If the recent Conference of the Parties to the United Nations Convention on Biological Diversity in Cali (“COP16”) highlighted nothing else, it was the continuing challenges facing financing nature restoration and conservation.
With the target set at COP15 in 2022 to raise US$200 billion in annual financing for the protection of biodiversity between now and 2030 not met to date and unlikely to be met going forward, and with the amount of financing needed over the coming years estimated in the billions, the hundreds of millions currently committed to restoration and conservation of biodiversity is simply insufficient.
Disagreements continue between nations on how restoration and conservation should be financed, and governments may be unable to make the necessary economic commitments required to address the challenges facing our societies. It is therefore necessary to (re)focus attention to the financing solutions identified in the Global Biodiversity Framework including public investment, development aid, public-private partnerships, and blended finance models, to bridge the gap between the need and the desire to finance restoration and conservation projects.
However, to attract additional investment, it would be prudent for the environmental community to create levers which will assist derisk financing opportunities and mitigate the nature-related impacts on investments. To do this, it is necessary for the environmental community to work with the insurance industry which has a tried and tested history of developing innovative solutions to address societal challenges.
“We believe insurance has an opportunity to play an important role in contributing to the actions required to mitigate and pre-empt the ongoing environmental challenges we are facing,” says Jean-Paul Conoscente, CEO of SCOR P&C.

Declining (and Collapsing) Ecosystems
Whether we needed it or not, 2024 once again provided a stark reminder of the devastating effects of natural disasters; with floods in Afghanistan, Brazil, Pakistan and Spain; hurricanes in the US; landslides in Papua New Guinea and India; and storms in the Philippines, they have caused death and destruction across the world.
But some impacts of natural disasters are not always as immediately obvious even though they are equally real in the longer-term; they are causing many ecosystems to rapidly decline with some at risk of collapse.
The drivers behind declining ecosystems can vary and include climate change, which is both a consequence and a cause. It creates a perpetual cycle where it destabilizes ecosystems leading to a loss of biodiversity, which in turn accelerates climate change and fuels extreme climatic phenomena. Other factors include adverse changes in land and sea use (e.g. forests to agriculture), pollution, and unsustainable exploitation of natural resources (e.g. deforestation).

Ecosystem Services
We are witnessing a potential major global crisis developing before us. Healthy ecosystems are essential for maintaining the planet’s biological diversity and the natural capital that sustains human life and well-being because of the ecosystem services they provide to societies, including:

• the products obtained from ecosystems such as food, fibre, fuel, natural medicines and pharmaceuticals – known as provisioning services;
• the benefits from the regulation of the ecosystem processes such as clean water and air, climate regulation, removal of pollutants, or the buffering (and mitigating) effect which maintains resilience against natural disasters – known as regulating services;
• the non-material benefits to society through cultural enrichment and recreation including cultural heritage (e.g. historic buildings, monuments, archaeological sites), aesthetic, social relations, artistic, tourism and spiritual benefits – known as cultural services; and
• the support necessary for the production of the other ecosystem services such as soil and habitat formation, nutrient and water cycling, and the production of oxygen – known as supporting services.

“Despite all our technological advances we are completely dependent on healthy and vibrant ecosystems for our water, food, medicines, clothes, fuel, shelter and energy,” says Elizabeth Mrema, Executive Secretary of the Convention on Biological Diversity.

Impacts of Declining Ecosystems
Public health and societal consequences of declining and collapsing ecosystems are not the only ones that need to be considered. There are other negative impacts arising from not having the (full) benefits of the ecosystem services listed above.
When it is considered that an estimated US$58 trillion of economic value generation (over half the world’s total GDP) is moderately or highly dependent on nature and its servicesii, it becomes evident how important nature is to the global economy and therefore how exposed economies are to nature. Declining or collapsing ecosystems could have a material impact on the future stability and growth of industries such as agriculture, fishery and aquaculture, food, beverages and tobacco, construction, forestry, water, and energy.
Investors will also not be immune to the consequences of declining ecosystems which are causing asset value deterioration to financial assets.

Greater Understanding of Ecosystem Integrity
As demonstrated by the World Economic Forum’s Global Risks Reportiii, there is now a greater understanding of the importance of ecosystem integrity and resiliency, including, for example, in addressing climate change. Governments, the private sector, international organisations, and academia consider extreme weather events to be the top global risk over the next 10 years. Biodiversity loss and ecosystem collapse ranks second. Ecological restoration has therefore become an international priority due to the ability of ecosystems to recover and deliver the many above-listed services and benefits.
This increased interest has been demonstrated by an uplift in legislation and regulation in recent years including the Kunming-Montreal Global Biodiversity Framework, the EU Nature Restoration Law, the Biodiversity Net Gain legislation in England, the Nature Conservation Act in Japan, and Law 2173 of 2021: Promoting restoration in Colombia. These put greater pressure on businesses to address nature-related obligations and to remediate damage to avoid the consequences of violating regulations, including possible fines and reputational damage.
Various ecological restoration funding distribution mechanisms have also been established such as the Global Economic Fund or funding by the Department for Environment, Food & Rural Affairs in England.
The growing awareness of declining ecosystems and their consequences has also increased the expectations of customers and investors for companies to reduce greenhouse gas emissions, to have a ‘Social Licence to Operate’, and for companies to report and act on a much broader range of nature-related risks, including negative impacts on ecosystems.

