How the asset class can help promote biodiversity

By 2040 it is estimated we will spend nearly $80 trillion on infrastructure to support the changing needs of our growing population. New transport links, housing, energy supplies and communications connectivity are all key to meeting the UN’s Sustainable Development Goals and, as we move through the covid-19 recovery, there is also an expectation that we can build our way out of many of our economic woes.

But nature has been paying the price of this development. Alarms are sounding over biodiversity loss and ecosystem damage. And the pressure is on to find new ways to unite the drivers for development with the health of the natural world.

Over the past year, the infrastructure sector in particular has been crippled by market ambiguity and lukewarm investor sentiment. But with signs of light finally at the end of the tunnel, the chance to reset the path we were travelling has been recognised by many. This must include building with the natural world in mind and supporting sustainable development, particularly in emerging markets.

The pressures of the pandemic have thrown new focus on the need for more innovation and resilience. It’s something bigger than any one party can solve alone – governments, finance institutions and the private sector all have a role to play.

And, of course, the insurance sector can influence the direction and viability of projects through what it chooses to underwrite and where it decides to invest.

Natural engineering

We are losing plant and animal species at an unprecedented rate. And communities around the world are coming under increasing pressure from climate change.

There is a measurable financial cost to this biodiversity loss and environmental damage. Our own research shows that 55 percent of global GDP depends on intact biodiversity and ecosystem services. But a fifth of countries are at risk of ecosystem collapse.

Humans encroaching into and damaging the natural world has also been highlighted as a risk factor for the spread of future zoonotic infectious diseases.

We need to find ways to mitigate and reverse the damage we have inflicted on our planet. And it is becoming increasingly clear Mother Nature already has solutions to many of the problems we face. The focus now, therefore, should be on incorporating natural engineering into our infrastructure.

Positive progress

There are signs the banking and financial sectors are moving to include biodiversity as a factor in infrastructure investments. This is evidenced by the UN-supported Principles for Responsible Investment, which has seen its membership grow more this year than ever before in its 15-year history.

“The pressure is on to find new ways to unite the drivers for development with the health of the natural world”

There are also some encouraging instances of public-private partnerships promoting biodiversity. Club Infrastructures Linéaires et Biodiversité is an example of public authorities and private contractors working together to establish a biodiversity reference network that can be used to inform infrastructure decision making. This group, which features some of France’s biggest companies, devises schemes and works with NGOs to put biodiversity at the heart of infrastructure.

Similarly, the European Green Deal, which is targeting carbon neutrality in Europe by 2050, has set a framework in which administrations, citizens and the private sector can come together to build a sustainable future. The current climate provides the ideal opportunity to capitalise on this: the EU is providing an additional €750 billion for its countries to invest in infrastructure as part of their economic recovery from covid. And from our own experience at Swiss Re underwriting green infrastructure, we know it is possible for infrastructure to be not just sympathetic to biodiversity, but to actively promote it.

Globally, the insurance sector has more than $30 trillion assets under management and, as investors, re-insurers can take concrete actions to make these assets and investment decisions count.

However, stronger policy incentives are needed to favour projects with certain features – for example, the EU Taxonomy leading to the recognition of a project’s higher SDG impact and lower capital charges.

The current economic framework also fails to sufficiently capture the positive externalities that particular infrastructure sectors can drive in regard to tackling climate change. One such example is green marine infrastructure.

55%

Share of global GDP that depends on biodiversity and ecosystems remaining intact

Not only will such projects be vital in protecting our coastlines and megacities against sea level changes; they also act as a way to support the energy transition through the funding and building of new offshore renewable energy projects. Green marine infrastructure is the collective term for works at coastlines, rivers, canals and in port areas which differ from traditional engineering solutions in that, rather than conflicting with the dynamic natural landscapes they occupy, they help to protect or enhance those landscapes – promoting rather than obstructing biodiversity.

Typically, these enable better flood protection, urban and port development, navigable waterways and the preservation of recreational areas, but in a way which is sustainable and sympathetic to the existing environment. Such solutions include natural breakwaters, mangrove forestry and restoration, the beneficial use of dredged material, and habitat expansion via hybrid land reclamation – all of which have already proven to be practicable, effective and economically viable at various locations around the world.

Huge insurance potential

If the global community is truly serious about tackling the challenges of climate change and biodiversity decline, there is no alternative to green marine infrastructure, and private investors have a hugely influential role to play in driving these projects.

To foster their support and realise that potential, there needs to be an integration of biodiversity loss considerations at the earliest stages of project preparation, plus enhanced associated disclosure, to demonstrate both the ESG and financial value of infrastructure investments.

With attention being refocused on the economic recovery, it is time to turn these exceptional examples into the norm, and to build in safeguards that will further ensure biodiversity for the future.

Christian Wertli is head infrastructure solutions, public sector solutions and Veronica Scotti is chairperson, public sector solutions at Swiss Re