The global economy is at risk, and the culprit is nature loss.

A new IMF report warns that the destruction of ecosystems is not just an environmental crisis but a financial one, with devastating consequences for stability and growth.

Nature underpins the economy by providing essential services like clean water, pollination, and climate regulation. But human activities are degrading these systems at an unprecedented pace, pushing them closer to collapse.

Nearly 38% of loans from the 100 largest global banks are tied to industries that rely on harmful subsidies. The agriculture, mining, and forestry sectors are among the biggest drivers of environmental destruction.

Another 44% of bank loans are exposed to areas at risk of strict conservation policies.

Harmful subsidies total $1.7 trillion annually, with energy ($640 billion) and agriculture ($520 billion) leading the way. These subsidies encourage overexploitation and degrade ecosystems. Reducing them is vital, but the transition could destabilize industries and economies, especially in low-income nations.

The IMF identifies two significant risks: physical risks and transition risks. Physical risks stem from nature’s collapse—pollinator declines reduce crop yields, or mangrove loss increases flooding.

Transition risks arise from policies like stricter land-use regulations or subsidy removals that disrupt industries.

The stakes are enormous. Ecosystem collapse could cut GDP by as much as 16% in vulnerable sectors.

Low-income nations, heavily dependent on natural resources, could see their GDP shrink by 10% by 2030. Already strained global food systems face further threats from droughts, floods, and soil erosion.

Recent droughts in Russia, Ukraine, and China doubled wheat prices, disrupting global markets. Declining pollination, soil erosion, and water scarcity pose additional risks to food production.

Insurance companies are also struggling, with rising disaster claims pushing premiums higher and reducing insurability.

Despite these clear dangers, most financial institutions need to prepare. Only 20% of global banks have taken significant steps to address nature-related risks.

Many focus narrowly on project finance while ignoring broader corporate lending and supply chain vulnerabilities.

The report warns that sudden ecosystem shocks could trigger “nature Minsky moments,” where cascading financial crises resemble the 2008 meltdown. These shocks could rapidly devalue assets and create widespread instability, especially for industries tied to natural resources.

Systemic change is urgently needed. Redirecting harmful subsidies toward conservation and sustainable development could mitigate some risks.

Financial institutions must integrate nature-related risks into policies and strategies, treating them as a critical component of financial stability.