26.05.2023What does finance have to do with biodiversity?

Two topics that seem to have no overlap are increasingly becoming the focus of attention worldwide.

The state of the earth affects us all, because it is our home and our breadwinner, our one planet – currently without alternative. But it is precisely this planet that is suffering. In this context, climate change is often the main topic of discussion. A no less important problem, however, is the loss of biodiversity. This is now considered an even more important problem than climate change. But what is meant by biodiversity and how does it affect us? Isn't it even practical if there are a little less weeds growing in our gardens and we don't have to share our slice of cake on the sun terrace with a swarm of annoying bees in summer? What may seem marginal at first glance, however, has a profound impact on our entire ecosystem and the global economy.

The term "biodiversity" encompasses the diversity of all life on Earth in terms of genetics, species and ecosystems. This diversity is necessary to stabilize all ecosystems and make them resilient to environmental influences. Biodiversity is essential for human well-being, a healthy planet and prosperity. Our food, medicine, energy, clean air and water, protection against natural disasters as well as recreation and cultural inspiration depend on biodiversity.

However, due to human activity, this necessary diversity is being threatened and increasingly lost. Mainly the changing use and exploitation of land and sea, climate change, pollution and invasive species are responsible for this decline. The collapse of biodiversity has numerous consequences, some of which, such as species extinction, are irreversible. It is estimated that 30-50% of all species could be extinct by 2050.

The loss of biodiversity not only affects nature and the environment, it also has consequences for the economic and financial system. Already today, 55% of the global gross domestic product is highly or moderately dependent on ecosystem services and the loss of biodiversity causes a loss of 4 to 20 trillion US dollars per year.

Example: If more and more insects become extinct, 75% of the most important crops, including fruits, vegetables, nuts and seeds, as well as cocoa and coffee, are at risk because they depend on animal pollination. The loss of biodiversity thus always also means an economic loss and represents a financial risk. Moreover, as there is a time gap between the loss of biodiversity in a given area and its translation into a financial risk, it is challenging to make statements about possible future developments. Basically, the loss of biodiversity poses two types of risks to the financial system: on the one hand, biological risks related to the loss of ecosystem services, and risks caused by the transition to a low-impact economy.

To assess the impact of biodiversity loss on the economic and financial system, it is necessary to measure biodiversity. However, this is extremely complex, as many factors have to be taken into account and currently no standardized indicators exist.

Global agreements have already been reached in the commitment to biodiversity conservation. For example, in December 2022, 196 countries signed an agreement under the Kunming-Montreal Global Biodiversity Framework that establishes new rules for economic and financial systems and provides incentives for companies to redirect funds away from polluting and toward conserving them. In addition, large and transnational corporations and financial institutions in particular are to create transparency regarding dependencies on and impacts on biodiversity by 2030. Furthermore, the signatory states have agreed to conserve at least 30% of their land and water areas (also known as "30 by 30").

Currently, more data and research is needed on this topic. In addition, further policy frameworks need to be developed that cut across all sectors of the economy. The high urgency to promote biodiversity conservation is receiving more and more attention worldwide, and there is also a growing understanding of the need for a shift in thinking away from the paradigm of economic growth towards a sustainable global economy.

At the University of Zurich, the importance of the interaction of biodiversity and finance and the need to generate knowledge is well known. Research on this topic is being conducted at various institutes, including the Department of Finance of the Faculty of Economics and the Center of Competence for Sustainable Finance.

In addition, the Executive Education department of the Faculty of Economics at the University of Zurich has launched the course Biodiversity and Finance. A team of multidisciplinary lecturers from science and practice impart knowledge on the interaction of finance and biodiversity and thus make the topic accessible to the participants. The two-day course provides science-based information and concrete options for action. Participants acquire in-depth knowledge of the interconnectedness of biodiversity, the global economy and financial markets. For example, they receive an introduction to the topic of biodiversity from a scientific perspective, learn about current approaches to collect biodiversity financial data, and acquire knowledge about various political frameworks and activities in the financial sector.

...can be found in the interview with one of the course teachers, Dr. Philipp Staudacher.

Text: Linda Betschart