Why managing biodiversity risk is critical for the global economy

More than half of the global economy depends on the good health of the natural world.

Biodiversity and ecosystem services underpin our daily lives and many of our products and services. From the water we drink to the food we grow and the resources we use in manufacturing, we would be at a loss without Mother Nature.

But from the wildfires raging in California to forest loss in the Amazon, it is clear many of these ecosystems are suffering. And as the United Nations points out in the promotion of its 2020 Biodiversity Summit, the COVID-19 pandemic has “further highlighted the importance of the relationship between people and nature”.

“We are reminded that when we destroy and degrade biodiversity, we undermine the web of life and increase the risk of disease spillover from wildlife to people,” it says.

Understanding the extent and impact of biodiversity and ecosystem decline is key to minimizing further damage, and making informed decisions that prioritise a more sustainable future.

This is why the Swiss Re Institute has created the Biodiversity Ecosystem Services (BES) Index. It brings together masses of data and research from scientists around the world to present a kilometre-by-kilometre view of the state of biodiversity-related ecosystem services.

We can use this information to become more risk-aware, and inform sustainable future development. And this wealth of data for the first time gives insurers the possibility to adapt their future risk pricing, selection and products to reflect the evolving risks caused by the declining health of biodiversity and ecosystems.

Moving from awareness to action

The insurance industry has begun to realise the impact of climate change and other environmental decline on risk profiles. And it has become apparent that the risks are both physical – for example, the increasing size and amount of pay-outs following hurricanes and tropical storms – as well as reputational. There is now a recognition that coal, oil and gas policies, for example, have an impact on external perceptions.

But until now, there has been limited recognition or ability to quantify the changing risk profile of different locations. Swiss Re’s new tool takes us beyond the awareness stage and gives us information we can act on.

As Oliver Schelske, environmental and business economist at Swiss Re Institute and co-author of the new study, explains: “Biodiversity and ecosystem services are the foundation for life. They underpin economic activity. Here, we are talking about the health of forests and other ecosystems and the plants and wildlife within them. It impacts processes like water purification, pollination and soil formation. This affects food security, fresh water, and also has cultural, religious, educational and aesthetic importance.”

At breaking point

The index paints a grim picture. There are 39 of 195 countries with fragile ecosystems on more than 30% of their land. Among them are Malta, Israel, Cyprus, Bahrain and Kazakhstan.

The risks presented by this weakening of the natural world vary country by country. And within countries too. Some economies are more dependent on ecosystem services than others – countries with high dependency on agriculture, forestry and fishing, for example, may be more at risk from a decline in the natural world. These include countries with huge and growing populations like Kenya, Vietnam, Pakistan, Indonesia and Nigeria.

But while more diversified economies may feel less of a direct impact, they are far from immune. Everyone is affected by broad socio-economic vulnerabilities like food security and diversity, the ability to discover and develop new medicines, and water quality.

A more sustainable and resilient future

The BES Index gives a detailed view of how the interplay of these factors affects the risk in any given location. This makes it possible for the insurance industry to incorporate biodiversity and ecosystem strengths and weaknesses into its risk selection and ultimately pricing in the future. This will make businesses and societies more resilient as they adapt and shift to make better use of resources and locations, influenced by premium prices and insurability.

Bernd Wilke, senior emerging risk manager at Swiss Re and index co-author, says: “In the future the tool will allow the insurance industry to adjust and develop products and create nature-based solutions that take account of where in the world, on a square-kilometre scale, ecosystems are healthy or fragile. That information can be used to identify where to invest and where to restore.”

He gives the example of property located near damaged mangroves and coral reefs, which might have higher premiums than that behind intact mangroves or reefs. These natural barriers provide crucial protection in areas that are more prone to flooding, erosion and tidal damage, and the tool can help promote identification and investment in them.

Using the index can help insurers to not only make communities more resilient and better protected, but also promote the UN Sustainable Development Goals (SDGs) of Life on land, which Wilke says underpins all other SDGs.

“If we don’t work with nature in a sustainable way, we don’t have the foundation for our economies and everything that depends on it,” he says.

Resistance against and during future pandemics

Biodiversity and ecosystem strength are particularly poignant in the midst of the COVID-19 pandemic. In fact, coronavirus could be a sentinel.

All over the world, humans and animals are coming into closer contact than ever before. One of the largest potential reservoirs of future zoonotic diseases is in the rainforests of our world. And with deforestation we are making swift inroads into habitats. New roads are bringing greater connectivity to areas previously cut off.

In the past, if a new disease was encountered somewhere remote it might have been days before an infected person reached the next tribe. Human expansion into wildlife areas, soaring globalisation and urbanisation, and risky nutrition patterns altogether have led to high-speed routes for future pandemics directly into our major cities.

Conversely, making smart use of nature could help increase our resilience during future epidemic or pandemics. Schelske notes, "Sustainable exploration of nature can help us detect new medicine for current or future diseases. We have also seen that proximity and access to green areas in urban neighbourhoods has proven extremely important for mental health during the current pandemic."

Like nothing else, the COVID-19 pandemic has created a sense of urgency around maintaining the healthy balance between humans and nature. As we all become increasingly aware of environmental changes, we will have a better foundation of understanding the costs of disrupting this delicate balance and putting a price on this in the future.

Acting on this information is key to building a more sustainable and resilient future that benefits everyone.

Call to action

To see the vulnerabilities of each region and create a tailor-made risk assessment, click here.


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