Towards code green: Transforming finance for nature

Posted On October 6, 2021

At the UN Biodiversity Conference, countries will adopt a new global framework to protect and restore nature.

Photo:
Holly Mandarich/Unsplash

The most important biodiversity event in a decade is about to start, where countries will put together a historic new global framework, to be announced at the next Convention of Biological Diversity meeting. This is humanity’s chance to change words into actions and ensure life on Earth is here to stay. However, the plan to protect and restore nature will never come to fruition if we do not have the finance to back it while failing to stop actions that harm it.

A global biodiversity finance gap

Nature is facing a huge financial deficit. Ecosystems have reached critical tipping points, extinction rates are 100 to 1,000 times higher than they were 100 years ago. While around US$722 to $967 billion is needed to protect and restore nature, funding for its protection stands at only around $143 billion per year, with 80 to 85 percent of funding derived from the public sector.

Recently 100 economists found that the benefits of protecting at least 30 percent of the world’s land and ocean would outweigh the costs by a ratio of at least 5 to 1.

Can we transform our public sector finance for nature?

While it is important to evaluate how much is needed globally, understanding the financial landscape at the national level and developing clear action plans to finance nature is necessary. The UNDP Biodiversity Finance Initiative – BIOFIN – carries out a methodology in 40 countries to develop Biodiversity Finance Plans and prioritize the most feasible and impactful finance solutions. This work has led to the creation of a catalogue with 150 finance solutions and opportunities to invest in nature.

These solutions are helping countries green the COVID-19 recovery through a variety of innovative solutions. Kazakhstan, for example, endorsed a new Environmental Code enabling it to deliver multiple finance solutions, including biodiversity offsets, voluntary payments for ecosystem services, nature positive ecotourism, among others.  

Many other examples exist: the adoption of green bond guidelines by the Zambian Security Exchange Commission and a recent $2.8 million financing of a bird conservation centre in Indonesia using green sukuk.

Such solutions have been created to work not just at national level. Mexico City recently improved the management of its city Environmental Fund, boosting it by $2 million. In nearby Guatemala, almost $1 million has been raised, through Result Based Budgeting, for coastal marine biodiversity management in five municipalities.

Ending harmful subsidies

Generating more finance for biodiversity is a necessity, but more efforts are needed to reach the global biodiversity targets, and one area in particular has the potential to be a gamechanger: reducing harmful subsidies.

According to the OECD, $ 500 billion is spent every year on activities which harm biodiversity, such as subsidies for fossil fuels, damaging fertilizers and other nature-negative industries.

When we compare it to the $143 billion spent every year to finance nature, it is evident the equation does not work.

A recent analysis demonstrates that nearly 90 percent of our agriculture subsidies are harmful to biodiversity and need to be repurposed. While the subject can be considered at first sight challenging, repurposing harmful subsidies will undoubtedly be one of the most impactful milestones to save life on Earth.

Will the finance sector accept the challenge?

The business and finance sectors are beginning to recognize the important role biodiversity plays. This includes material impacts on companies’ operational costs, reputation, risk and profitability, and potentially serious implications for financial stability at the macro level.  

More than $44 trillion of economic value generation is moderately or highly dependent on nature and its services. Action for nature-positive transitions could generate up to $10.1 trillion in annual business value and create 395 million jobs by 2030.

Nature loss therefore represents significant risk to corporate and financial stability. Recent research finds that companies with $2.1 trillion of debt have high or very high exposure to natural capital risks. Organizations urgently need a framework to manage these risks, as well as identify nature-related opportunities.

In 2019, following the devastating Amazon fires, 251 investors with $17.7 trillion in assets under management called on exposed companies to take urgent action on deforestation. In 2020, pension funds and other investors managing $6.5 trillion in assets publicly called for a “framework to measure biodiversity impacts”.

The Network for Greening the Financial System (NGFS), a coalition of 90 central banks and financial supervisors, reported that the global financial sector is exposed to significant unaccounted risks from business activities that either cause or are affected by air and water pollution, land fertility loss and contamination, and biodiversity decline.

The Taskforce on Nature-related Financial Disclosures (TNFD) is a new global initiative which aims to give financial institutions and companies a complete picture of their environmental risks. Better information will allow them to incorporate nature-related risks and opportunities into their decision-making processes. In 2023, the TNFD will deliver a framework for organizations to report and act on evolving nature-related risks, in order to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.

As nature-related data, metrics and standards improve, robust financial decision-making will increasingly be possible and expected. Now is our chance to incentivize nature-positive opportunities and deepen solutions that will put the world on a greener, safer path.

What are we waiting for?

Join the Nature for Life hub on Wednesday, 6 October and learn more about the opportunities to transform finance for nature.

 

The plan to protect and restore nature will never come to fruition if we do not have the finance to back it.