When Hurricane Delta hit Mexico's Caribbean coast in 2020, insurance payouts were released within days - not to rebuild hotels or roads, but to repair coral reefs.
Author
- Narmin Nahidi
Assistant Professor in Finance, University of Exeter
In the Mexican state of Quintana Roo, reefs are insured and restoration is taken care of by a local trust. After storms, payouts fund rapid restoration so reefs can keep doing their job: breaking up waves so they don't erode the shore, reducing flooding, protecting tourism jobs and lowering insurance losses.
Nature is treated as part of the economic infrastructure. This idea is spreading, as it directly affects costs, risks and financial stability.
Until recently, sustainable or "green" finance has focused almost entirely on carbon emissions, net zero targets and climate-related investments. But these climate-only measures miss something basic. The economy doesn't just depend on temperature; it depends on living systems.
In my field of sustainable finance and financial stability, research shows that when ecosystems fail, the costs show up in rising food prices, insurance bills and public finances. The health of the planet affects everyday costs.
Take food. Around three-quarters of our leading food crops benefit at least partly from animal pollination, including by bees. When pollinator numbers fall, harvests shrink. That pushes up food prices, drives inflation and squeezes household budgets.
Or consider flooding. Wetlands, forests and mangroves absorb water and slow storms. When they're destroyed, floods cause more damage. Insurers pay out more, premiums rise or cover disappears. Governments often step in, using public money to deal with the fallout.
These aren't niche environmental problems, they are economic shocks. In many parts of finance, climate risk is now being modelled. But nature loss is only starting to be treated in the same way.
From carbon to nature
In finance, the term "greenium" refers to the lower borrowing costs enjoyed by companies or governments seen as safer environmental bets. When the idea first emerged in the late 2010s, it was almost entirely about carbon emissions. But that's starting to change.
Investors are beginning to recognise that destroying forests, reefs or soils increases future losses. Where risk rises, returns have to rise too. Where ecosystems are protected, financing becomes cheaper.
Change is already happening in three key areas: government debt, insurance schemes and regulation.
In 2021, for example, Belize refinanced part of its national debt in a deal linked to ocean protection. In return for protecting marine habitats, the country received debt relief. For investors, this wasn't charity: healthy oceans support tourism, fisheries and long-term growth - all of which matter for a country's ability to repay its debts.
The reef insurance scheme in Mexico isn't alone any more. Similar ideas are being explored for mangroves and wetlands , especially in storm-prone regions such as the Caribbean and parts of southeast Asia. These ecosystems reduce damage before disasters happen. For insurers, that means fewer claims. For households and businesses, it can mean lower premiums and better access to cover.
Regulators are paying attention too. Central banks and financial supervisors are increasingly asking how nature loss makes other risks worse. A degraded ecosystem can turn a heatwave into a food crisis, or a storm into a fiscal emergency. From this perspective, biodiversity loss isn't an ethical issue - it's a risk amplifier.
Research highlights that focusing only on climate misses important economic channels. Carbon metrics tell us about long-term warming, but say much less about near-term shocks.
Ecosystem damage often hits faster than long-term climate consequences, through crop failures, floods and disaster costs - and these shocks don't stay local. They affect inflation, strain government budgets and ripple through financial markets. When nature is degraded, the economy becomes more fragile.
If ecosystems fail, food costs more. Insurance becomes harder to afford, and governments spend more on responding to disasters. These costs are shared across society.
Seeing nature as part of the economic system isn't radical, it's realistic. The sooner finance reflects that reality in everyday financial decisions, the more resilient our ecosystems and economies will be.
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Narmin Nahidi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
