Businesses are more dependent on nature and biodiversity than they may realise, according to The New Nature Economy Report produced by the World Economic Forum (WEF).
An analysis of 163 industry sectors and their supply chains found that more than half of the world's GDP is moderately or highly dependent on nature and its "services".
Pollination, water quality and disease control are just three examples of the services that an ecosystem can provide.
Economic value generation amounting to US$44 trillion -- 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 WEF 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, six industries 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.
Consequently, 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 of the WEF. "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 with 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."
PATH FORWARD
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.
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 for managing nature risks.
"It is important to note that there is a path forward," Mr 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."
Costs are likely to rise for businesses that have not begun to include nature at the core of their enterprise operations, he said. Businesses that ignore this trend will be left behind, while those that have embraced the transformation will exploit new opportunities.
"Natural disasters have caused a significant impact to the business community, the wider economy and the general public, including people like us," said Sira Intarakumthornchai, CEO of PwC Thailand. "Needless to say, 2020 looks to be another difficult year after we saw record-high temperatures in Antarctica, the devastating bushfires in Australia and the dust pollution in and around Bangkok.
"The coronavirus, Covid-19, also presents challenges similar to those of a natural disaster. These examples underline the need for cooperation in using natural resources responsibly and promoting sustainability in various sectors."
To download the full report, visit https://bit.ly/39olleZ