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3 ways for the insurance industry to promote biodiversity

Improving biodiversity is aligned with the interests of the insurance industry because diminished biodiversity presents operational, physical, transition and disruption risks to a significant number of businesses.
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By Amy Barnes , 

Head of Climate & Sustainability Strategy

16/11/2022 · 3-minute read

Protecting our environment is a virtuous cycle: if we look after nature then it will look after us. High levels of biodiversity play a crucial role in building and maintaining resilience. But the variety of life on our planet is being degraded faster than ever before, as Biodiversity Day at COP27 has emphasized. Some experts estimate that the rate of human-induced species loss could be as much as 1000 times faster than the natural average.

That isn’t just bad news for the planet, it’s also bad news for business. More than half of the world’s annual economic value generation – some $44 trillion – is moderately or highly dependent on nature and the services it provides. These “ecosystem services” are made possible by a high degree of biodiversity, but they are being stripped away by human activities.

Improving biodiversity is aligned with the interests of the insurance industry because diminished biodiversity presents operational, physical, transition and disruption risks to a significant number of businesses. Here are three ways that insurers can take action to promote increased biodiversity.

1. Incentivize investment in biodiversity-positive activities

The smooth operation of the insurance industry is underpinned by the sustainable use of nature. Insurers have significant incentive  to invest in nature because it reduces the physical and transition financial risks that their clients are exposed to.

Insurance products can promote investment in nature-positive activities through:

  • Asset protection. Property insurance can provide financial resilience for natural assets such as mangroves or coral reefs so that funds are available for restoration following damage.
  • Liability reduction. Covers could protect corporations that inadvertently damage or destroy biodiversity and to make reparations, including protection against reputational or legal risks.
  • Capital inflow facilitation. Bonds and similar solutions – especially those that utilize parametric tools, which cover natural catastrophe risks – can help persuade capital-market investors to fund biodiversity-positive activities.

2. Address the challenges in pricing nature risk

The Dasgupta report highlights the significance of the need to address this issue and several frameworks exist to account for the economic value of natural assets. However putting a value on nature is both controversial and complex. 

3. Increase advocacy for climate resilience

Insurance plays an important role by incentivizing adaptation measures and providing financial protection when severe shocks happen. In acknowledgement of the industries role, the insurance industry is active at crucial climate summits and in global nature forums to encourage regulators, policymakers and other financial sectors to take robust action on nature.

Insurance won’t solve the nature crisis, but the industry can act as a bold voice to help mobilize the finance needed to support adaptation and resilience to nature risk. Not just because, it is the right thing to do but also because it makes good business sense.

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