Report: Nature is the key to a net-zero and more resilient economy

A new report explores the challenges and opportunities of nature-related risks for the insurance industry and highlights ways insurers are enabling sustainable business models in nature-dependent sectors through underwriting and investing.

The report, "Nature and the Insurance Industry: Taking action towards a nature-positive economy," was published by The Geneva Association, a global association of insurance and reinsurance company CEOs.

The report encourages insurers and reinsurers to take immediate action to help reduce nature-related risks and propel the shift towards more sustainable business models — both of which are essential to the transition to a nature-positive, net-zero and more resilient economy.

“Nature-based solutions should be considered an integral part of the design, construction, operation and maintenance of critical infrastructure systems to reduce extreme weather risks and increase resilience,” according to the report. “Reducing greenhouse gas emissions cannot be done at the expense of nature loss and other environmental impacts. Ultimately, addressing climate change and nature and biodiversity loss together with a system-based approach will be necessary if either is to be solved.”

Mark Way, Head of Sustainability Underwriting for Zurich North America, and several of his colleagues at Zurich, contributed to the report. Way, who was Head of Climate Risk & Resilience at The Nature Conservancy before joining Zurich in 2021, recently talked about the importance of nature-based solutions to address climate resilience.

Q: How have your roles at The Nature Conservancy and elsewhere shaped your views on the importance of nature-based solutions to climate resilience?

Mark Way: Nature has a knack of causing us major problems. You can think about natural catastrophes, especially weather-related events that we experience. But nature is simultaneously part of the solution to some of the challenges we have around climate change.

Nature and biodiversity are absolutely critical for the global economy. In recent years, the understanding and appreciation of its value, also in the insurance industry, has become much more recognized.

Nature, for the large part, has been taken for granted and often suffered from the tragedy of the commons. Overfishing of the world’s oceans is a good example. Quantifying nature’ value is now something which multiple organizations have tried to do, and this has helped people understand what we are risking if we continue to damage and degrade it. And if you look at those values, you're talking in the multiple billions and even trillions of dollars’ worth of value that it creates for us, in addition to its intrinsic value and the importance it holds to many cultures and communities.

It's especially critical that we protect the most biodiverse areas of the world. One of my favorite examples is coral reefs. The EPA estimates that 25% of all marine life, including 4,000 species of fish, are dependent on coral reefs during some stage of their life cycle. This translates into real importance for our species. It is estimated that approximately one billion people benefit from coral reefs across the world for food, income and coastal protection.

And coral reefs face a massive threat from climate change, including ocean acidification, overfishing and damage from tourism and development. But they also provide significant protection value by reducing the severity of storm surge. And it’s not just reefs that provide protection against extreme weather and flooding, so do mangroves, oyster reefs, salt marshes, forests, natural floodplains, freshwater marshes, etc. The value of this protection is significant, and as stated previously, starting to be measured. The hope is that once it’s measured, it will be better protected and preserved.

So, anything that has that risk connection — anything that has a value in reducing risk — is something that should be of interest to our industry. Historically we have not taken enough interest. But that is changing quite rapidly, partly due to organizations like The Nature Conservancy, Conservation International, the United Nations, World Resources Institute, World Economic Forum and insurance industry platforms like The Geneva Association. Our dependence on nature is becoming a risk management concern of many companies, which will accelerate as companies quantify and report on the risks to their bottom lines from biodiversity loss and ecosystem degradation. Mandatory reporting on nature may not be that far away. The Taskforce on Nature-Related Financial Disclosure is due to publish its recommendations in September 2023.

Q: Can you share how nature-based solutions can help combat the effects of climate change?

Mark Way: It's well established that sea levels have risen and are continuing to rise as a result of global warming, which is exacerbating coastal flooding. Ecosystems like reefs, mangroves and salt marshes act as the first line of defense. If a reef, for example, is close to the shoreline, it will provide protection against storm surge. The wave attenuation value of reefs, mangroves, salt marshes, etc. also protects shorelines from constant erosion on a day-to-day basis.

Nature helps not only in defending against the physical impacts of severe weather but also sequestrates carbon. The Nature Conservancy in 2017 released a groundbreaking study which showed that nature-based solutions could absorb almost 40% of the emissions reductions needed by 2030 to keep global temperatures under 2 degrees Celsius.

So, basically, however we look at it, whether it is building resilience to climate change or reducing greenhouse gas emissions to reduce global warming, nature has a critical role to play.

Q: The new report from The Geneva Association focuses on the impact that insurance can make. Why is this issue so important for the insurance industry?

Mark Way: From a business perspective, we have a vested interest in protecting nature. As an industry, we are heavily exposed to the impacts of weather-related events and, as discussed, nature can build resilience and help mitigate global warming. Combatting climate change will require an “all of the above” type of approach. That means, for example, behavioral change, technology breakthroughs, as well as investment in the protection and restoration of nature.

But we can also think about protecting nature as a business opportunity in terms of product and market development. We have seen the emergence of insurance for nature in Mexico for a coral reef off the coast of Quintana Roo. This has now spread to other areas of the Caribbean and, just last month, we saw reef insurance bought to protect Hawaii’s reefs. This is the beginning of a new market, and we are already seeing interest in using this approach to protect other ecosystems in other areas of the world. As more and more funding flows into conservation finance, and projects to offset and remove carbon grow, the demand for insurance products will also increase.

For more information about The Geneva Association report, you can view a video of a recent webinar, Net Zero & Nature Positive: Leveraging insurance in the economic transition.