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Carbon emissions are a big part of the climate debate, but the planet’s biodiversity is rapidly shrinking, threatening to undermine the broader climate agenda.
Without meaningful change, the global economy, business and finance as well as the well-being of people around the world will be severely affected.
But biodiversity loss is creating opportunities for companies and investors to step up to reverse the tide.
interwoven system
Biodiversity is the diversity of living organisms such as animals, plants, fungi, and microorganisms in a particular area. When forests are cut down or animals become extinct, the impact is not only on the ecosystem but also on the economy. Coral reefs and mangroves prevent sea level rise and storm surges. Forests and wetlands reduce flood risk.
According to the World Wildlife Fund’s latest Living Planet report, the decline of these lifeforms has progressed significantly. In total, 69% of the world’s wildlife populations have been lost over the past half century.
To make matters worse, a vicious circle has emerged in which biodiversity loss contributes to global warming. For example, according to a study by the Glasgow Financial Alliance for Net Zero, deforestation, the cutting of trees primarily by diesel-fueled machinery, is responsible for 11% of global greenhouse gas emissions, which is accounted for 11% of global greenhouse gas emissions. More than cement production.
Not only does it increase the amount of carbon in the atmosphere, it also eliminates natural carbon scrubbers. According to Natural England, terrestrial and marine ecosystems sequester more than half of the anthropogenically generated carbon. . Simply put, we are unlikely to meet the goal of net zero carbon emissions by 2050 without stopping and reversing deforestation.
Loss of biodiversity can also hurt wealth creation from nature itself. The World Economic Forum believes that more than half of the world’s Gross Domestic Product (GDP) (about $44 trillion) depends to some degree on nature. His three sectors alone – construction, agriculture and food and beverages – generate nearly $8 trillion in added value for him, roughly double the German economy. But according to the World Wide Fund, Asia has lost 55% of its natural capital in the last 50 years.
In short, there is a strong business and investment case to reverse biodiversity decline. In our conversations with clients, we were struck by the level of engagement by business and finance leaders. They are increasingly realizing that risks from biodiversity loss can arise at the company or portfolio level if they do not act quickly.
early mover
Perhaps that explains the recent interest in the Biodiversity Fund. By 2022, it is estimated that at least $12 billion will be raised by funds focused on investing in agriculture, forestry and biodiversity. Just as investors have found opportunities to profit from the net-zero transition, others are looking at ways to profit from their biodiversity spending. We also believe that carbon credits are a rapidly growing market. In addition, investors form coalitions to share best practices and develop frameworks.
We must go further. According to the Paulson Institute, the Nature Conservancy, and the Cornell Atkinson Center for Sustainability at Cornell University, spending on biodiversity conservation in 2019 was $124 billion to $143 billion. That leaves a funding shortfall of about $700 billion a year, they say. His promise at COP15 last month to mobilize $200 billion annually by 2030 would be a useful starting point.
next step
According to the Biodiversity and Finance Partnership, only 3% of global climate investment in 2017-18 was for agriculture, forestry and other land use and natural resource management. Part of the problem is that businesses struggle to give it a monetary value. “Wall Street has realized that for the past 150 years, it has been pricing natural assets at zero,” argues David Craig, co-chair of the Task Force on Nature-Related Financial Disclosures.
We are still in the early stages and many of the options are not black and white. With the goal of ensuring that these efforts are complementary and simultaneously support climate mitigation and biodiversity, we urgently need a spirit of experimentation.
Three factors go a long way
Capturing the potential economic impact of biodiversity loss is difficult.We need better data and tools Measure impact and manage risk. Improving measurements by drones, satellite imagery, soil sensors, etc. is one of the opportunities for growth.
But there is no consensus on how to do this or a general set of measures, and it will be a long road, given the ongoing debate around relatively simple measures such as corporate earnings. I guess. A unified framework could help businesses amid an expanding scope of guidance and regulation.
The great work that has come out of our joint work on the Nature-Related Financial Disclosures Task Force needs further support. Reporting can and should piggyback on existing climate and carbon initiatives.
Enterprises should seek innovative mechanisms. Unlock funding for nature conservation and nature-based solutions. Carbon credits can be useful, especially if they add more value to biodiversity enhancement. Mechanisms like the United Nations High Commissioner for Refugees’ new Refugee and Environmental Fund, which are investing in reforestation in climate-vulnerable refugee settings, are one of the early examples. Financial institutions can also establish deforestation policies in line with the goal of net-zero global emissions by 2050.
How to close the funding gap Government encouraging investment, in addition to conventional policy measures. Blue bonds (debt instruments used to finance marine projects with environmental benefits such as coral protection) are a great start. Governments will spend more in the coming years on climate change adaptation and mitigation. We also need to spend more on biodiversity.
Biodiversity is the next financial frontier. It’s time for business leaders, investors and governments to go boldly where they’ve never been before.
Nick Studer is CEO of the Oliver Wyman Group, a global management consulting firm.
Opinions expressed in commentary articles on Fortune.com are solely those of the authors and do not necessarily reflect the opinions or beliefs of the authors. luck.
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