Over half (55%) of global GDP, equal to USD 41.7 trillion, is dependent on high-functioning biodiversity and ecosystem services. However, a fifth of countries globally (20%) are at risk of their ecosystems collapsing due to a decline in biodiversity and related beneficial services (according to the new study of Swiss Re Institute).

Countries across the world are reliant on a range of services that are based around their natural ecosystems. Biodiversity and Ecosystem Services (BES) include such necessities as food provision, water security and regulation of air quality are indeed vital to maintaining the health and stability of communities and economies.

Translating climate models into economic and financial impacts is difficult for all financial investors. While Task Force on Climate-Related Financial Disclosures (TCFD) plays a vital to improving the reporting and understanding of climate-related financial risks, the last study of Swiss Re Group is addressing very compelling figures.

The Swiss Re Group, one of the world’s leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, has issued its study based on Swiss Re Institute’s new Biodiversity and Ecosystem Services Index.

It shows that both developing and advanced economies are at risk and underlines the fact that developing countries with a heavy dependence on agricultural sectors, such as Kenya or Nigeria, are susceptible to BES shocks from a range of biodiversity and ecosystem issues.

Among G20 economies, South Africa and Australia top the rankings of fragile BES. The well-known impact of water scarcity is a driver for these countries, alongside factors such as costal protection and pollination. Brazil and Indonesia enjoy the highest percentage of intact ecosystems within the G20, however, the countries’ strong economic dependency on natural resources highlights the importance of sustainable development and conservation to the long-term sustainability of their economies.

Table 1: G20 rankings for Swiss Re Institute BES.  Locations with high values of the SRI BES Index (upper 15th percentile globally) are considered to have “intact” ecosystems with significant value for biodiversity and high capacity to provide ecosystem services. Locations with low BES values (lower 15th percentile globally) are considered to be “fragile” ecosystems that have suffered the effects of degradation.

The United Nations Summit on biodiversity on 30 September 2020 set to call for “urgent action on biodiversity for sustainable development” has raised key issues on indirect impact. For instance, UN estimates that 4 billion people rely on natural medicines for their health and some 70% of drugs used for cancer are natural or synthetic products inspired by nature (from plants, fungi, bacteria, algae and eventually vertebrate (snake species).

More information can be found in the research called “The Economics of Ecosystems and Biodiversity: The Ecological and Economic Foundation” which demonstrates the economical implications and outcomes of the biodiversity.

To build understanding around this global issue, Swiss Re Institute developed the BES Index, enabling governments, business leaders and investors worldwide to cross-compare and benchmark the state of local ecosystems that underpin their economies.

“There is a clear need to assess the state of ecosystems so that the global community can minimise further negative impact on economies across the world. This important piece of work provides a data-driven foundation for understanding the economic risks of deteriorating biodiversity and ecosystems. In turn, we can inform governmental decision-making to help improve ecosystem restoration and preservation. We can also support corporations and investors as they fortify themselves against environmental shocks. Armed with this information, we can also ensure the provision of stronger insurance services.”

Christian Mumenthaler, Swiss Re’s Group Chief Executive Officer

Among the top ten countries with fragile ecosystems and high GDP dependency on natural services, it is the resource-rich developing countries with large agricultural sectors that stand out, such as Kenya, Vietnam, Pakistan, Indonesia and Nigeria.

Figure 1: Swiss Re’s Biodiversity and Ecosystem Services (BES) Index is provided at a resolution of 1km2 across the globe. This supports both a highly localised analysis of the ten BES categories, as well as the ability to provide a country-wide or regional view of biodiversity and ecosystem services globally.

The study highlights the dangers of these economies potentially reaching critical tipping points when essential natural resources are disrupted. The report points out the value of ongoing economic diversification combined with conservation and preservation efforts in such countries.

Major economies in Southeast Asia, Europe and America that already have diversified economies are nevertheless also exposed to risk from BES decline. This is because important individual economic sectors can be impacted by single BES factors such as water scarcity, which can have a disruptive effect on a country’s manufacturing sectors, properties and supply chains.

The report discusses how addressing BES challenges through simple preservation actions can have significant impacts. For example, ecosystem restoration along the coast of Louisiana could reduce expected flood costs by USD 5.3 billion annually. Steps to ensure functioning coral reefs globally could lower estimated flood damages for 100-year storm events that would otherwise increase by 91% across the globe .

Other examples include the economic impacts of invasive species, nutrient run-off and algal blooms or the effects of the loss of pollinators on the agricultural sector.

Article: Joana Foglia – Source : PRI, TCFD, Swiss Re, TEEB