Governments must protect nature or pay a higher price for borrowing, study finds 

Increasing nature degradation has led to higher borrowing costs for governments, especially in lower income countries, according to new research published today (6 March 2026) by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.   

For their research, the authors analysed 28 advanced and 25 emerging economies over the period between 2000 and 2020, and 2-, 5-, and 10-year government bond maturities, to investigate the uneven potential consequences of nature and biodiversity loss for the cost of sovereign borrowing. 

The report on ‘Kicking Away the Green Ladder: The Asymmetric Sovereign Risk from Nature Degradation’ is the first empirical analysis of the impacts of nature degradation on the pricing of sovereign bond yields, using new biodiversity and ecosystem data.  

The authors found that nature degradation led to “statistically and economically significant impacts on sovereign borrowing costs”, from around 25 to 70 basis points for 5- and 2-year tenors on average, whilst also controlling for other domestic and global factors that affect bond yields. 

There is little public information about how investors perceive and value the economic consequences from severe and rapidly increasing nature degradation, particularly on sovereign bond yield spreads, despite growing evidence that natural capital determines governments’ funding costs and fiscal policy space. In 2020, around half of global GDP was estimated as moderately to highly dependent on the benefits humans derive from nature.  

The authors state that for “lower income countries in Africa and Asia, the effect of nature degradation on borrowing costs can be up to three times that of the mean.” Many of these countries host global biodiversity hotspots and export nature-dependent products to the rest of the world. As a result, nature degradation in these countries is likely to have a huge knock-on effect on economies globally. 

For the study, the authors employed recent increases in biodiversity and ecosystem integrity data to develop three proxies for nature-related financial vulnerability and built on recent approaches to account for the interconnectedness of the global financial system. 

Nicola Ranger, Professor in Practice at the Grantham Research Institute on Climate Change and the Environment and Executive Director of Earth Capital Nexus at the London School of Economics and Political Science, said: 

“Nature degradation has been intensifying, and our findings prove that it is having a visible impact on the economy that is already being picked up by investors.  

“Using advanced biodiversity and ecosystem data and new economic methods we provide new and stronger evidence of where nature is already ‘macro-critical’ for economies.

“Every government, in every region, needs to have a plan to preserve and protect nature. Our findings show that countries with higher degradation face higher borrowing costs – nature is hitting the bottom line of government budgets. Nature can longer continue to be an afterthought for politicians and finance ministries.” 

Alexander Wollenweber, Lead author of the study and researcher at the London School of Economics and Political Science and the University of Oxford, said:   

“Our findings highlight substantial and uneven borrowing cost penalties from domestic degradation – they are highest for lower income countries which host global biodiversity hotspots and have experienced a dramatic increase in debt pressures in recent years. 

“Considering the interconnectivity of trade and sovereign debt markets the global financial effects are unlikely to be confined to debt-distressed, high-risk and nature-dependent regions”. 

Dr Dieter Wang, visiting researcher at the University of Oxford, said:  

“Pinning down and measuring the specific pathway between nature loss and government funding costs across geographies and income levels is far from trivial. These risks are deeply interconnected with macroeconomic considerations on the global and individual country level. 

“This requires the use of advanced statistical methods, through which our research was able to corroborate earlier findings. Nature degradation is a persistent factor in borrowing costs – even when common macroeconomic drivers are taken into account.”