Biodiversity loss and land degradation: An overview of the financial materiality
This report provides key insights into the materiality of biodiversity loss and land degradation with a focus on financial risks while reviewing the literature available. The report highlights biodiversity’s prominent role in the economy, the major threats to biodiversity, the tools available to measure biodiversity’s impact and outlines a typology for nature-related financial risks.
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OVERVIEW
Biodiversity is “the variety of life on Earth” and is essential for the earth’s natural systems to function. Without it, nature cannot provide ecosystem services. The report states that nature is currently being lost at an unprecedented rate. There are several reasons why biodiversity loss matters including:
- Biodiversity and the services it provides underpin the global economy with around 44 trillion US dollars of moderate or high economic value generated each year being dependent on nature.
- The loss of biodiversity decreases the resilience of ecosystems, making it more difficult to adapt to changes such as climate change.
The financial materiality of biodiversity loss
The report outlines three ways to measure the financial materiality of biodiversity loss:
- By valuing the cost of repairing degraded land and environment.
- By the volume of ‘biodiversity finance’ available for conservation, sustainable use and restoration of biodiversity. The value of this finance is $78-91 billion globally.
- By identifying what industries are dependent on nature and then totalling the value of the economic outputs of these industries. Industries dependent on biodiversity contribute over $44 trillion to the global GDP each year.
How biodiversity loss is measured (tools and data)
The report provides several tools and methods to measure biodiversity loss and includes a detailed list of indicators. Metrics used to measure biodiversity loss include species extinction risk, pollinator and water quality indicators and measuring the nature of financial risks.
Why land degradation matters
Land degradation undermines ecosystem services and has a significant impact on economic systems. The report highlights that land is one of the most vital resources on earth. According to the report, more than two-thirds of the world’s land is degraded, resulting in an estimated cost to the global economy of $6.3 trillion annually.
The financial materiality of land degradation
The report identifies land degradation as one of the largest contributors to environmental damage worldwide. It costs the equivalent of US$10.6 trillion annually, accounting for more than 16% of the estimated global GDP. It can be measured by evaluating the ‘services’ that land provides and by assessing cash flow risks for agriculture, forestry or tourism.
How land degradation is measured (tools and data)
The report provides several tools and methods to measure land degradation and includes a detailed list of indicators. These indicators include the Land Use Change Index, the Ecosystem Service Index, the Soil Health Index and the Water Scarcity Index.
In conclusion, the report finds that financial risk related to biodiversity loss and land degradation can be better assessed with improved data, metrics and tools. The report suggests that the financial community examine its existing practices and disclosures related to nature-linked risks and opportunities and explores ways to mainstream nature’s consideration of a financial decision-making process.
