The insurance industry can play a significant role in helping reduce the investment risk of nature-based solutions and improve the integrity of carbon offset transactions. This is important, as nature-based solutions such as forestry conservation and restoration projects, can deliver multiple benefits — from climate mitigation to biodiversity improvement, disaster risk reduction and local economic wellbeing.
It is encouraging to see how voluntary carbon markets are helping fuel investments into nature-based solutions. However, carbon offset projects remain subject to a myriad of risks, including natural disasters, pest infestations, environmental pollution and political and regulatory changes. Furthermore, poorly designed projects may even exacerbate these issues.
Recent innovation in insurance solutions can help mitigate some of these risks, encourage higher quality of carbon offset transactions and, ultimately, enable greater capital flows to areas where investment is most critical, such as emerging markets.
Biodiversity crisis has never been more acute
The World Economic Forum finds that $44 trillion of economic value generation (over half the world's total GDP) is moderately to highly dependent on nature, and as a result is materially exposed to the numerous risks stemming from nature loss.
Nature is declining globally at rates unprecedented in human history — and the rate of species’ extinction is accelerating, with grave impacts on people and communities around the world. The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) 2019 study found that around one million animal and plant species are currently threatened with extinction, many within decades, a biodiversity decline greater than ever witnessed before. The loss of biodiversity is not only an environmental issue, but also a developmental, economic, security, social and moral issue. At the current rate of nature loss, 80 percent of the assessed targets of the UN Sustainable Development Goals (SDGs 1, 2, 3, 6, 11, 13, 14 and 15) run the risk of not being met.
Around one million animal and plant species are currently threatened with extinction, many within decades, a biodiversity decline greater than ever witnessed before.
Another study, which examined land use changes between 1960 and 2019, found that since 1960 there has been a net loss of over 800,000 square kilometers of forest area. When normalized by the global population data, this translates to just half a hectare of forest for every person on the planet left today, from 1.4 hectares that were available in 1960.
With our dependence on nature to provide a range of ecosystem services, the current trajectory of nature loss is alarming. Time is not a luxury we have to figure out innovative solutions to curb and mitigate its worst impacts.