Businesses are more dependent on nature and biodiversity than expected, according to The New Nature Economy Report, released on Sunday, January 19, 2020.
Analysis of 163 industry sectors and their supply chains found 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. 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.
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.
“We need to reset the relationship between humans and nature,” said Dominic Waughray, Managing Director at the World Economic Forum. “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.”
“Given the scale and severity of nature loss, business needs a wake-up call,” said Celine Herweijer, Partner and Global Innovation and Sustainability Leader, PwC UK. “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.”
Potential for a nature positive-economy
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. This could be adapted and leveraged for managing nature risks.
“It is important to note that there is a path forward,” Waughray said. “Businesses can formulate specific pathways to help ‘bend the curve’ of nature loss and damage within the decade by slowing down and halting biodiversity loss, then restoring nature and – as a massive co-benefit – contribute to achieving net-zero emissions by mid-century through smart nature-based solutions, all in the same package. There is potential for a win-win-win for nature, climate, people and the economy, but the science is telling us we must start this urgent transition now.”
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 “New Nature Economy Report” series aims to catalyse a public-private momentum in 2020 with a focus on the UN Convention on Biological Diversity (CBD) crucial summit (COP15) in Kunming, China, and the related Business for Nature mobilisation. In the run-up to this event, the UN CBD has released its zero draft of the post-2020 Biodiversity Framework with the aim of setting the path to transforming society’s relationship with biodiversity and to living in harmony with nature by 2050