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The Importance of Biodiversity Risks

Over the last 50 years global wildlife populations have declined by as much as 60%. In its Global Risks Report 2020, the World Economic Forum ranked biodiversity loss and ecosystem collapse as a top-five risk, above pandemics, cyber attacks and financial crises. Nature and biodiversity underpin the global economy today and so a threat to biodiversity presents not only an ecological risk but a financial risk as well (the WWF predicts a loss of $10 trillion in global GDB between 2011 and 2050 if current biodiversity loss trends continue). The loss of healthy ecosystems contributes to two other key global risks: climate change and pandemics. Deforestation, for example, is responsible for 30% of global greenhouse gas emissions each year. Biodiversity loss also increases contact points between people and wildlife leading to the transmission of pathogens from animals to human hosts.

Actuaries are well placed to consider the impacts of biodiversity risks given that these risks are long-tailed, uncertain and difficult to quantify. They also have a professional duty to take account of biodiversity risks in their advice as it presents a material financial risk across all areas of actuarial work. It exacerbates natural catastrophe losses leading to an increase in claims across general insurers' liability, home and motor lines of business. Life insurance businesses are affected by changes in long-term mortality trends (e.g. increased air pollution and the likelihood of pandemics). Reductions in asset values resulting from biodiversity loss strain pension funds' balance sheets.

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