More than half of global GDP is exposed to environmental risks, WEF report finds

About $44 trillion of global economic value generation has moderate or high dependence on nature

Fire damaged landscape on Kangaroo after bushfires ravaged the island off the south coast of Australia. AFP 

More than half of the world’s economy, about $44 trillion (Dh161.5tn) of global economic value generation, is exposed to risks from nature, according to a new report.

Businesses and economies are more dependent on nature and biodiversity than previously thought and over 50 per cent of global gross domestic product has moderate or high dependence on nature and its services, according to The New Nature Economy Report by the World Economic Forum (WEF).

Analysis of 163 industry sectors and their supply chains found that the global construction sector (worth $4tn in value), agriculture ($2.5tn) and food and beverages ($1.4tn) are the three largest industries that depend most on nature, the report released on Sunday in collaboration with PwC said.

The value of these sectors combined is roughly twice the size of the German economy, but they rely on either the direct extraction of resources from forests and oceans or the provision of ecosystem services, such as healthy soil, clean water, pollination and a stable climate for their continued growth.

As nature loses its capacity to provide such services, these industries could face significant disruption. Industries highly dependent on nature generate 15 per cent of global GDP at about $13tn, while moderately-dependent industries generate 37 per cent, with an estimated value of $31tn, the report noted.

“We need to reset the relationship between humans and nature,” said Dominic Waughray, WEF managing director. “Damage to nature from economic activity can no longer be considered an ‘externality’. This report shows how exposure to nature loss is both material to all business sectors and is an urgent and non-linear risk to our collective future economic security.”

In terms of global exposure, larger economies have the highest absolute amounts of GDP in nature-dependent sectors: $2.7tn in China, $2.4tn in the European Union and $2.1tn in the US.

This means even regions with a relatively lower share of their economy at high risk of nature loss can hold a substantial share of the global exposure and, therefore, cannot be complacent,m the report noted.

Natural disasters, extreme weather and biodiversity loss are among the top concerns for global business leaders for the decade ahead, according to WEF and for the first time since the organisation began its annual Global Risk Reports in 2007, the top five most likely long-term risks are all environment-related.

They are: extreme weather events with major damage to property, infrastructure and loss of human life; failure of climate-change action; natural disasters such as earthquakes, tsunamis, volcanic eruptions and geomagnetic storms; major biodiversity loss; and human-made environmental disasters such as oil spills or radioactive contamination, according to the report, released last week ahead of WEF's annual meeting in Davos this week. Climate activists including Greta Thunberg will be in the Swiss resort to urge leaders to reduce investments in fossil fuels.

Sustainability and environment have come into focus at this year’s WEF as massive fires devastated large swaths of the Amazon rain forest  last year, while Australia is currently  ravaged by bushfires, which have been linked to the effects of climate change. Brazil has defended its environmental policies despite global pressure to do more to minimise fires and Australia is defending its policy of investing more in coal, one of its main exports.

“Given the scale and severity of nature loss, business needs a wake-up call,” said Celine Herweijer, a partner at PwC in the UK.

“The cascading physical, regulatory and legal, market and reputation risks we see mean nature risk now needs to be a mainstream issue for corporate enterprise risk management. We have an opportunity to extend the recent response of regulators, businesses and investors on climate change to nature; both are interrelated and both pose a systemic risk to the global economy.”

As for climate, business leaders need to identify and minimise material nature-related risks and also play a part in restoring damage inflicted to nature, she noted.