Banking Crises Drive Biodiversity Loss
Economists from HSE University, MGIMO University, and Bocconi University have found that financial crises have a significant negative impact on biodiversity and the environment. This relationship appears to be bi-directional: as global biodiversity declines, the likelihood of new crises increases. The study examines the status of populations encompassing thousands of species worldwide over the past 50 years. The article has been published in Economics Letters, an international journal.
The diversity of living organisms underpins the sustainability of ecosystems on which human life depends, and a decline in biodiversity threatens not only society but also the economy. To investigate how economic shocks affect the natural world, Maria Shchepeleva, Assistant Professor at the HSE Faculty of Economic Sciences, collaborated with Mikhail Stolbov, Professor at MGIMO, and Daniil Parfenov, a PhD student at Bocconi University, Italy, to analyse global data on biodiversity and the occurrence of financial crises.
As a measure of biodiversity, the authors used the Living Planet Index (LPI), an indicator tracking population trends of over 5,000 vertebrate species across terrestrial, freshwater, and marine habitats. Calculated annually since 1970, the LPI has shown a steady decline, dropping from a baseline of 1.0 in 1970 to 0.33 in 2024. Over this period, populations of thousands of species have decreased, and at least 500 species have become completely extinct. Additionally, the authors examined an international database of financial crises compiled by researchers from Phenikaa University in Hanoi and Loughborough University. In this database, crises are categorised into three types—banking, debt, and currency—as well as any combination of two or all three. The authors developed a model enabling the assessment of mutual influence among the variables.
The analysis revealed that a one-unit increase in the frequency of banking crises reduces the LPI by 0.001 points two to three years after the shock, with effects lasting up to 12 years. Triple crises—simultaneous banking, debt, and currency crises—pose the greatest threat to biodiversity: an increase in their frequency lowers the LPI by 0.005 points. At the same time, debt, currency, and twin crises were found to have almost no significant impact on the state of the environment. The reverse effect was also observed: a decline in the LPI directly increases the frequency of all types of crises. At the same time, debt, currency, and twin crises were found to have almost no significant impact on the state of the environment. The reverse effect was also observed: a decline in the LPI directly increases the frequency of all types of crises.
The authors explain this by noting that banking crises steadily reduce GDP, which in turn limits the resources available to governments for environmental policies aimed at protecting biodiversity, such as taxes, fees, and subsidies.
Maria Shchepeleva
'Economic crises drive some businesses into the informal sector, where environmental regulations are difficult to enforce and are often ignored. This results in uncontrolled resource exploitation, poaching, illegal deforestation, and unregulated emissions, all of which significantly accelerate species loss and ecosystem degradation. In addition, during periods of crisis, people focus on immediate survival and pay less attention to long-term risks, which influences their environmental behaviour. Crises also reduce investments in new environmental solutions,' explains Maria Shchepeleva, Assistant Professor at the HSE Faculty of Economic Sciences.
Thus, a vicious cycle emerges: crises reduce biodiversity, which in turn increases the likelihood of future crises. Addressing this challenge requires coordinated action by central banks and environmental regulators. The authors propose initiatives such as active incorporation of green risk coefficients into regulations and the establishment of interdepartmental working committees for regular exchange of information on identified risks and violations.
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