Too big to fail: critical natural systems as macro-critical infrastructure
Download
National and global prosperity, resilience and security rest on a foundation that remains largely invisible in economic and financial decision-making: the stability of the Earth’s natural systems. While all ecosystems are important, scientific evidence indicates that a subset are so foundational to wellbeing, economic growth and resilience that their degradation would not simply represent an environmental loss: it could materially impact food, water and energy prices, national fiscal balances, supply chains and financial markets. The authors of this paper refer to these systems as ‘critical natural systems’.
The paper offers two new contributions:
- First, the authors explore the economic, finance and governance implications of critical natural systems including forests, rivers, biodiversity hotspots and productive land and how they are analogous to national critical infrastructure. The evidence makes clear that critical natural systems are just as vital to national resilience and prosperity as roads, railways and electricity grids. They provide the essential ecosystem services that underpin all economic activity, and act as a buffer against shocks, reducing extreme weather and climate risks.
- Second, the authors surface a new concept of Global Systemically Important Natural Systems (G-SINS), analogous to the Global Systemically Important Banks (G-SIBs). Like G-SIBs, G-SINS are, in effect, ‘too big (or too important) to fail’ – science tells us that their degradation could pose systemic risks to the whole global economy due to their size, interconnectedness, non-substitutability and the criticality of dependencies upon them. At a global scale, tropical forests, for example, store vast quantities of carbon and drive regional water cycles. Recent global price shocks demonstrate how disruptions to critical systems cascade rapidly. The purpose of the SINS framework is not to replicate the G-SIB framework, but to borrow its central insight: that some assets are sufficiently important to system stability that their degradation warrants enhanced monitoring, governance and risk management. The paper explores how this concept could apply at a global scale or be implemented nationally, for example in the form of domestic (D)-SINS, and discusses how such SINS could be identified, building upon several sources of foundational literature.
The paper aims to explore options and prompt discussion. It does not propose new institutions or legal mandates; rather, it explores pathways through which existing institutions could embed the macroeconomic and financial significance of critical natural systems. It emphasises that frameworks must be consistent with Indigenous rights, local stewardship, equitable benefit-sharing and internationally recognised principles of governance.
Related insights
