The authors found that 42% of amounts in the portfolio held by French financial institutions are issued by companies that display a “high” dependency score (>60%) on one or more ecosystem services; this number amounts to 9% when considering “very high” dependency scores (>80%). The main ecosystem services involved were water supply (surface and ground) and regulating services, such as erosion control, flood and storm protection and climate regulation. Page 9 sur 13  To approximate transition risks, the authors measure the biodiversity impact (or footprint) of companies whose securities are held by French financial institutions through their direct activities or their upstream value chains. To do so, they used the MSA.km² metric. The authors estimate that the terrestrial biodiversity footprint of the equity and bond portfolio of French financial institutions at end-2019, cumulated over time, was comparable to the loss of at least 130,000 km² of undisturbed ecosystems surface. This corresponds to the complete artificialisation of 24% of the surface area of metropolitan France. The annual additional impact on terrestrial biodiversity is equivalent to the loss of 4,800km² of ‘untouched’ nature, which corresponds to 14% of the terrestrial area of the Netherlands. Hence, the indirect impact of the French financial system on biodiversity is also material, which makes them vulnerable in the event of a change in the regulations on biodiversity.
Conventional mortgage rates have dropped from around 6 percent in early 2004 to around 5 percent recently. Other factors could also be raising housing’s fundamental value. For example, recent changes in tax laws may be having an effect. In 1998, tax rates on capital gains were lowered and the exemption from capital gains taxation for housing was raised to $ Both of these changes would reduce the potential tax bite from selling one home and buying another. Another development, which may be making housing more like an investment vehicle, is that it’s now easier and cheaper to get at the equity—either through refinancing, which has become a less costly process, or through an equity line of credit. Both of these innovations in mortgage markets make the funds invested in houses more liquid. So there are good reasons to think that fundamental factors have played a role in the unusually high price-to-rent ratio. But the bottom line here is fuzzy. It’s very hard to say how big a role these factors have played, so we don’t know how much remains unexplained. Frankly, even the best available estimates are imprecise, and they don’t definitively answer the question: Is there a bubble, and if there is, how large is it? Given this uncertainty, my focus as a monetary policymaker is on trying to understand what kind of risks a drop in house prices would pose for the economy. One of the classic ways to do this is to ask “What if…?”—in other words, to pose a purely hypothetical question.