Investors warned on biodiversity risk in key sectors
London, 11 June: Investors have been warned of the “critical risks” to key sectors from biodiversity and ecosystem loss, in a report by the European Sustainable Investment Forum (Eurosif) and sustainable ratings agency Oekom Research.

“Biodiversity loss and the decline in ecosystem services are risks for many industries,” said Matt Christensen, executive director of Eurosif. “However, if quantified and managed as part of a greater social and environmental management system, market opportunities may open up.”

The report highlights five sectors which have a high impact on biodiversity and ecosystems, or are largely dependent on them to do business: agriculture and food; extractive industries; paper and forestry; real estate and infrastructure; and tourism. It also warns of the knock-on effect for financial services companies.

The agriculture and food sectors, for example, are one of the major drivers for damage to biodiversity and ecosystems, and 70% of fresh water resources are used to irrigate fields, according to the report. But the sectors are also highly dependent on biodiversity and ecosystems, and in future may face regulatory restrictions on cultivating land or disruptions to the supply chain – for example, through over-fishing.

In general, businesses face a raft of potential risks from degradation of ecosystems and loss of biodiversity, including reduced availability of resources and commodities; restrictions and regulations; rising prices for commodities; difficulty accessing capital; legal action; and damage to reputation.

“In contrast to other goods and services, the market price of many ecosystem services ... is still, as yet unknown,” the report warns. Some figures are available, but only for isolated examples. Eurosif highlighted the interim findings of The Economics of Ecosystems and Biodiversity, a major ongoing research project, which put the value of services provided by nature in protected areas alone at €3.7 trillion ($5.3 trillion) a year.

Rolf Häßler, director of business development at Oekom Research, said: “Even though it remains challenging to provide a precise value on biodiversity risks, companies which include this as part of their risk management will be ahead of their peers. A key priority is to identify, measure and disclose the biodiversity impacts of businesses, both positive and negative.”

Financiers may face reputational risks from financing controversial projects or companies which damage ecosystems or threaten biodiversity, according to the report. But companies and projects which fail to tackle their exposure to biodiversity risk may also lose markets and be held liable for damages, default on loans or fail to realise growth and equity valuations, the report says.

Financiers should address the risk, the report urges, by taking a number of actions, including: recognising international standards, such as the Equator Principles for project finance; drawing up policies on financing activities and companies which cause harm to biodiversity and ecosystems; and carrying out comprehensive risk analyses.

But Eurosif identified market opportunities, too, such as the creation of new financial products and services, including carbon management and wetlands banking, and insurance to cover biodiversity damage.

The report was prepared with a steering committee including representatives from ASSET4, Dexia Asset Management, ECPI, Fortis Investments, GES Investment Services and WWF.