SUSTAINABLE

DEVELOPMENT PROJECT
GMBH

Biodiversity managed inefficiently and

unprofessionally

New report shows: Financial Securities are managed

more professionally than natural diversity (Biodiversity)

Cologne and Lueneburg, September 2002. “Human activities are

causing between 10,000 and 40,000 species to become extinct
each year” according to Richard Leakey a world-renowned con-
servationist. “At that rate we are probably approaching a point
similar to mass extinction. [… ] Such rapid catastrophic losses to
biodiversity have happened before, and these catastrophes have
always had far reaching consequences for the surviving species.”
Although the loss of biodiversity is considered a key environ-
mental problem it is managed based on theories and methods
that have been considered outdated in the financial markets for
more than 50 years. The results are flawed decisions and mis-
evaluations. This is one of the findings of the report „Managing
Biodiversity Correctly“ published by Gerling Group (Cologne)
and the Center for Sustainability Management (CSM) e.V.
(Lueneburg). If the practical skills and tools of financial services
and insurances were considered more biodiversity could be
saved.
Application of portfolio management to biodiversity
As the report shows, the findings of portfolio theory are ignored
today. This is somewhat surprising, since portfolio theory has not
only been awarded the nobel price but has also had a funda-
mental impact on everyday business of banks and insurances
during the last 50 years. The fact that portfolio theory is not
applied to biodiversity up to this point comes as a surprise
according to Stefan Volk, CFO of Gerling Group. „The value of
diversity can only be detected with portfolio thinking. For equity
portfolios this is generally accepted today. It is quite surprising
from the point of view of a financial practitioner that portfolio
theory is not used for the valuation and management of biodiver-
sity.“
World’s biggest asset
Aiko Bode, project manager and head of the Cologne office of
Gerling Sustainable Development Project GmbH, points out the
importance of the associated challenge. „Biodiversity, without
any doubt, is the world’s biggest asset. The value exceeds the
market capitalization of all stock exchanges worldwide many
times over. It is alarming to see that the tools and concepts of
modern finance are not used to manage this asset. We expect the
use of portfolio theory to provide additional incentives to con-
serve biodiversity.“
Portfolio theory was developed in the early fifties by the American
economist Markowitz. Portfolio theory suggests e.g. that stock
portfolios that consist only of a few low-risk stocks have a high
rather than a low-risk profile. Portfolio managers who want to
reduce portfolio risk must therefore invest in many different
stocks – even if the individual stocks are very risky. Only portfolio
theory is able to detect the value of diversity. This method is used
today for the management of securities and insurance risks in the
first place. The new Gerling-CSM report applies portfolio theory
to biodiversity for the first time and arrives at some interesting
conclusions.
Agriculture mismanaged
“Portfolio theory is not used for the management of biodiversity
and this is a major reason for its current mismanagement. This
becomes particularly evident in the agricultural context”,
according to Dr. Frank Figge the author of the study, “The one-
sided interest in the yield of crop plants has led to mis-balanced
crop plant portfolios. Professional investment advisers would
never advise their clients to invest in a stock portfolio that is as
mis-balanced.”
As the report shows mistakes are also made in the assessment of
biodiversity for a future pharmaceutical use. Plants are often the
basis for new pharmaceutical substances. The probability of a
specific plant resulting in a new pharmaceutical substance is
however small. The value of a specific plant appears therefore to
be uncertain. This has an adverse impact on its value. A fallacy as
the report shows. There are a number of reliable estimates on
how many pharmaceutical substances can be derived from the
total number of plants, i.e. from the entire plant portfolio. The
pharmaceutical value of a well diversified plant portfolio can
therefore be reliably assessed.
The report sketches out the basics of a portfolio theory of bio-
diversity and demonstrates the consequences of a portfolio view
on biodiversity. It introduces 9 rules that are considered self-
evident in the management of securities today. „These rules are
generally accepted in banks and insurances“ according to Aiko
Bode „It is disheartening to see that they are not applied in the
management of biodiversity. Today stocks and other securities
are managed more professionally than biodiversity, the biggest
asset of all“.

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Background information:
The report has been prepared by Dr. Frank Figge of the
Center for Sustainability Management (CSM) e.V. and is
published by Gerling Group.
The report applies for the first time the findings of portfolio
theory and portfolio management to biodiversity.
The report shows that biodiversity is managed less pro-
fessionally than securities today. Only a portfolio perspec-
tive allows to unveil the economic value of diversity. A per-
spective that concentrates on single species, eco-systems
etc results in an incentive to destroy biodiversity – a major
reason for the current dramatic loss of biodiversity.

The report and additional information can be obtained from:

Dr. Frank Figge

Center for Sustainability Management (CSM) e.V.
Tel: +49-4131-78-2185
Fax: +49-4131-78-2186
Mobile: +49-160-755 82 97
E-Mail: Figge@sustainablevalue.com
www.bio-folio.com

Aiko Bode
Gerling Sustainable Development Project GmbH
Tel: +49-221-144-7549
Fax: +49-221-144-607549
E-Mail: aiko.bode@gerling.de
About the publisher:
Gerling Group is one of the leading commercial insurers in
Europe. The insurance group includes industrial insurance, life
insurance, reinsurance and credit risk insurance. In the area of
reinsurance and credit risk insurance, Gerling ranks among the
main global insurance companies with activities in thirty
countries world-wide. The headquarters is located in Cologne,
Germany. Still, the company is mainly owned by the Gerling
family. For about thirty years, Gerling has been leading in
addressing environmental and sustainability concerns and
incorporated those into their risk assessments and precautionary
approaches.

Additional information:
Joachim Ganse
Head of Environmental Affairs
Gerling Versicherungs- Beteiligungs- AG
Tel: +49-221-144-5012
Fax: +49-221-144-7666
E-Mail: joachim.ganse@gerling.de
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