It seems difficult to imagine a time when a clean environment was an afterthought and the well-being of the planet wasn’t linked to human well-being. The first Earth Day in 1970 was the beginning of raising environmental awareness across society. This was followed by the first UN Conference on the Human Environment in 1972 (and the associated World Environment Day on June 5th), and a succession of environmental initiatives across governments, businesses, and civil society ever since. As we celebrate this 45th Earth Day, it’s a timely reminder to go back to the original intent around environmental protection and look at how valuing nature can also build resilience.
We all understand that material wealth ultimately comes from nature. ‘Natural capital’ is the term social scientists have given to resources originating in nature that provide long-term goods and/or services. This could be something as simple as a clean and healthy river that provides a supply of fish to a community, or coastal mangroves that protect communities from flooding. Unfortunately, the economic value of ecosystems is not always appreciated, leading to negative long-term effects. What if the value of natural capital was properly understood, particularly through the resilience it provides?
The UK’s national scientific academy, the Royal Society, recognises the importance of nature and ecosystems in its innovative 2014 report ‘Resilience to Extreme Weather.’ One of the report’s key recommendations focuses on using natural ecosystems as an alternative to expensive engineering solutions to protect lives and assets. How do we incentivise businesses and individuals to protect nature in a way that reduces the risk of natural hazards? Natural ecosystems and their benefits should be priced properly.
Integrating Disaster Risk into the Financial System
The 1-in-100 initiative backed by the United Nations and other organisations is focused on integrating disaster risk into the financial system by making exposure to risk transparent in financial instruments.
Taken a step further, if a business or community understands its risk exposure to natural catastrophes, they can also understand the value of avoided losses that natural ecosystems provide. The value of avoided losses can be used as a proxy for the value of the ecosystem in question.
For example, a forested area may sit in between a large distribution warehouse and a river. The company is interested in developing the land that is currently forested. This, however, will shift its risk exposure as forests can mitigate flooding. By removing the forest, a 1-in-100-year event will become a 1-in-50-year event. The ‘resilience value’ of the forest is the avoided losses (and presumably the difference in insurance premium). If this was transparent to investors backing the company in question, there could be financial incentives given to the company that decides to protect the forest.
By valuing nature, we can actually build resilience. Happy Earth Day to everyone.
Guest blogger Greg Lowe is an Executive Director of Willis’ Capital Science and Policy Practice and heads Willis’ sustainability programme globally. Managing and reducing Willis’ own environmental impacts, he is also focused on the broader sustainability issues that affect Willis, its clients, and the wider insurance industry. He previously contributed Integrating Resilience into our Cities to the Willis on Risk Special Report on Urbanization.