Sylvaine Rols and Haf Davies, UNEP-WCMC and Gemma James, PRI
All businesses depend on nature for the benefits it provides, from clean air and water, to pollinating crops and disease control. The World Economic Forum estimates that over half of global GDP is moderately or highly reliant on nature. However, as natural capital is depleted, it loses its capacity to provide those benefits – known as ecosystem services - upon which businesses, economies and society rely.
The portfolios of investors depend on and impact nature. Given that investors need to understand their exposure to natural capital risk and opportunities, it is crucial to gather data on the risks and the impacted sectors.
The UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC), with funding from the Principles for Responsible Investment, has developed new global maps to showcase the depletion of the world’s stocks of natural assets, or natural capital.
The maps are available through ENCORE, and aim to help financial investors identify where their portfolios could potentially be exposed to risks from natural capital depletion. This information can be used to inform the development of integration, stewardship and engagement strategies, and help the safeguarding of nature’s assets.
A test case was developed to accompany the maps to help investors understand how the mapping can help them refine their engagement with investee companies and inform their risk analysis. The scenario used in the test case focuses on soy production in Brazil and highlights the risks from the hotspots of depletion found in the region.
Where are the hotspots of depletion?
The research reveals the extent of natural capital depletion worldwide for atmosphere, water, soil and sediments, and biodiversity.
The mapping shows that global hotspots of natural capital depletion span across all 14 terrestrial biomes. In 10 of those biomes, over 50% of their area is a hotspot of depletion for at least one natural capital asset.
One of the largest biomes in the world, Tropical and Subtropical Grasslands, Savannas and Shrublands, which cover over 21 million km2 across South America, Central and Southern Africa, and Australia, had 94% of its area overlapping with hotspots of natural capital depletion. 113 out of 846 terrestrial ecoregions are entirely under pressure from high loss or degradation of at least one natural capital asset.
Ecoregions spanning across the Bangladesh-India border were found to have the most overlap with hotspots of depletion for all four natural capital assets, including in the Lower Gangetic Plains Moist Deciduous Forests and Sundarbans Freshwater Swamp Forests. All natural capital assets are also under pressure from high degradation across 89,000km2 of the Cerrado, Brazil.
Our research highlights specific risks from natural capital depletion. First, when a large proportion of an ecoregion or habitat is depleted of natural capital, it threatens the ecological balance and the ecosystems’ ability to deliver services and benefits. Second, when all four types of natural capital asset are depleted (atmosphere, water, soil and sediments, biodiversity), it increases the risk of disrupting ecosystem services.
Implications for financial investors
Depletion of natural capital stocks is occurring worldwide. The hotspots of depletion indicate where investors should be particularly mindful of the market, credit and operational risks associated with this loss. Those maps are a starting point, highlighting the need for a greater understanding of natural capital depletion, and its impact on society. They also indicate where investments can have a positive outcome by halting the loss through a transition to nature-positive activities.
The test case presents practical ways for investors to use the data in the maps, and complementary tools to work collaboratively on nature related risk. UNEP-WCMC and PRI hope that these new maps will facilitate investor analysis and action to address nature loss.
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