# **1. Introduction**

Biodiversity loss is one of the greatest threats to humanity (WEF 2021). All societies depend on nature for their very survival, but nature is declining faster than at any time in human history <u>(IPBES 2019). The decline in global wildlife populations coupled with the massive degradation of</u> oceans, forests, freshwater bodies and other ecosystems is undermining nature’s ability to provide vital goods and services (so-called ecosystem services) for all societies to thrive. This is negatively impacting nature’s resilience and adaptability, undermining its productivity and fueling risks to its goods and services (Dasgupta 2021).

The COVID-19 pandemic is a stark reminder that planetary health and human health are deeply intertwined. While the specific origins of the COVID-19 outbreak and its transmission pathway are yet to be ascertained, environmental degradation may well have played a crucial role. Several studies (see, for example, Olivero and others 2017; and Gibb and others 2020) have shown a link between natural habitat destruction and greater risk of zoonotic diseases. Deforestation and land-use conversion, largely driven by agricultural expansion, significantly increase the risk of zoonoses (Dobson and others 2020), exacerbating biodiversity loss (IPBES 2019) and accelerating climate change (IPCC 2018). Deforestation, together with agriculture and other land use changes, is responsible for roughly a quarter of global greenhouse gas emissions (IPCC 2019).

Biodiversity loss can have significant consequences for the global economy. Over half the world’s total GDP is moderately or highly dependent on nature and its services, with construction, agriculture, and food and beverages the three sectors that depend most on nature (WEF 2020). Given that economies are “embedded” within nature (Dasgupta 2021), the loss of ecosystem services such as fertile soil, flood protection and erosion control can result in severe losses and disruptions to economic activity. Should the loss of ecosystem services continue unabated, the associated economic costs could be significant. For example, under a business-as-usual scenario, the decline in four ecosystem services ─ pollinators, forestry production, marine fisheries, and carbon sequestration by forests ─ could lead to losses in global real GDP of US$90 billion by 2030, which could increase by a factor of 2.5 if climate change damages linked to the loss of ecosystems are factored in. In a low probability, high impact scenario of collapse in ecosystem services, global real GDP could decrease by US$ 2.7 trillion or minus 2.4 percent compared to the baseline (World <u>Bank, 2021).</u><sup>2</sup> Low-income economies, which are highly dependent on the services provided by nature, stand to lose the most from biodiversity loss.

Biodiversity loss and associated economic costs are a source of financial risks. The relationship between biodiversity and the financial sector can be characterized by “double materiality”. On the one hand, changes in the stock and condition of natural capital alter its ability to provide the goods and services upon which businesses depend, and therefore have implications for the risk

> 2 Estimates on the economic costs of biodiversity loss are subject to several uncertainties. Despite progress, knowledge of the interaction between ecosystem services and the economy remains limited, and it is very difficult to quantify the impact of biodiversity loss on the supply of ecosystem services due to the numerous non-linearities at play. Nonetheless, the economic impact of biodiversity loss can be severe.

2