Insuring Nature's Survival : The Role of Insurance in Meeting the Financial Need to Preserve Biodiversity
Biodiversity loss will be an increasingly important source of risk and opportunity for the insurance sector. The significant degradation of ecosystems has the potential to materially impact global finance, economies, and societies alike. Understand...
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| Format: | Report |
| Language: | English |
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Washington, DC: World Bank
2022
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| Online Access: | http://documents.worldbank.org/curated/en/099850304272234140/IDU02b17904f04af504b8f087f708041ff6d79d4 http://hdl.handle.net/10986/37437 |
| Summary: | Biodiversity loss will be an
increasingly important source of risk and opportunity for
the insurance sector. The significant degradation of
ecosystems has the potential to materially impact global
finance, economies, and societies alike. Understanding the
physical and transition risks associated with biodiversity
loss and working to mitigate the damage to biodiversity will
be a key aspect of meeting the targets set by the Paris
Agreement. Insurance companies will be impacted by
biodiversity risks in several ways: as underwriters, as
investors, and as corporate citizens. Insurers will be
impacted both by changes in climate and biodiversity and by
transition risks affecting the risks they insure or the
investments they make. Insurance can promote investment in
biodiversity in three ways: (i) asset protection, (ii)
liability reduction, and (iii) facilitation of capital
inflow from the financial markets. Ideally, efforts to
protect biodiversity will include a combination of
instruments, not only insurance. Insurers, as investors, can
contribute directly to the preservation of biodiversity by
channeling capital towards biodiversity-positive
investments, but the opportunities to do so are still
limited. The G20 Sustainable Finance Roadmap (G20 SFWG,
2021) highlighted the need to integrate nature and
biodiversity in future work on sustainable finance. The
financial materiality of underestimating or inaccurately
pricing biodiversity-related risks could pose a threat to
the solvency of the insurance industry and lead to an
increase in exclusions of uninsurable risks. Risk management
can be enhanced by combining the results of both catastrophe
and climate risk models, but more needs to be done to
incorporate biodiversity risk. Combining ecological action
with financial protection can make good economic and
financial sense and help overcome the pricing issues
associated with risks such as wildfire. |
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