Biodiversity risk: taking responsibility

Responsible and risk intelligent organisations need to understand biodiversity and why it’s increasingly important, John Ludlow, Airmic’s CEO explains.

Biodiversity is all the different kinds of life that make up our natural world.  Species and organisms work together in ecosystems, like an intricate web, to maintain balance and support life. Biodiversity supports everything in nature that we need to survive. Biodiversity loss puts our food supplies and medical care at risk.

One attempt to put a monetary value on the goods and services ecosystems provide comes to an estimate of $33 trillion a year. That is close to the combined economies of the US and China.  Despite the huge losses to biodiversity that humans have already caused, the velocity of these losses is increasing and will hit bottom lines. Biodiversity is a top five global risk.

Few corporate leaders or risk professionals in 2021 can be unaware of the redoubled focus of almost every part of society, from governments to individual citizens across the globe, demanding that we all take greater responsibility for preserving the planet, climate risk and environmental sustainability.

There is a trade-off to be accepted and achieved between tolerance of environmental damage and the pursuit of economic growth to achieve sustainable development. However, that trade-off is changing.

Construction and infrastructure projects to stimulate economic recovery after the pandemic will need to demonstrate as never before that they are not sacrificing nature’s sustainability in the name of growth.  Biodiversity in particular will be paramount: this is the variety of all plant and animal life on Earth or the genes, species and ecosystems within any given habitat.

Biodiversity has been recognised as a major element of environmental, social, and corporate governance (ESG) through which corporations are expected to have to prove that they are responsible actors.  ESG risks are an increasing driver of brand and reputational as well as legal and compliance risk. Regulators are increasingly moving to make sure that companies’ ESG goes beyond aspirations or policy documents to show measurable actions with demonstrable results.

Embracing Biodiversity will require an extension of the capabilities and competencies already used for other risks, from terrorism to flood risk. Risk intelligence and risk mapping assets and projects against an increasing array of risks and applying and adapting risk controls will enable risk managers to balance growth and the need to be responsible. I understand this from my own career working as a risk manager in the international hotels sector.

Data sets for risks such as flood have been correlated against geolocations to generate risk profiles for assets for some time and now risks like biodiversity are being mapped. The Integrated Biodiversity Assessment Tool (IBAT) is one example.  Over time these data sets will be combined to enable holistic risk based decision making and integrated risk strategies.

At the moment, each kind of risk typically has its own tools or solutions. Risk mapping solutions that can be applied to more than one kind of risk would make the job easier, linking biodiversity with the other facets of risk, as budget constraints tend to limit how many tools are in a typical risk manager’s toolbox. Some insurers, such as Axa, are already thinking of solutions in this space.

More broadly useful tools that will allow corporates, banks and insurance companies to holistically understand risk profile of sites and investments. Meanwhile the benefits of a more proactive stance on biodiversity risk by risk managers are clear. It’s core to Airmic’s theme for 2021 of “Driving Transformation – Shaping the Future” on risks as diverse as climate change and the pandemic. As a profession we want to use business risk intelligence, understand the threats and vulnerabilities to the future environment, and shape risks and opportunities wherever possible to our benefit.

Few corporate leaders or risk professionals in 2021 can be unaware of the redoubled focus of almost every part of society, from governments to individual citizens across the globe, demanding that we all take greater responsibility for preserving the planet, climate risk and environmental sustainability.

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