Economy

Half the world’s GDP depends on nature, and it is in risk of disruption: WEF report

Hemani Sheth | Updated on January 20, 2020 Published on January 20, 2020

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Construction ($4 trillion), agriculture ($2.5 trillion) and food and beverages ($1.4 trillion) are the three largest industries relying heavily on nature.

More than half of the world’s total GDP is moderately or highly dependent on natural capital, according to the World Economic Forum’s latest Nature Economy Report, released on Sunday. The report, which highlights the importance of sustainability, has been produced in collaboration with PwC UK. It states that $44 trillion of economic value generation, which is more than half of the world’s total GDP, is dependent on natural resources.

Industries dependent on nature

The report focusses on the economic impact of worsening climate conditions based on the level of dependency businesses have on natural capital assets. Many industries have been dependent on nature throughout their supply chain.

Construction ($4 trillion), agriculture ($2.5 trillion) and food and beverages ($1.4 trillion) are the three largest industries that rely heavily on nature.

“Such industries rely on either the direct extraction of resources from forests and oceans or the provision of ecosystem services such as healthy soils, clean water, pollination and a stable climate,” the report says.

The WEF has identified six industries that have less than 15 per cent of their direct Gross Value Added (GVA) dependent on nature, while more than 50 per cent of the GVA based on their supply chain is highly dependent on natural resources. The six industries identified are chemicals and materials; aviation, travel and tourism; real estate; mining and metals; supply chain and transport; retail, ad consumer goods & lifestyle.

Disruption due to natural loss

These industries are more at risk of disruption through natural losses according to the report. “As nature loses its capacity to provide such services, these industries could be significantly disrupted. Industries highly dependent on nature generate 15% of global GDP ($13 trillion), while moderately dependent industries generate 37% ($31 trillion),” the report said.

Citing the example of the agricultural industry, the report explains the economic impact of worsening climatic conditions and natural losses on the economy,

“More than half of the world’s food comes from just three staples — rice, wheat and maize — which already suffer annual losses of up to 16% of total production (valued at $96 billion) due to invasive species,” the report said.

Nature-related risks and the events caused as a consequence can have a huge impact on future economic security. The severity is only bound to increase. Al Jazeera reported an economic loss of $3.5 billion as a result of the Australian Bushfires.

In the official release, Dominic Waughray, Managing Director at the World Economic Forum, said: “Damage to nature from economic activity can no longer be considered an ‘externality’. This report shows how exposure to nature loss is both material to all business sectors and is an urgent and non-linear risk to our collective future economic security.”

Sustainable solutions

One of the key ways to mitigate this loss, as suggested by the WEF, is to assess and tackle nature-related risks by incorporating them within existing ERM (enterprise risk management) and ESG (environmental, social and governance) processes, investment decision-making, and financial and non-financial reporting. Businesses should focus on reversing negative impacts on nature as well as implement more sustainable policies for operations.

The report is based on the assessment of the reliance on natural capital assets of 163 economic sectors, examining them at industry and regional level, based on the economic value created by each industry.

Published on January 20, 2020
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