Sustainability: Time to invest in biodiversity

For over two decades, New York City’s Department of Environmental Protection (DEP) has steadily bought up thousands of acres of watershed land in the nearby Catskill mountains. The reason? Protection of the Catskill-Delaware watershed was considered the most sustainable and cost-effective way of ensuring long-term drinking water supplies for NYC residents. A preferred option to building costly filtration plants by the Hudson river.

The link between protecting biodiversity and ecosystem services for building greater organisational resilience has never been clearer. This is the topic of a presentation I will give at the upcoming GVNW symposium on 9 September, titled: ‘Fragile ecosystems: what the loss of biodiversity means for companies’.

What may have once been a more challenging conversation for risk and insurance managers to have with their senior management is now firmly on the agenda. For larger corporates looking to fulfil ESG requirements and maintain sustainable access to water and power supplies well into the future, investing in nature-based solutions is an obvious strategy.

Against the backdrop of the global pandemic and a rising frequency of extreme weather events - including droughts, wildfires and floods - the direct and indirect impacts of climate change have never been clearer.

The IPCC’s sixth report, published in August, further confirmed loss patterns many of us are already experiencing, particularly with regards to so-called secondary perils mentioned above - something the Swiss Re Institute observes as well. According to their sigma study “Secondary natural catastrophe risks on the front line”, losses from secondary perils have been rising due to rapid development in areas exposed to severe weather and warmer temperatures.

These are some of the risk drivers, exacerbated by a decline in ecosystem services. Whereas once there were natural forests to absorb some of the ferocity of flash floods and prevent the spread of wildfires, environmental degradation now means the impact is altogether more sudden, severe and damaging.

Take Cyclone Idai in March 2019. Far from losing strength after initial landfall in Mozambique, the storm continued to gain intensity as it moved across the country, in part due to rampant deforestation. The long-lived storm caused widespread devastation and a humanitarian crisis.

Meanwhile, the degradation of mangrove swamps, coral reefs and barrier islands means regions exposed to windstorms are more likely to feel the full force of hurricanes and typhoons.

The impact is not just in terms of physical destruction, but also business interruption. While this summer saw devastating floods in Germany and other parts of Europe, last year there was drought. A succession of dry summer months left the Rhine at dangerously low levels (levels dropped by 40% between April and June), causing shipping disruption and subsequent backlogs on other logistics networks.

Our world’s natural protections have created many benefits, many of which we are only now appreciating more because they are disappearing, leaving us more exposed to the elements. It is resulting in loss patterns that our businesses have not seen in the past. And the topic is not going away: Experts of the Swiss Re Institute calculated in the publication “The Economics of Climate Change” that by mid-century, the world stands to lose around 10% of total economic value from climate change.

As the risk landscape changes, so the approach that is needed to protect operations and facilities must also change. Never has this been more apparent than during COVID-19. We can expect more pandemics and epidemics as human continue to encroach upon the natural environment. With an estimated 850,000 pathogens in nature, it is not hard to see how other viruses could also make the leap from the animal to human world if more is not done to protect natural ecosystems.

But all is not lost. There is time to act, protect and restore what is not yet lost. The business case is clear and data and frameworks are available to assist decision-making and long-term strategic planning. One example is Swiss Re Institute’s Biodiversity and Ecosystem Services (BES) Index, which ranks the fragility of ecosystems and the economic dependence on them.

Corporate risk managers already know that ESG is far more than a buzzword. Pressures are mounting on all sides, including regulators, shareholders and consumers. Climate-related disclosures and nature-based disclosures are likely to become mandatory and those who fail to act now will be left behind, missing the opportunity to build resilience and to gain first-mover advantages in a rapidly changing corporate landscape.

Bernd Wilke is senior emerging risk manager at Swiss Re.

If you are interested in finding out more, visit Swiss Re Corporate Solutions’ Advancing Sustainability webpage.

This article is part of our long running Future of Business series, produced in partnership with Swiss Re Corporate Solutions.