Why collaborating on nature is an all-round win for the environment, economy and insurance

More than half the world’s GDP (USD 44 trillion) is dependent on nature and the services it provides¹. Without change in action, the World Economic Forum estimates by 2030, nature loss could cost 2.3% of global GDP (USD 2.7 trillion) annually. However, if we stall nature loss and make investments with nature positive outcomes, this could create new business opportunities to the scale of $10 trillion annually and create 395 million new jobs by 2030².

Natural assets, natural capital and nature-based solutions come in many forms and contribute significantly to income generation, national wealth, social health, and economic stability. The interdependency between nature and the economy is often underestimated with many governments and companies yet to recognise and account for their impacts and dependencies on natural resources. Restoring and maintaining the diversity of species within natural habitats can also improve food production, air and water quality, and land management. 

There is also growing recognition of the role of nature as a key solution in delivering on the goals of the Paris Agreement, as well as in mitigating climate change impacts. Given that we all benefit from nature in some way, there is a need to assign accountability and agree on the optimal financing to manage the costs of damages and restoration to nature at large.

Government and public sector agencies are usually responsible for the management of public land and waters. By recognising the benefits that nature brings to the climate and society, investment in conservation and restoration can improve community health and wellbeing, build resilience against weather events, and contribute to more sustainable economies.

Businesses need to identify and acknowledge the inputs and economic benefits derived from nature. They can then protect these inputs and invest in them, which in turn protects their business continuity and revenue streams. The private sector is raising its ambition around nature-related issues, and some key developments include:

• The Global Biodiversity Framework (GBF), launched at the 2022 United Nations Biodiversity Conference (COP15), which aims to halt biodiversity loss while protecting and conserving 30 percent of coastal, marine, land, and inland water areas by 2030.
• The Taskforce on Nature-related Financial Disclosures (TNFD) which encourages companies to report on their nature impacts, dependencies, and strategic plans.

On the investment front, infrastructure planning and finance may be directed towards more green/grey approaches and encourage large-scale nature-based solutions. To make these innovative projects more commercially attractive, investors can set expectations for appropriate governance and commercial considerations, such as insurance covers for delays or non-completion to protect assets and returns. This can help to mainstream nature and nature-based solutions as investable assets, with commercial returns.

Insurance can help to enhance resilience, as well as improve the sustainable management of ecosystems and the communities that depend on them. Restoring and maintaining the natural environment involves considerable economic and social costs – and insurance can help both to encourage risk mitigation measures in order to ensure insurability, and, in case of damage or loss, provide access to funds (from the insurance claim) to support restorative action.

Insurers can also apply their existing risk insights to support clients'understanding of their exposures of natural assets, similarly to how we already help our clients understand the climate risk impacts on their property assets. The ongoing improvements in satellite applications and spatial data also provide increasing opportunity to monitor degradation and restoration activity and weather impacts and design appropriate products.

Natural assets have huge environmental, economic, health and societal benefits, and yet these financial values remain exposed to risk. While insurers have historically provided some environmental impairment liability insurance to protect against losses arising from sudden and accidental pollution, reshaping coverages to support the broader protection of natural assets, in the same way we protect our commercial and personal property, from man-made or natural perils will require more innovative application of underwriting and actuarial costing techniques.

Insurance is also key to facilitating investment in and scaling of green projects and infrastructure. Using insurance in the planning and design stages can help de-risk projects and attract investors. This in turn helps accelerate and scale up designs that can tackle environmental, economic, and social challenges in a sustainable and nature-positive way.

The financial sector is becoming more proactive in developing taxonomies, setting ambitions and defining the conditions of sustainable finance. However, the World Economic Forum estimate that around USD 824 billion is needed to protect and restore nature compared to the USD 140 billion spent on biodiversity each year globally, and the share of international climate finance in favour of biodiversity and ecosystems is estimated at less than 2%. There is still much to do.

With over 3.3 billion people living in places that are highly vulnerable to climate change, nature-based solutions have the potential to reduce the intensity of climate hazards by 26%, which represents potential savings for developing countries against the economic cost of climate change and weather-related disasters of at least USD 104 billion by 2030 and USD 393 billion by 2050³.

To shape a low-carbon future and build more sustainable economies depends on our ability to scale and accelerate nature-based solutions, leveraging private sector expertise and public sector enablement. We can only achieve this by firstly acknowledging the value that nature provides, through revenue and resilience benefits, and secondly, with significant and sustained investment and protection of nature and ecosystem services. Lastly, but by no means of lesser importance, we need to collaborate and partner to share data, insights and successful models that can be replicated and scaled.

*Cherie Gray and Alison Drill will present on the topic of 'Building the economic case for nature-positive action' at the International Congress of Actuaries in Sydney from 28 May – 1 June.  This is an opportunity to collectively promote the strengths the actuarial profession can bring in enabling nature positive action, such as putting an economic cost on the loss of natural assets, applying cost-benefit analysis for nature positive decisions and incorporating nature impacts into traditional business decisions and risk management frameworks.

^{[1] WEF_New_Nature_Economy_Report_2020.pdf (weforum.org)
[2] WEF_Scaling_Investments_in_Nature_2022.pdf (weforum.org)
[3] Working With Nature to Protect People | IFRC}