Global losses from environmental disasters are on the rise. In 2024, climate-related catastrophes cost the global economy approximately $320 billion. Addressing the challenge of financing innovative solutions to combat wildfires requires a multidimensional approach, writes Marc Palahi in his essay for finews.first.
In this section, authors comment on economic and financial topics.
Since the evening of Tuesday 7th January 2025, ferocious wildfires have raged across the Los Angeles area. Well over 100,000 people have been subject to mandatory evacuation orders, while early estimates have put the likely insured losses at $20 billion and the potential overall economic loss as high as $57 billion.
It is likely that last year’s heavy rains from the El Niño fuelled vegetation growth, which has since dried during a recent prolonged dry spell. Combined with strong winds, this has created the ideal conditions for wildfires to spread. The broader science is clear – climate change and today’s methods of landscape management are accelerating the wildfire risk globally.
«A key challenge in California»
As residential areas expand deeper into the wilderness, the risk to homes and businesses rises. Indeed, many homeowners caught up in the LA fires are without home insurance, after insurers had hiked costs or simply canceled provision altogether due to the escalating wildfire risk.
In addition to urban spread, climate change and the way we plan and manage our landscapes are thought to be the key factors. As temperatures rise, and droughts become more frequent, the tinderbox conditions that spark and spread wildfires are increasingly common.
Across the world, this new generation of wildfires is exceeding our capacity to suppress them. As we face mounting environmental, economic and social threats we must move from tactical suppression to holistic mitigation-adaptation strategies, to minimize the risk of extreme fires breaking out, and create resilient landscapes that are capable of recovering quickly should a fire occur.
Recent years have seen substantial scientific and technical advances in how land management practices can integrate prevention-preparedness, detection-response, and restoration-adaptation. Climate-smart forestry, for instance, which puts resilience and climate benefits at the forefront of forest management, is emerging as an effective tool for creating landscapes that are resilient to wildfires and other extreme weather events such droughts and floods. But key is how do we finance these strategies.
«As the bioeconomy grows, so does the economic opportunity»
Key to achieving this goal is the growth of the Circular Bioeconomy – in essence, by replacing today’s extractive, fossil-based economy with an economy based on nature’s regenerative power, we can cut the emissions that lead to global heating and reduce the risk of extreme weather events while attracting the necessary investments to transform landscapes and businesses in an integrated manner.
Forests and agroforestry, with their multifunctional role, offer a wide range of ecosystem services, and great opportunities to build this new economic model. New technologies are creating unprecedented opportunities to transform plant-based compounds into many of the fossil-based materials we use today.
Managing forests to produce these resources regeneratively also enhances the ecosystem services forests provide, improving carbon sequestration, soil health, and water retention, and reducing a forest’s susceptibility to fire. The same can be said for agroforestry and regenerative farming, which provide us with food while enhancing ecosystem services.
As the bioeconomy grows, so does the economic opportunity. In the Amazon alone, the bioeconomy could be worth up to USD 4 trillion, while globally the bioeconomy is expected to be valued at $7.7 trillion by 2030.
«Innovative financial tools will be needed»
For investors, the growth of the Circular Bioeconomy is creating an opportunity for private finance and public-private partnerships to target returns
However, to bring these and other mechanisms to scale, innovative financial tools will be needed. To do that, the finance industry needs to build a better understanding of the key role of nature as the true engine of our economy. Bringing scientific experts to the investment/finance industry needs to be the norm in the coming years.
In a world where losses from environmental disasters are growing – in total, climate disasters cost the global economy $320 billion in 2024. As we search for new ways to finance the fight against wildfires we must take a multi-faceted approach, integrating science, finance and policy to build a Circular Bioeconomy that addresses the root causes of extreme events.
Marc Palahi is the Chief Nature Officer at Lombard Odier Investment Managers.
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