Countries across the world are reliant on a range of services that are based around their natural ecosystems. 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.
Over half (55%) of global GDP, equal to USD 41.7 trillion (1), is dependent on high-functioning biodiversity and ecosystem services. However, a staggering fifth of countries globally (20%) are at risk of their ecosystems collapsing due to a decline in biodiversity and related beneficial services, reveals a new study by Swiss Re Institute.
The study, which is based on Swiss Re Institute’s new Biodiversity and Ecosystem Services Index, shows that both developing and advanced economies are at risk. The report finds 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. The well-known impact of water scarcity is a driver for these countries, alongside factors such as costal protection and pollination. Brazil and Indonesia enjoy the highest percentage of intact ecosystems within the G20, however, the countries’ strong economic dependency on natural resources highlights the importance of sustainable development and conservation to the long-term sustainability of their economies.
The United Nations Summit on biodiversity on 30 September 2020 called for “urgent action on biodiversity for sustainable development” as global efforts to improve in this vital area have fallen well below UN targets to halt biodiversity loss.
To build understanding around this global issue, Swiss Re Institute developed the BES Index, enabling governments and business leaders worldwide to cross-compare and benchmark the state of local ecosystems that underpin their economies. Insurers can also use this data to develop relevant insurance solutions that protect communities at risk from poor-functioning BES.
Christian Mumenthaler, Swiss Re’s Group Chief Executive Officer, said: “There is a clear need to assess the state of ecosystems so that the global community can minimize further negative impact on economies across the world. 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. 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 insurance services.”
What can be done?
The insights from the index serve to highlight the importance of nature conservation for a functioning economy. Among the top ten countries with fragile ecosystems and high GDP dependency on natural services, it is the resource-rich developing countries with large agricultural sectors that stand out, such as Kenya, Vietnam, Pakistan, Indonesia and Nigeria. The study highlights the dangers of these economies potentially reaching critical tipping points when essential natural resources are disrupted. The report highlights the value of ongoing economic diversification combined with conservation and preservation efforts in such countries.
Major economies in Southeast Asia, Europe and America that already have diversified economies are nevertheless also exposed to risk from BES decline. This is because important individual economic sectors can be impacted by single BES factors such as water scarcity, which can have a disruptive effect on a country’s manufacturing sectors, properties and supply chains.
The report discusses how addressing BES challenges through simple preservation actions can have significant impacts. For example, ecosystem restoration along the coast of Louisiana could reduce expected flood costs by USD 5.3 billion annually (2). Steps to ensure functioning coral reefs globally could lower estimated flood damages for 100-year storm events that would otherwise increase by 91% across the globe (3).
The Swiss Re Institute report that accompanies the launch of the index, “Biodiversity and Ecosystem Services: A business case for re/insurance”, highlights several real-life cases of how BES impact economies. For example, the destruction of the Aral Sea, which led to economic collapse and mass migration from the surrounding coastal area, provides an extreme illustration of how the collapse of an ecosystem can affect a local economy. Other examples include the economic impacts of invasive species, nutrient run-off and algal blooms or the effects of the loss of pollinators on the agricultural sector. Global medical research is also very much at threat from the decimation of rainforests, as almost 50% of all medicines are sourced from natural resources within this habitat.
How does the index work?
The Swiss Re BES Index provides a more holistic, comparative view of the state of BES globally. It 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.
The aggregated data is provided at a resolution of 1km² across the globe. This supports both a highly localised analysis of the ten BES categories, as well as the ability to provide a country-wide or regional view of biodiversity and ecosystem services.
The Swiss Re BES index 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.“
Swiss Re will make the index available as part of CatNet®, Swiss Re’s online natural hazard information and mapping system. Using insights from Swiss Re Institute’s BES Index enables clients to add a sustainability perspective to risk selection and inform their decision-making on the long-term risk-adequacy of their premiums. The availability of transparent risk assessment for BES services will in turn open up the market for nature-based insurance solutions, which allows governments to use risk transfer mechanisms to directly protect ecological resources.
1 Value-added output 2018, USD trillion, in constant local currency units (LCU): To ensure long-term comparability, figures are converted to USD 2015 prices according to Oxford Economics.
2 Barbier E.B. 2015. Hurricane Katrina‘s lessons for the World. nature, 20 August 2015. Vol. 524, p. 285–287. Edward B. Barbier refers to the Coastal Protection and Restoration Authority of Louisiana: Louisiana‘s Comprehensive Master Plan for a Sustainable Coast. Ofﬁce of Coastal Protection and Restoration 2012. The 2017 and 2023 plans are available online.
3Beck M.W., Losada, I.J., Menéndez P., Reguero B.G., Diaz-Simal P., Fernandez F. 2018: The global ﬂood protection savings provided by coral reefs. Nature communications 2018, 9:2186.