ECB is invested in are associated with significantly high dependencies upon nature to facilitate production, as well as contributing to significantly negative impacts upon nature which threaten the future provision of vital ecosystem services. As a major central bank and holder of 20% of euro-denominated corporate bonds, the ECB’s approach to managing nature-related risks within its portfolio will have considerable signalling power to financial markets and could have a material impact on the uptake of prudent risk management practices relating to nature.

Keywords: monetary policy, biodiversity, nature, finance risk, financial stability, central banks, european central bank