Biodiversity loss could propel world into next financial disaster

A new study, led by leading academic experts, has warned that the collapse of the environment in key ecosystems could spell disaster for the global economy by increasing borrowing costs.

The new research, which covers 23 countries representing 5.5bn people, found that the resulting impact could raise annual interest payments by $162bn and cut global gross domestic product by $2tn.

The study is the world’s first biodiversity-adjusted credit ratings model and has found that major risks are being ignored by financial markets covering $83tn in assets.

The study, led by researchers at the University of Sussex and involving academics from Heriot-Watt University and the University of Sheffield, was recently published in the globally respected journal, Nature Ecology & Evolution.

Pati Klusak, a professor at Edinburgh Business School at Heriot-Watt University and co-author of the report said: “Healthy ecosystems are a foundation of economic resilience. When biodiversity is lost, economic performance can suffer, making it more difficult for governments to service their debt. Yet financial markets continue to overlook these risks.”

“Our research bridges a gap between environmental science and how financial risk is currently assessed, with markets failing to fully account for the economic consequences of nature loss.

“As these natural systems deteriorate, countries become more vulnerable to slower growth, higher debt levels and rising borrowing costs, which in turn reduces their ability to invest in public services and respond to future crises.”

To carry out the study, researchers used machine learning to build a biodiversity-adjusted model of sovereign credit ratings.

This allowed them to assess how ecological shocks could affect GDP, debt levels and borrowing costs.

The team modelled a partial ecosystem collapse, defined as a 90% reduction in pollination and fisheries alongside major deforestation. This could result in global GDP losses of around $2 trillion annually.

Angola, Bangladesh, Pakistan and Ethiopia emerge as among the most vulnerable countries. China could face an extra $70bn a year in interest payments, while India could face an extra $49bn, equal to 2.4% of the media citizen's after-tax income every year.

In the most extreme cases, Angola, the Democratic Republic of the Congo and Madagascar could become effectively unratable. Their projected creditworthiness would fall below the lowest grade any country has ever received.

The study found that current sovereign credit ratings largely fail to account for these risks. This means environmental decline is not being accurately reflected in borrowing costs.

One striking finding is that the size of a country's economic loss does not always predict the size of its credit downgrade.

China and Malaysia sit roughly in the middle for GDP losses yet face the largest rating downgrades in the study. This shows the value of combining economic and environmental models.

The study calls on regulators, central banks and credit rating agencies to integrate nature-related risks into standard financial assessments

The researchers argue that doing so would provide a more accurate picture of future economic stability and help guide investment decisions

Professor Klusak said: “The 2008 global financial crisis was an example of what happens when markets and ratings agencies ignore new risks. The financial system risks once again sleepwalking into a catastrophe.

“We are at a clear crossroads now where this needs to be taken seriously. We have a clear choice, invest in nature now or face higher financial costs in the future.”

To read the full research, visit: Biodiversity loss will decrease the future creditworthiness of nations | Nature Ecology & Evolution

To read the synopsis article, please visit: https://www.nature.com/articles/s41559-026-03101-6