GAR 2013 Main Report

Part I - Chapter 6

6.1

Natural wealth

A country’s wealth is also dependent on its stock of natural capital. A country with a declining base of natural capital is unlikely to achieve a sustainable increase in wealth.

Natural capital is understood as a set of renewable and non-renewable natural resources, including agricultural land, fisheries, fossil fuels, forest resources, water, biodiversity and minerals. Apart from flows into produced capital, business investment also flows into other sectors, such as agribusiness, forestry and mining, in countries with abundant natural capital. Whether these investments pose risks to natural capital needs to be assessed and understood.

Risks associated with natural capital may affect businesses as well as other social sectors in the same way as disaster risks associated with produced capital. With natural capital, many risks generated through business investments are externalised and transferred through mechanisms such as climate change, land degradation and the overexploitation of water resources; in the long term, these become shared risks not only in space but in

time because the exhaustion of natural capital compromises the wealth of future generations.

However, although risks to produced capital are now modelled with increasing accuracy, the estimation of natural capital risks is still in its infancy. As such, both costs to business as well as shared risks are rarely factored into investment decisions. The sections that follow will explore some of the drivers of natural capital risk, including climate change, land degradation, and the impact of wild-land fires and agricultural droughts. Chapter 10 in Part II of this report will build on this analysis and explore the role of agribusiness in food security risk.

6.2

The ultimate risk transfer:

global climate change

Globalisation is not only modifying risk patterns through increasing hazard exposure and vulnerability, but also through climate change.

Since the beginning of the industrial revolution in 1750, the atmospheric abundance of the three

A country's wealth is determined to a significant extent by its stock of natural capital. Disaster risks include the loss and erosion of natural capital with potentially serious consequences for business, households and a country’s wealth.

Globalisation is not only modifying risk patterns through increasing hazard exposure and vulnerability, but also through climate change. Along with climate change, environmental degradation, deforestation and the over-exploitation of natural resources all result in increased risks to natural capital. For example, wild-land fires now affect all continents with the cost of damage to tropical ecosystem services alone potentially exceeding US$3 trillion per year.

Land degradation is a key driver of agricultural drought risk. Large areas of Africa, the Arab and Mediterranean regions are experiencing both land degradation and high levels of soil moisture deficit leading to a potentially irreversible loss of natural capital. The scale of direct losses and indirect impacts from agricultural drought is still poorly understood but potentially significant. But innovative new probabilistic models of agricultural drought risk are now providing a clearer picture of potential crop losses at the country level and can be related to relevant economic indicators.

Global warming