Simone Boldrini

Supply chain shocks are priced in the cross section of US equity returns and their magnitude is significant. R&D-intensive stocks are more exposed to these shocks and hence they bear a higher risk premium. We propose a novel innovation-driven endogenous growth model that reproduces these key features of the data and that predicts a severe disruptive effect of supply chain shocks on long-term growth. In a counterfactual exercise, we show that blockchains for supply management are very valuable assets as they promote innovation and growth by (i) relaxing working capital constraints and (ii) increasing production efficiency thanks to near real-time operation information flows.

Biodiversity – the variety of life on Earth – is essential for sustaining the healthy ecosystems that our economy and banks depend on. Despite the clear benefits of a healthy natural world for people and the economy, humanity is putting immense pressure on nature and biodiversity. Economic activities that rely on healthy nature are often responsible for generating environmental pressures. It is important to assess the impact that firms and financial institutions have on nature degradation, in order to reveal their exposure to transition risk and highlight the need to move towards an economic system that values nature, rather than putting it at risk. This study analyses the contribution of euro area economic activities – and the bank loans provided to enable them – to biodiversity loss by estimating biodiversity footprints. The datasets we use account for approximately €4.3 trillion in corporate loans to around 4.2 million companies located in the euro area, issued by more than 2,500 unique consolidated euro area banks. Considering two primary drivers of biodiversity loss (land-use change and climate change), the results show that the economy has had a significant impact on biodiversity, equivalent to the loss of 582 million hectares of “pristine” natural areas worldwide. Even though the impact on biodiversity is highest in Europe, the supply chains of companies are important determinants of their indirect biodiversity footprint worldwide. Asia and Africa have the largest areas impacted by activities that take place in company supply chains. Additionally, financing of economic activities with a high global impact on nature is concentrated: the ten banks with the highest financing share are responsible for financing around 40% of the total global impact of euro area firms. To avoid risk underestimation, this study highlights the importance of considering both climate change and nature loss when developing risk assessment frameworks, because they are inextricably intertwined.

The loss of biodiversity and the degradation of natural ecosystems pose a significant threat to the broader economy and financial stability that central banks and financial supervisors cannot ignore. To gain further insights into the implications of nature and ecosystem service degradation for financial stability, this study assesses the dependencies of euro area non-financial corporations and banks on different ecosystem services. The study then develops a method to capture banks’ credit portfolio sensitivity to possible future changes in the provision of ecosystem services. Our results show that 75% of all corporate loan exposures in the euro area have a strong dependency on at least one ecosystem service. We also find that loan portfolios may be significantly affected if nature degradation continues its current trend, with greater vulnerabilities concentrated in certain regions and economic sectors.