Risk transfer solutions such as environmental liability and business interruption cover are emerging as vital components to help corporates build resilience against nature loss, according to Marsh McLennan recent report.
As businesses face greater regulatory pressures, tightened disclosure policies, and growing financial risk exposure, it is expected these nature insurance solutions for corporates to grow, analysts stated.
The Rooted in Resilience: Innovations in Nature Insurance for Business report, explores the role of insurance solutions in supporting corporate environmental risk management in the face of nature loss.
It also covers how environmental protection and restoration can help build resilience against physical climate risks and support corporates in their risk management endeavors.
Analysts said: “Accelerating environmental degradation caused by pollution, the overexploitation of natural resources, and the loss of habitats and biodiversity is pushing natural ecosystems to the brink, with ever-growing consequences on business.
“Nature loss is significantly affecting businesses by disrupting supply chains, decreasing available natural resources and ecosystem services, and threatening corporate climate risk management strategies. It is vital for companies to understand how their assets and operations impact nature and how they depend on it.”
According to the report, many businesses are already feeling the impacts of nature loss; these include financial, operational, strategic, and compliance impacts.
The average settlement cost for environmental cases in the US has increased eight times between 2002 and 2022, to $3.7 million in the last two decades.
Negative impacts of air pollution on agriculture yields have resulted in an economic loss of $7 billion a year in Europe, an estimated loss of $28 billion worldwide.
In addition, by 2050, 61% of current and planned hydropower dams will be in river basins at high risk for water scarcity, flooding, or both, the report noted.
“To protect corporate balance sheets from activities that harm nature and to help restore nature, businesses need robust enterprise risk management strategies, including pollution prevention and avoidance. Risk transfer solutions, such as environmental liability and business interruption cover, are emerging as vital components in this process,” analysts stated.
Adding: “Rooted in Resilience provides several examples of risk transfer solutions that help corporates build resilience against nature loss, restore nature to build resilience against physical climate risks and protect nature to de-risk decarbonization efforts.
“The importance of these nature insurance solutions for corporates is expected to grow, as businesses face greater regulatory pressures, tightened disclosure policies, and growing financial risk exposure.”
The report also explored the challenges in bringing nature insurance solutions to scale. These include the advances that would be needed across data, technology, corporate practices, and governance to overcome existing barriers.
“Businesses and insurers alike will need to rethink their approach to risk management and integrate nature-related risk into their strategies. Additionally, strong cooperation between the public and private sector – such as government incentives for the private sector and cross-industry partnership – will be critical to increase awareness and action around nature-related risk,” analysts concluded.