Biodiversity Loss Could Cost Nations $162B in Debt
A new study published on June 5 warns that the collapse of key ecosystems could add $162 billion annually to global sovereign debt interest payments and push multiple major economies toward credit downgrades. The research, led by economists from the Universities of Sussex, Sheffield and Heriot-Watt, was released in London and presents what its authors describe as the world’s first biodiversity-adjusted sovereign credit ratings model. Financial markets, the study argues, are systematically mispricing the fiscal risks that ecosystem degradation poses to governments worldwide.
The study applies an adjusted version of S&P Global’s existing sovereign ratings methodology to measure how the partial collapse of wild pollinators, marine fisheries, and tropical forests would affect national economies and their ability to repay debt. Reuters reported the findings on June 5.
The scale of potential exposure is large. The research found that roughly $83 trillion in global assets are currently vulnerable to mispricing because biodiversity-related damage is not factored into existing credit assessments. Across the 23 countries studied — home to a combined 5.5 billion people — biodiversity-driven downgrades could push many governments materially closer to sovereign default.
“Financial markets are effectively blind to nature-related risks,” said Matthew Agarwala of the University of Sussex, one of the study’s lead researchers. “As biodiversity loss undermines economic performance, it becomes harder for countries to service their debt, raising borrowing costs and fiscal strain.”
The fiscal damage would not be evenly distributed. India’s sovereign credit rating could fall by four notches under a partial ecosystem collapse scenario, the study found. China’s could drop by more than five notches on a 20-point scale. Lower credit ratings force governments to pay higher risk premiums when borrowing, and the study calculates the consequence: an additional $50 billion per year on India’s debt interest bill, and $70 billion on China’s.
Indonesia, Bangladesh, and Malaysia face potential downgrades of four to six notches, Reuters reported.
The mechanism linking nature to national finances is the concept of “ecosystem services” — the economic functions that healthy natural systems perform for free. Wild pollinators sustain crop production. Marine fisheries provide export revenues, food supply, and coastal employment. Tropical forests generate timber revenues and support related industries. When those systems degrade, the downstream effects feed directly into GDP, tax receipts, and the capacity of governments to manage their debts. The study estimated that partial disruption to these services alone could cut global GDP by around $2 trillion per year.
The study draws a direct parallel with the 2008 global financial crisis, when systemic risks went unrecognised by ratings agencies and regulators until they had already destabilised markets. Pati Klusak of Edinburgh Business School, one of the researchers involved, made the comparison explicit.
“The 2008 global financial crisis showed what happens when markets ignore emerging threats,” she said. “We risk repeating that mistake if ecological risks remain excluded from credit assessments.”
The additional annual debt costs projected across the 23 studied countries would represent nearly three-quarters of total global overseas development aid. They would also consume a significant portion of the $200 billion annually that the UN Global Biodiversity Framework, covering 196 countries, aims to mobilise for nature protection. That context, the researchers argue, makes the cost of preventing biodiversity loss far lower than the cost of absorbing its economic consequences.
Moritz Kraemer, a former sovereign credit analyst at S&P Global who contributed to the study, said the ratings industry is currently failing to account for these long-term risks. “By the time these bonds mature in 30 years or even 50 years they could be 3-4 notches lower,” Kraemer told Reuters. “That is a problem.”
Global and Regional Impact
The implications span several categories of financial actors. Sovereign downgrades do not affect governments alone — they cascade through domestic economies, hitting businesses, financial institutions, and pension funds that hold sovereign bonds or price credit relative to government benchmarks, the study found.
For emerging market economies already carrying elevated debt loads, an additional ratings shock could narrow access to international capital markets and raise the cost of refinancing existing obligations. The countries most exposed are those whose economies rely most heavily on nature-linked sectors — agriculture, fisheries, forestry — and those already operating on thin fiscal margins. Indonesia, Bangladesh, and Malaysia all fall into both categories.
For richer economies, the exposure is smaller in relative terms but larger in absolute scale. The projected $70 billion addition to China’s annual debt servicing costs and $50 billion addition to India’s represent sums large enough to reshape fiscal planning and constrain public investment in both countries.
The study’s authors directed their recommendations not only at governments but at financial regulators, central banks, and the ratings agencies themselves — urging all three to begin incorporating nature-related risk into standard financial models.
Background
Sovereign credit ratings, assigned by agencies including S&P Global, Moody’s, and Fitch, are used by investors and governments worldwide to price the risk of lending to national governments. A downgrade by even one notch can significantly increase the interest rate a country pays to borrow internationally. The UN Global Biodiversity Framework was adopted in December 2022 and sets targets for protecting 30 percent of land and ocean by 2030, alongside mobilising $200 billion annually for nature. A World Bank analysis cited by Prism News estimated that a full collapse of selected ecosystem services could cut global real GDP by $2.7 trillion per year by 2030 — equivalent to 2.3 percent of global output — with low-income and lower-middle-income countries facing losses exceeding 10 percent of GDP.
What Happens Next
The study’s authors are calling on financial regulators, central banks, and ratings agencies to formally integrate biodiversity risk into sovereign credit frameworks. S&P Global’s existing methodology was used as the basis for the model, and the researchers have produced a framework they say can be adopted by the agency and its competitors. No major ratings agency has publicly responded to the findings as of June 6. The research adds to a growing body of academic and institutional work on “nature-related financial risks,” a field that gained formal institutional structure when the Taskforce on Nature-related Financial Disclosures published its global framework in 2023.
