Insuring Nature's Survival: The Role of Insurance in Meeting the Financial Need to Preserve Biodiversity

Biodiversity loss will be an increasingly important source of risk and opportunity for the insurance sector. The significant degradation of ecosystems has the potential to materially impact global finance, economies, and societies alike. Understanding the physical and transition risks associated with biodiversity loss and working to mitigate the damage to biodiversity will be a key aspect of meeting the targets set by the Paris Agreement.

Insurance companies will be impacted by biodiversity risks in several ways: as underwriters, as investors, and as corporate citizens. Insurers will be impacted both by changes in climate and biodiversity and by transition risks affecting the risks they insure or the investments they make. As with climate-related risk, the concept of double materiality applies to biodiversity risk, as insurance companies can impact biodiversity through both investment and underwriting activities.

The risks to biodiversity are only now gaining attention, and much hope is placed on the Post-2020 Global Biodiversity Framework to be agreed upon at the Biodiversity COP (Conference of Parties) in the third quarter of 2022. Should any resulting global agreements specify key targets that can inform regulatory practices, the insurance sector will have a great opportunity to develop a market for nature-based insurance. In the absence of globally agreed targets, efforts to develop nature-based insurance will continue to be driven by a few key investors with vested interests or by corporates in the context of increased disclosure requirements.

This paper explores how and to what extent insurance can play a role in meeting the increasing financial needs to protect biodiversity. It outlines how the insurance sector, as underwriters, may impact and protect against biodiversity risks, leveraging approaches to climate change and catastrophe risk to highlight key opportunities and challenges that exist for insurance-based solutions for biodiversity.