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Swiss Re finds major economies at risk from biodiversity decline

24th September 2020 - Author: Matt Sheehan

A new report from Swiss Re Institute claims that one fifth of countries worldwide are at risk from ecosystem collapse and biodiversity declines, which threaten some of the major global economies.

The reinsurer says that more than half of global GDP, equal to $41.7 trillion, is dependent on high-functioning biodiversity and ecosystem services, and yet 20% of countries face collapse in these areas.

Biodiversity and Ecosystem Services (BES) include such necessities as food provision, water security and regulation of air quality that are vital to maintaining the health and stability of communities and economies.

Swiss Re’s study is informed by its BES Index, which enables business leaders and governments to cross-compare and benchmark the state of local ecosystems that underpin their economies. 

Re/insurers can also use this data to develop relevant insurance solutions that protect communities at risk from poor-functioning BES.

“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,” said Swiss Re CEO Christian Mumenthaler.

“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,” he explained.

“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 sustainable insurance services.”

The report shows that both developing and advanced economies are at risk, but in particular developing countries that have 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, mainly due to the impact of water scarcity, alongside factors such as coastal protection and pollination. 

In contrast, Brazil and Indonesia enjoy the highest percentage of intact ecosystems within the G20, the countries’ strong economic dependency on natural resources highlights the importance of sustainable development and conservation to the long-term sustainability of their economies. 

Swiss Re believes that addressing BES challenges through preservation actions can have significant impacts. 

For example, ecosystem restoration along the coast of Louisiana could reduce expected flood costs by $5.3 billion annually, while steps to ensure functioning coral reefs globally could lower estimated flood damages for 100-year storm events that would otherwise increase by 91% worldwide.

The Swiss Re BES Index works by aggregating data from ten different BES categories addressing water security, timber provision, food provision, habitat intactness, pollination, soil fertility, water quality, regulation of air quality and local climate, erosion control and coastal protection.

It also highlights the impact of BES on economic sectors, with manufacturing, real estate, professional and administrative activities, and wholesale and retail trade as priority sectors from an economic perspective. 

“Using Swiss Re Institute’s BES Index as a basis for decision-making in underwriting and asset management will make businesses and investments more resilient,” said Jeffrey Bohn, Swiss Re’s Chief Research Officer. 

“This index also underlines the important need for relevant nature-based insurance solutions and will create a new business segment for insurance, thereby strengthening resilience of affected regions and communities.“

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