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June 10, 2009
Damage to Ecosystems Can Lead to Financial Losses and Reputational Risks for Companies
    by Robert Kropp

Report by Eurosif and oekom research finds that risks to five industrial sectors can be offset by attention to biodiversity. The financial services sector faces risks and opportunities as well.

The Convention on Biological Diversity (CBD), an international treaty that entered into force in 1993, defines biological diversity (biodiversity) as "the variability among living organisms from all sources, including terrestrial, marine, and other aquatic ecosystems, and the ecological complexes of which they are a part." One of the targets of the eight Millennium Development Goals (MDGs) is to "reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss."

A recently published sector report by the European Sustainable Investment Forum (Eurosif) examines the risks associated with loss of biodiversity confronting five industrial sectors considered particularly vulnerable. Research for the report was compiled by oekom research.

The report, entitled Biodiversity Theme Report, addresses risks to the agricultural, extractive, paper and forestry, real estate and infrastructure, and tourism industries. It considers both companies that depend on biodiversity and ecosystem services, and companies whose activities have an impact on biodiversity and ecosystems.

The business risks associated with species loss and the restricted functional capacity of ecosystems include decreased availability of resources, the likelihood of regulatory action to protect environmental resources, increased prices and limited access to capital and insurance, an increase in trends toward ecologically responsible purchasing, legal action, and reputational damage.

The report also finds opportunities for companies in vulnerable industries that take action to mitigate potential damage to species and ecosystems. Among the actions recommended in the report are a commitment to sustainable land management, the protection of ecosystems and other ecological resources, and involvement with initiatives aimed at protecting biodiversity and using resources sustainably.

The report concludes with an assessment of risks and opportunities for the financial services sector. Reputational risks associated with the financing of controversial projects, as well as an increased likelihood of loan defaults and diminished equity valuation of companies engaged in ecologically unsound practices, are among the challenges faced by the financial services sector.

The report finds opportunities for the financial services sector in products that address carbon management, services such as wetland mitigation banks, the inclusion of biodiversity damages coverage in insurance policies, and reputational branding.

The report also foresees interest in sustainability funds that focus on biodiversity and environmental technology.


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