Financial Stability at Risk: A Call to Central Banks on Ecosystem Tipping Points

A new policy note published in collaboration with WWF's Greening Financial Regulation Initiative calls on central banks, financial regulators, and supervisors (CBFRs) to adopt a more precautionary and systemic approach to the financial risks posed by escalating ecological degradation and the risk of ecosystem tipping points.

The note builds on groundbreaking academic research led by IIPP, in partnership with the University of Exeter’s Global Systems Institute, which mapped global financial flows—lending and capital markets issuances—to companies potentially contributing to the degradation of five key ecosystems: the Brazilian Amazon, Indonesian peatlands and mangroves, and the boreal forests of Russia and Canada.

These ecosystems are approaching critical 'tipping points'—thresholds beyond which small environmental changes may trigger large-scale, irreversible transformations. The research argues that these tipping points represent a systemic threat to global economic and financial stability, and thus fall squarely within the mandates of CBFRs.

“Our economies are deeply embedded in and dependent on nature,” said Lydia Marsden, Research Fellow at IIPP and co-author of the policy note. “If financial policy continues to underestimate ecological risks—particularly those that are nonlinear, systemic, and hard to model—we risk undermining the resilience of the financial system itself.”

The research reveals how financial flows—often originating far from the ecosystems they affect—continue to support nature-degrading activities such as deforestation and land-use change. In the Brazilian Amazon, for example, U.S. and European financial institutions play a significant role in financing deforestation-linked firms. In Indonesia, regional banks, including Chinese and Indonesian state-owned banks, are the dominant financiers behind peatland and mangrove degradation. These insights highlight the urgent need for globally coordinated macroprudential action to reform the underlying financial structures that are enabling ecological harm.

At the heart of the note is a call for CBFRs to move beyond risk quantification toward more precautionary, systemic intervention. This includes aligning monetary policy with nature-positive goals, strengthening microprudential supervision, and incorporating environmental tipping points into capital requirements and financial regulation. The findings build on IIPP’s broader mission to reshape how public institutions govern the economy to drive innovation and sustainable outcomes.

The policy note also reinforces the importance of an ecosystem-based approach, as advocated by the Network for Greening the Financial System (NGFS), but emphasises that this must be embedded within a broader rethinking of financial governance to safeguard both ecological and economic stability.

The IIPP team is also actively contributing to international discussions on sustainable finance. Josh Ryan-Collins, Professor in Economics and Finance at IIPP and contributor to this body of research, chaired the closing plenary at the Erasmus Platform for Sustainable Value Creation conference in Rotterdam earlier this month. He joined a high-level panel on the future of nature-aligned finance alongside the CEO of NWB Bank and the Head of Sustainability Europe at Schroders, highlighting the growing recognition among financial leaders of the need to embed nature into core financial policy frameworks.

This work is part of IIPP’s ongoing efforts to transform the role of the financial system in tackling ecological breakdown and driving a just, sustainable economy.

For more information contact: Lydia Marsden, IIPP Research Fellow in Sustainable Finance.

Download the Policy note here.