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Viewpoint: Insurers can support the development of a nature-positive economy

Taking action now could reduce exposure to nature-related risks and open up business opportunities

As risk managers and investors, re/insurers must act at the crossroads of natural capital, climate change and socioeconomic development

Large-scale nature degradation and biodiversity loss is one of the top five long-term risks facing humanity in the next five to 10 years and the need to protect natural capital is gaining global attention.

In December 2022, representatives from 188 governments came together in Montreal at the 15th Conference of Parties to the UN Convention on Biological Diversity and adopted the Kunming-Montreal Global Biodiversity Framework to guide global action on nature to 2030.

The Geneva Association recently published a major report in which it explored the latest scientific evidence on the impact of human activity on nature and the subsequent socio-economic implications of nature loss.

It offered examples of how re/insurers, as risk managers and investors, can support the development of a nature-positive economy and incentivise sustainable business models working with insureds and investees.


Nature and socio-economic development

There is an urgent need to quantify the pace of nature loss, its impacts on society and the benefits of nature and biodiversity restoration and conservation.

Existing economic and business models exploit nature far more rapidly than it can regenerate itself, with accelerating biodiversity loss and ecosystem degradation directly linked to human activity.

Yet nature is essential to human existence, quality of life and livelihoods. This is evidenced by the heavy reliance of global GDP on nature ($87.65trn in 2019), with more than 50% of this depending on natural capital and ecosystem services.

Assessing and valuing biodiversity and ecosystem services is complex and still under development, but the most comprehensive global estimates suggest nature provides a value of $125trn to $140trn a year, more than one-and-a-half times global GDP.

The cost of biodiversity loss is already high, with an estimated $6.3trn per year because of land degradation alone.


Climate change and nature

Climate change and large-scale nature loss are profoundly interlinked. The protection, improved management and restoration of ecosystems can simultaneously increase climate resilience (climate change adaptation) and help to sequester carbon (climate change mitigation).

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. 

As we look ahead, the public and private sectors need to invest in sustainable infrastructure systems (for example, energy, transport, water management). There is also a need to mobilise capital for upgrading existing infrastructure systems as well as investing in new ones.

Ultimately, addressing climate change and nature and biodiversity loss together with a system-based approach will be necessary if either is to be solved.

Beyond direct risks, seven external factors are transforming nature-related risks and opportunities into a core business issue (see figure 1), which need to be considered by corporate boards and executive management teams. 

These include the evolving public policy and regulatory landscape, the increasing attention to the risks of large-scale nature loss from financial regulatory bodies, and growing investor and shareholder awareness.



Nature-related risks and opportunities

The speed, scale and scope of nature and biodiversity loss present new risks and opportunities for re/insurers. The Chief Risk Officer Forum identifies nature and biodiversity loss as an emerging “medium category” environmental risk for re/insurers, with significant potential impacts expected within the next five years. 

These risks could affect re/insurers in a variety of ways, including underwriting, investment, real assets and operations, and risk assessment, modelling and pricing capabilities.

For non-life re/insurers, pricing and insuring risks may eventually be an issue. Nature risks directly impact their business models by modifying the resilience of their customers to extreme events. Rising large-scale nature loss and pollution impact commercial lines, with potential rising litigation against corporations in these sectors.

For life insurers, there is growing evidence of the link between nature-based risks and air pollution, food security and malnutrition, the increased transmission of vector-borne diseases and even pandemics.

The financial performance of assets is directly affected by physical climate risks, transition risks, litigation risks and the ability to transition to a nature-positive economy. This is particularly relevant for life insurers given the long-term characteristics of their investments.

Physical risks to assets, buildings and staff may increase because of large-scale nature loss in specific regions. Effectively assessing and quantifying nature-based risks requires forward-looking tools, which are lacking at present. The industry is, however, supporting initiatives to develop such tools.


What can insurers offer?

Acting now can reduce current and future exposure to nature-related risks and lead to business opportunities; delaying action could exacerbate the risks to a point of no return.

Re/insurers can encourage behavioural changes for the preservation, restoration and management of nature, and support their insureds and investees to develop more resilient, greenhouse gas-neutral and nature-positive business models. 

They also have an opportunity to increase the resilience of their clients through underwriting and investing in nature-based solutions (see figure 2).



Examples include: wildfire resilience insurance and risk reduction through ecological forestry; insuring coral reefs and other ecosystems to enhance coastal resilience; insuring nature-based solutions that offer carbon credits and increased resilience; innovative insurance products that incentivise sustainable business solutions; and investing in the restoration and conservation of nature-based solutions for increased resilience.

While some re/insurers have already started to assess, understand and quantify the risks and opportunities related to nature-based systems, the industry can go further by helping to shape more nature-positive behaviour.

Re/insurers can engage in global efforts such as the Taskforce on Nature-related Financial Disclosures to identify methodologies, share lessons learned and help expedite convergence towards best practices. 

Addressing nature and biodiversity loss together should be an integral part of companies’ net-zero transition strategies. They can raise awareness among insureds and investees, as well as internally among the board, executive management and employees, about the scale of nature-related risks and biodiversity loss to incentivise more sustainable behaviours and business models.

They can explore opportunities for new product and service innovation to mitigate nature loss and its impacts, consider the environmental risks associated with producing new climate technologies for decarbonisation when underwriting and investing in their large-scale deployment, as well as identify and potentially realise investment opportunities in nature-based solutions that would lead to increased resilience and carbon credit benefits for clients, as well as their own business models.

Finally, they can also identify the shortfalls in the availability and accessibility of data and tools to quantify the risks and benefits tied to nature-based systems. 

They can do this through industry-level collaboration and engagement with regulatory bodies to identify major data gaps and expedite the development of forward-looking methodologies for nature-related risk assessment. 


Maryam Golnaraghi is director of research, climate change and environment at The Geneva Association

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