More Financing is Required
Even though there is a greater awareness of declining ecosystems and understanding of the importance of ecosystem integrity and resiliency, it is apparent from COP16 that more financing is required.

According to the United Nations, a total investment in nature of US$8.1 trillion is required between now and 2050iv, while investment should reach US$536 billion annually by 2050v, to successfully tackle the interlinked climate, biodiversity, and land degradation/desertification crises.

Challenges to Financing
Governments, corporations, financial institutions, non-governmental organizations, and individuals can be reluctant to finance ecological-related projects for a variety of reasons. The inherently unpredictable and dynamic nature of ecosystems and the drivers that impact them can affect investments. There is also uncertainty about returns on investments, including the timing of returns. In addition, there is a lack of governance and standards around ecological restoration projects, as well as a lack of available data relating to projects and investment returns.

Role of Insurance
The insurance industry has the opportunity to leverage its existing experience and expertise, including in dealing with natural catastrophes, agriculture and in creating innovative solutions, to help transfer risk away from investors / financers and to create a level of governance and standards around ecological restoration projects. To this end, as part of its NatReCo Initiative vi, SCOR will develop and offer to its clients a wide range of innovative (re)insurance solutions to support nature-positive projects. These projects aim to address societal challenges including climate change, health and wellbeing, food and water security, sustainable agriculture, and natural catastrophe risk. Additionally, they endeavour to mitigate the causes of these challenges. Through its Ecological Restoration Insurance Solution, SCOR proposes to bridge the ‘gap’ between the need and desire for financing ecological projects by de-risking financing opportunities.
This is how it works: following the implementation of a restoration project, if the original recovery trajectory of the ecosystem integrity level defined in the restoration plan is adversely impacted by a pre-defined insured peril (such as an earthquake, fire or flood), SCOR will insure the financial costs associated with creating the restoration conditions required to return the ecosystem to its planned (or a revised) recovery trajectory.
‘Restore’ is the first product in SCOR’s Ecological Restoration Insurance Solution and provides indemnity during the period in which the conditions for recovery are being implemented in accordance with the restoration project plan. It has three main characteristics:

• to ensure that all restoration projects insured by SCOR advance ecological restoration and commit to integrity and transparency in all related actions, SCOR has developed with the Society for Ecological Restoration (SER) a standards-based approach that will be applied to each project;
• given the technical nature of ecological restoration, SCOR’s loss adjustors will be assisted by a Certified Ecological Restoration Practitioner who will provide technical expertise when assessing the impact of an insured event and the quantum of a valid claim; and
• to ensure that the advancement of ecological restoration and supporting the wider environmental community is at the heart of the Restore Product, it is contractually agreed that part or all of the claim payment must be utilised by the insured for an ecological restoration project.

The Restore Product is relevant for parties who initiate, finance, carry out and/or implement restoration projects, to benefit from ecosystem services, to meet regulations, and/or to fulfil other obligations. These parties include landowners, governments, states, authorities, corporates, restoration companies, and project developers. By derisking the financing opportunity, capital efficiency is improved by increasing the prospect of project completion which will help to attract future investment.
No one party can solve the nature crisis alone, but by working together, different parties can pool their skills to expedite the implementation of the solutions required to achieve the international objectives of combating the biodiversity crisis and battling climate change.

For more information about SCOR’s NatReCo Initiative, Ecological Restoration Insurance Solution or Restore Product, contact Emma Bartolo at natreco@scor.com

i IUCN Global Ecosystem Typology 2.0 (chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://portals.iucn.org/library/sites/library/files/documents/2020-037-En.pdf)
ii PwC, 2023 (www.pwc.com/gx/en/issues/esg/nature-and-biodiversity.html)
iii World Economic Forum’s Global Risks Report 2024 (https://www.weforum.org/publications/global-risks-report-2024/)
iv UN environment program, 2021 (https://www.unep.org/news-and-stories/press-release/world-needs-usd-81-trillion-investment-nature-2050-tackle-triple)
vHow planetary risk is transforming world finance (https://www.undp.org/blog/how-planetary-risk-transforming-world-finance)
vi SCOR SE website, (https://www.scor.com/en/nature-restoration-conservation-insurance-initiative)

The authors

Harmender Kalirai (Chief Transaction Officer, SCOR P&C) and Henri Douche (Head of Product & Innovation, SCOR P&C)