Habitat destruction and general biodiversity loss increase the risk of severe droughts, newly emerging diseases, the disappearance of animal pollinators and the collapse of fisheries and agricultural yield. The Dasgupta Review has set out that such risks associated with biodiversity loss have significant macroeconomic and financial implications, but the management of financial risks from such changes remains limited. The Review classified the financial risks into:

  • physical risks, such as changes in ecosystem services due to degradation of natural assets;
  • litigation risks, such as legislation and fines from damage to natural assets;
  • and transition risks, such as policy changes and shifts in social norms as the economy adjusts to more sustainable approaches.

It also highlighted that more support is needed for initiatives around nature-related financial risks, building upon the work on climate-related financial risks.

It has been estimated that total annual global public and private funding supporting biodiversity conservation is outstripped by destructive agricultural, forestry and fishery subsidies by more than 3.5-fold, referred to as the biodiversity financing gap. Reducing the $500bn of environmentally damaging government subsidies globally and financing of activities that increase nature-related risks are the focus of several initiatives. These include the Taskforce on Nature-related Financial Disclosures to create a framework to measure and publicly report the financial risks posed by nature, biodiversity and habitat degradation and the G20 Sustainable Finance Group to develop a multi-year Roadmap for Sustainable Finance. A study of Fortune 500 companies found only five set specific targets to account for ecological risks, and although effective reporting of environmental, social and governance risks could encourage investments in biodiversity, the current lack of standards raises reliability concerns.

A POSTnote on this subject will summarise the financial risks arising from investments that lead to biodiversity loss and the standards required to ensure effective investments in projects and activities purported to create biodiversity gains or to be more sustainable.

Image: Nets by Miemo Penttinen, under CC BY 2.0

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