New report warns over half the world’s total GDP exposed to risks from nature loss
- January 21, 2020
- Category: Environmental, Conferences, Investment and Finance, Corporate
A new report released by the World Economic Forum at its annual meeting in Davos which takes place this week is warning that $44 trillion of economic value generation – over half the world’s total GDP – is moderately or highly dependent on nature and its services and, as a result, exposed to risks from nature loss.
The New Nature Economy Report provides a deep dive into how nature loss is material to businesses in all industry sectors and makes a clear argument for nature-related risks to be regularly identified, assessed and disclosed by business – as is now increasingly the case for climate change risks.
The report says that all businesses depend on natural capital assets and ecosystem services either directly or through their supply chains.
The analysis of 163 industry sectors and their supply chains finds that over half of the world’s GDP is moderately or highly dependent on nature and its services. Pollination, water quality and disease control are three examples of the services an ecosystem can provide.
$44 trillion of economic value generation – over half the world’s total GDP – is moderately or highly dependent on nature and its services and, as a result, exposed to risks from nature loss, the report says.
Construction ($4 trillion), agriculture ($2.5 trillion) and food and beverages ($1.4 trillion) are the three largest industries that depend most on nature. Combined, their value is roughly twice the size of the German economy. Such industries rely on either the direct extraction of resources from forests and oceans or the provision of ecosystem services such as healthy soils, clean water, pollination and a stable climate.
The report is warning that as nature loses its capacity to provide such services, these industries could be significantly disrupted. Industries highly dependent on nature generate 15% of global GDP ($13 trillion), while moderately dependent industries generate 37% ($31 trillion).
The World Economic Forum report, produced in collaboration with PwC UK, found that many industries have significant “hidden dependencies” on nature in their supply chain and may be more at risk of disruption than expected.
For instance, there are six industries which have less than 15% of their direct gross value added (GVA) that is highly dependent on nature, yet over 50% of their supply chains’ GVA is highly or moderately nature-dependent. The industries are chemicals and materials; aviation, travel and tourism; real estate; mining and metals; supply chain and transport; and retail, consumer goods and lifestyle.
In terms of global exposure, larger economies have the highest absolute amounts of GDP in nature-dependent sectors: $2.7 trillion in China, $2.4 trillion in the European Union and $2.1 trillion in the United States. This means even regions with a relatively lower share of their economy at high exposure to nature loss can hold a substantial share of the global exposure and, therefore, cannot be complacent.
Nature risk needs to be mainstream issue for corporate risk management – wake-up call for business
Dominic Waughray, Managing Director at the World Economic Forum commented:
“We need to reset the relationship between humans and nature. Damage to nature from economic activity can no longer be considered an ‘externality’. This report shows how exposure to nature loss is both material to all business sectors and is an urgent and non-linear risk to our collective future economic security.”
According to Celine Herweijer, Partner and Global Innovation and Sustainability Leader, PwC UK, given the scale and severity of nature loss, business needs a wake-up call.
“The cascading physical, regulatory and legal, market and reputation risks we see mean nature risk now needs to be a mainstream issue for corporate enterprise risk management. We have an opportunity to extend the recent response of regulators, businesses and investors on climate change to nature; both are interrelated and both pose a systemic risk to the global economy. As for climate, business leaders need to identify and minimize the material nature-related risks but also play a part in restoring nature.”
“The very need for this report shows that we are in dire straits. We all rely on nature and we all take it for granted,” said Alan Jope, Chief Executive Officer of Unilever. “Business and government leaders still have time to act on the findings of the New Nature Economy Report. If we work together, COP15 and COP26 can generate the commitments we need to move the planet from the emergency room to recovery.”
“Together we can put nature at the heart of a healthy world economy,” said Marco Lambertini, Director-General of WWF International. “This research provides compelling evidence of the tremendous extent to which our economy depends on nature and its services. Business can play a critical role in reversing nature loss by adopting sustainable practices – which make sound business sense. Governments must make ambitious decisions and adopt a New Deal for Nature and People in 2020 for the future of our economies and society.”
Costs likely to rise for businesses which fail to include nature at core of their operations
Nature-related risks can be incorporated within existing ERM (enterprise risk management) and ESG (environmental, social and governance) processes, investment decision-making, and financial and non-financial reporting. Using a similar framework across environmental risk, categories should enable more efficient and effective integration into business decision-making.
Many large businesses have already adopted the framework proposed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) for identifying, measuring and managing climate risks. The report says this could be adapted and leveraged for managing nature risks.
However, as the trend for greater transparency and accountability continues, costs are likely to rise for businesses which have not begun to include nature at the core of their enterprise operations. Businesses that ignore this trend will be left behind while those that have embraced this transformation will exploit new opportunities.
The World Economic Forum Annual Meeting 2020 which is taking place on 21-24 January 2020 in Davos-Klosters, Switzerland, brings together over 3,000 global leaders from politics, government, civil society, academia, the arts and culture as well as the media.
Click here to download the WEF report in full Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy