A report from a major insurer on quantifying nature loss risk has been critiqued by several stakeholders in the nascent biodiversity crediting market citing poor data and undervaluing the impact of the destruction of species on the economy.
The paper, published at the end of February by Germany’s Allianz and titled ‘The new risk frontier in finance: biodiversity loss”, looked in detail at pollination and described the economic risks the finance sector faces in the face of rising nature loss.
Authors cited data from fellow insurers Swiss Re, which estimates that 55% of the global economy depends on well-functioning biodiversity and ecosystem services.
The financing gap to restore biodiversity until 2030 as per the Global Biodiversity Framework (GBF) agreed at COP15 in December has been estimated at over $700 billion per year with many seeing the channeling of private finance as key to meeting targets in the historic deal signed in Montreal.
In the agreement itself, several points directly call on the private sector to invest, with a number of organisations developing methodologies for crediting nature restoration and protection as a market-based solution similar to that which the voluntary carbon market (VCM) offers for climate.
The Allianz report attempted to quantify the risk of pollination loss, one of the greatest concerns for nature at present.
“A complete elimination of pollination would cut agricultural output by between 2.0% in the UK to 7.9% in Belgium. […] In absolute terms, this would be equivalent to between $1 bln (Portugal) & $28 bln (US) annually,” it said.
Allianz also argued that reduced pollination could benefit the industrial and services sector indirectly.
“Reduced pollination can increase the production of sectors that benefit from the land, capital, and labor released by the contracting agricultural sector, notably the industrial and services sector. In France and Italy, for instance, the positive impact could exceed $4 bln per year,” the report stated.
These monetary results go a long way in helping the financial sector to quantify possible portfolio impacts of biodiversity loss, it added.
But members of the biodiversity finance community have slammed the report online, suggesting that its attempt to quantify nature, while acknowledging the difficulties in doing so, is fundamentally flawed in approach.
Christian Fu Muller, vice-president at European nature project developer Recelio, pointed out that the global economy depends 100% on well-functioning biodiversity, and not just a a fraction of this as suggested in the paper.
“No matter how many clever methods you use to calculate, the end result has nothing to do with reality because it is overly simplistic & reductionist,” he wrote on LinkedIn.
“Pollinators, including insects such as bees, butterflies, and moths, are essential for the reproduction & survival of many other species, which in turn support human food systems, biodiversity, and ecosystem health.”
“If pollinators were to disappear, in addition to plants, which rely on pollinators for seed production & genetic diversity, many other species in the food web would be impacted,” he added.
He called on finance firms to avoid producing such “reductionist” reports, suggesting they were a waste of time and money, pointing instead towards a recent paper by UK pension fund Scottish Widows that called on the UK to regulate climate and nature crediting markets.
Recent studies have suggested the impact of private finance has its limitations for nature and the scramble to quantify aspects of biodiversity are risky.
Adrien Firmenich, CEO of start-up Quantifying Nature, described the Allianz report as “nonsense in a rush”, while Gwyneth Fries, expert senior manager, sustainability at consultants Bain & Company, said she agreed that the findings “completely undervalue ecosystems”.
Some experts commented, however, that while the research was flawed, it was necessary to start trying to quantify such risk.
“It’s a bit silly and sad that we have to value ecosystems with dollar amounts that are intelligible to the financial world. But this is something we have to do,” Bain’s Fries also said.
“I am pleased to see that (finally) there is some increased attention across the board. Hopefully this will mean that the quality of analysis and communications will increase too,” commented Zubair Zakir, founder at climate start-up Anthropocene.
Others suggested that despite the difficulties with quantifying, the nature community should look to help develop and improve the research.
By Roy Manuell – firstname.lastname@example.org
*** Click here to sign up to our weekly biodiversity newsletter ***