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Carbon emissions get much of the attention in the climate discussion, but the planet’s biological diversity is shrinking so rapidly that it threatens to undermine the broader climate agenda.
Without meaningful change, there will be profound implications not only for the well-being of people around the world but also for the global economy, business, and finance.
However, the decline in biodiversity is also creating opportunities for companies and investors willing to step up to reverse the tide–and some early movers are beginning to capture them.
An interwoven system
Biodiversity is simply the variety of life forms in a given area–animals, plants, funguses, and microorganisms among them. When forests are cleared or animals go extinct, the effects ripple not only across ecosystems but also the economy. Coral reefs and mangroves protect against the rise of sea levels and storm surges. Forests and wetlands reduce flood risk.
The decline in these life forms has been massive: In total, the world has lost 69% of its wildlife populations in the past half a century, according to the World Wide Fund for Nature’s most recent Living Planet report.
Even worse, a vicious cycle is emerging in which biodiversity loss contributes to more global warming. For example, deforestation–cutting down trees with mostly diesel-fueled machines–accounts for 11% of global greenhouse gas emissions, more than aviation and cement production, according to research from the Glasgow Financial Alliance for Net Zero.
Not only does that increase the quantity of carbon in the atmosphere, but it also eliminates natural carbon scrubbers. Terrestrial and marine ecosystems sequester over half of human-caused carbon, according to Natural England. Simply put, there is no hope of reaching the goal of net-zero carbon emissions by 2050 without halting and reversing deforestation.
Declining biodiversity could also take a toll on wealth creation from nature itself. The World Economic Forum reckons that more than half of the global gross domestic product, about $44 trillion, relies to some extent on nature. Just three sectors–construction, agriculture, and food and beverages–generate close to $8 trillion of gross value added, roughly twice the size of the German economy. Yet Asia has lost 55% of its natural capital in the past 50 years, according to the World Wide Fund.
In short, there is a strong business and investing case to reverse the biodiversity decline. I have been struck in our client conversations by the level of engagement by business and finance leaders. Increasingly they realize that without swift action, the risk resulting from biodiversity loss could emerge at the company or portfolio level.
Early movers
Perhaps that explains the recent interest in biodiversity funds. We estimate at least $12 billion was raised in 2022 by funds focused on agriculture, forestry, and bio-diversity investment. Just as investors have found opportunities to make money from the net-zero transition, some are now looking at how to benefit from biodiversity spending. We also believe that carbon credits are a market set to boom. What’s more, investors are forming coalitions to share best practices and develop frameworks.
We must go further. Spending on biodiversity conservation was between $124 billion and $143 billion in 2019, according to the Paulson Institute, The Nature Conservancy, and the Cornell Atkinson Center for Sustainability at Cornell University. That left a financing gap of roughly $700 billion per year, they say. The commitments made at COP15 last month to mobilize $200 billion per year by 2030 would be a useful start.
Next steps
Only 3% of global climate investment in 2017-18 was directed toward agriculture, forestry, and other land use and natural resource management, according to the Partnership of Biodiversity and Finance. Part of the issue is that business struggles to put a financial value on it. “Wall Street has realized that it’s been pricing natural assets for the last 150 years at zero,” argues David Craig, co-chair of the Taskforce for Nature-related Financial Disclosures.
We are still in the early stages–and many of the choices aren’t black or white. We need a spirit of urgent experimentation, with a goal of ensuring these efforts are complementary, supporting climate mitigation and biodiversity at the same time.
Three elements can help greatly
Capturing the potential economic implications of biodiversity loss is challenging. We need better data and tools to measure impact and manage risk. Improving measurement through drones, satellite imaging, soil sensors, and beyond is one growth opportunity.
However, there is no consensus on how to do this or a common set of measures–and given the ongoing debates about relatively simple metrics like corporate earnings, this journey will be a long one. Unified frameworks could help businesses amid a growing range of guidance and regulation.
The great work emerging from the collaboration at the Taskforce for Nature-related Financial Disclosures needs more support. Reporting can and should piggyback on existing climate and carbon initiatives.
Firms should explore innovative mechanisms to unlock financing for conservation and nature-based solutions. Carbon credits could help, especially if they give a higher value for greater biodiversity. Mechanisms like the United Nations High Commissioner for Refugees’ new Refugee Environmental Protection Fund, investing in reforestation in climate-vulnerable refugee situations, is one nascent example. Financial institutions also could establish policies on deforestation consistent with the goal of net zero global emissions by 2050.
Closing the financing gap requires governments to incentivize investment, in addition to traditional policy actions. Blue bonds–debt instruments used to finance marine projects that provide environmental benefits such as preserving coral–are an excellent start. Governments will be spending more in the years ahead on climate adaptation and mitigation–they should spend more on biodiversity, too.
Biodiversity is the next financial frontier. It’s time for business leaders, investors, and governments to boldly go where they haven’t gone before.
Nick Studer is the CEO of global management consultancy Oliver Wyman Group.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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