- Biodiversity matters for the financial sector. Financial institutions may face financial, market, reputational and legal risks when they invest in economic activities that cause adverse effects on biodiversity or are highly dependent on natural capital. Protecting biodiversity, on the other hand, provides huge opportunities for investments: The financing gap to restore biodiversity until 2030 is estimated at USD711bn per year. As a first step, this study focuses on the risk aspect.
- Measuring biodiversity loss is challenging, to put it mildly. There is a plethora of different methods and indicators, but no consensus. The highly local nature of biodiversity adds another layer of complication. In contrast to climate change, where local emissions have global consequences, impacts on biodiversity stay mainly local, leading to a very heterogenous map of biodiversity losses and resulting risks.
- The assessments of biodiversity loss in finance are so far limited to qualitative and exposure-based metrics. This report provides a quantitative approach that measures actual impact, focusing on the risk of reduced pollination. As a result, rather than simply categorizing economic activity into low, medium or high risk, we can concretely establish, for example, that a -20% loss in pollination activity would cut US agricultural production by -1.3%.
- A complete elimination of pollination would cut agricultural output by between -2.0% in the UK to -7.9% in Belgium. We estimate this would reduce annual gross domestic product by between -0.04% (the UK) to -0.4% (Portugal). In absolute terms, this would be equivalent to between USD1bn (Portugal) and USD28bn (US) annually.
- On the other hand, the industrial and services sector could indirectly benefit. Reduced pollination can increase the production of sectors that benefit from the land, capital and labor released by the contracting agricultural sector, notably the industrial and services sector. In France and Italy, for instance, the positive impact could exceed USD4bn per year.
- These monetary results go a long way in helping the financial sector to quantify possible portfolio impacts of biodiversity loss. Furthermore, they set the frame for a cost-benefit analysis of abatement measures and their financing mechanism. Such detailed analysis forms the foundation for the battle for a nature-positive economy as it can stir the financial sector into action. In that respect, the present report is just the first step of a long journey.
The new risk frontier in finance: biodiversity loss
Concepts, challenges and a first quantitative case study on pollination