Biodiversity loss part II: portfolio impacts and abatement measures

  • Portfolios most exposed to equities and the agriculture and food services sectors feel the pinch of biodiversity loss. The results of our pilot study on pollination-service loss (PSL) allow for quantitative estimates of financial institutions’ portfolio exposure to biodiversity-related risk. Applying the shocks to a representative portfolio of an average German life insurer leads to rather modest impacts: The overall portfolio loss comes out at 0.17%, mainly because of low exposure to the sectors that will be hit the hardest (agriculture and food services) and to equities in general. In contrast, portfolios with larger equity shares (e.g. US insurers) would likely experience larger losses overall.
  • How much will it cost to abate PSL? In estimating these abating costs, we focus on seven agricultural measures that protect pollinators. The cost estimates differ widely per measure and country. At the country level, for instance, costs for measures in Germany range from USD45mn for computer-assisted decision-support systems to over USD3.5bn for nematode application. At the measure level, costs for the use of organic fungicide, for example, range from USD135mn in the Netherlands to USD2.4bn in France, due to different adoption rates.
  • However, the decisive question is not the cost of each measure per se, but how these costs compare to the economic value of pollination services. In a first step, we identify measures whose cost of implementation are less than the economic value of 10% PSL. This applies to five measures (out of seven) in the Netherlands but only to two in the other countries, except for Italy (three measures). Considering how much PSL can be abated in reality by these measures, the analysis shows that in France, Germany or the UK, no measure would pass this test of economic viability.
Markus Zimmer
Allianz SE
Arne Holzhausen
Allianz SE