“Biodiversity loss and ecosystem collapse doesn’t have to be our fate”

The World Economic Forum’s 2023 Global Risks Report offers a stark warning to governments, business and financial institutions but there is still hope.

By Darren Mckenzie

Communications Lead

‘Polycrisis’, meaning multiple interconnected crises happening at the same time, was the key buzzword from the launch of the 2023 Global Risks Report. And the conclusion was clear. The only way to tackle these crises is for governments, business and the finance sector to work together and start acting now.

Published annually the week before the Davos meeting of the World Economic Forum, the Global Risks Report predicts the major challenges facing the world in the short and medium term. And this year, as in recent years, the climate and environment dominate.

Over the next two years, environmental risks make up five of the top ten recognised risks. And for the next decade, six out of the top ten risks are environmental including the top four. Even risk number five – large-scale involuntary migration – which isn’t classified as environmental – will be exacerbated by climate change.

“We’re living in a world where what’s scientifically necessary and what is politically expedient don’t match.”

John Scott, Head of Sustainability Risk, Zurich Insurance Group

According to the report, jointly authored by the World Economic Forum, Zurich Insurance Group and Marsh McLennan, failure to mitigate climate change is the top risk facing the world over the next decade. Biodiversity loss and ecosystem collapse came in at number four. John Scott, Head of Sustainability Risk at Zurich Insurance Group, was scathing. “Failure of climate change mitigation is one of the most highly rated risks and one of the least prepared for. And that’s unlikely to change… We’re living in a world where what’s scientifically necessary and what is politically expedient don’t match.”

Tackling deforestation is a prime example of where the climate and nature crises meet. Deforestation alone is responsible for 11% of our emissions. On top of that, destroying rainforests reduces nature’s ability to absorb carbon. Launching the report, John Scott said: “The clear links between climate and nature and the way that nature provides services that are so essential for us on this planet – all of that makes us feel as though we have to spend more effort on climate mitigation and nature.”

Risk is the key theme of this report, but the reality is not enough financial institutions or companies recognise the destruction of nature as a risk to their operations. In November 2022, we launched our new Deforestation Action Tracker to monitor the progress of the finance sector in eliminating deforestation, conversion, and associated human rights abuses from their portfolios. It looks at the 557 financial institutions with a net-zero commitment through the Glasgow Financial Alliance for Net Zero (GFANZ) or the UN Climate Champions’ Race to Zero initiative. We found that 83% of those financial institutions do not recognise deforestation as a risk.

In June 2022, we published research with the Climate Champions that found nine out of 10 companies in the Forest 500 with a net-zero pledge weren’t going to meet it because they were not doing enough on deforestation. There is no way to net zero without action on deforestation. 

Global Canopy's Deforestation Action Tracker baseline review found that

83%

of financial institutions do not recognise deforestation as a risk.

The Global Risks Report makes clear that financial institutions hold the power to drive change. Through engagement and monitoring of the companies they invest in, financial institutions can change the landscape. Following guidance like the Finance Sector Roadmap can eliminate commodity-driven deforestation from their portfolios.

“Solving climate change is the ultimate team sport – governments, business and the finance sector must work together,” said John Scott on what’s next. 

The last two years have seen giant leaps forward when it comes to collaboration and collective effort. 141 world leaders signed the Glasgow Declaration on Forests and Land Use at COP26 that pledged to halt and reverse deforestation by 2030. 

The Taskforce on Nature-related Financial Disclosures (TNFD), which brings together 40 Taskforce members representing financial institutions, corporates and market service providers with over US$20trn in assets, and a consultative grouping (the TNFD Forum) of over 800 institutional supporters, is creating a reporting and disclosure framework for organisations to report and act on nature related risks. 

“Net-zero future is still in reach, but the window for opportunity is closing and the time for action is now.” The warning from John Scott is one we’ve heard before. We can’t keep on ignoring the warning. Understanding where the risks lie and taking steps to begin to mitigate them, is the first step, but demonstrating leadership and taking collaborative, collective action will be key to making a net zero future a reality.

Learn more about the business case for acting on deforestation and the first steps you can take as a financial institution or company.