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The 15th Biodiversity Conference of the Parties to the Convention on Biological Diversity (COP15) was held in December 2022 bringing together governments from around the world to negotiate an agreement to halt and reverse nature loss. Funding and finance were, as anticipated, central to the debate, but I want to explore the other developmental dynamics that need to be addressed before the funding turns into benefits to nature and the environment.
Funding commitments
First the positives. Among the various targets agreed at COP15, a key commitment (Target 19) was to substantially increase the level of finance from public and private sources to implement national biodiversity strategies and action plans, mobilising US$ 200 billion per year by 2030 with regulation, incentivisation and investment:
Increasing biodiversity related international financial resources from developed countries to developing countries to at least US$ 20 billion per year by 2025, and to at least US$ 30 billion per year by 2030
Significantly increasing domestic resource mobilisation, facilitated by the preparation and implementation of national biodiversity finance plans
Using private finance, promoting blended finance, implementing strategies for raising new and additional resources, and encouraging the private sector to invest in biodiversity, through impact funds and other instruments
Stimulating innovative schemes such as payment for ecosystem services, green bonds, biodiversity offsets and credits, benefit-sharing mechanisms, with environmental and social safeguards
These measures provide a platform to enhance our natural environment and reduce biodiversity loss, but this will take continued collaborative working between governments, communities, investors, and non-governmental organisations. Most countries do not yet have a plan for biodiversity or a systemic register of their nature assets with which to target interventions, attract lending, or engage investor networks. Governments should create systemic biodiversity investment plans that are embedded in national and sectoral plans, to help build a better-quality pipeline of business cases for biodiversity projects. The task is formidable, but there are three key areas for action that could help achieve Target 19 and deliver biodiversity investment at all scales.
Demonstrate the benefits of biodiversity investments
Economic systems are fully dependent on biodiversity – from air and water to food and raw materials. However, the economic benefits provided by well-designed biodiversity investments are often undervalued, or not valued at all in market prices. As a result, there are often insufficient economic and financial incentives for investors. For example, green infrastructure solutions such as mangrove, wetlands, and seagrass restoration can capture and store carbon, protect assets from coastal flooding, enhance land values, and provide a source of fisheries employment. They can be built in combination with other forms of infrastructure such as living seawalls, and provide just as much flood resilience as conventional grey infrastructure as well as a range of additional benefits.
Delivering these types of hybrid grey-green projects as part of a portfolio of biodiversity investments in a city prone to coastal and inland flooding could provide even more benefit and diversify investment risk. Yet improper accounting of the economic benefits that accrue from these projects, and the lack of ability to capture windfall benefits such as private land value uplift, undermine the case for choosing green over grey.
To overcome this, governments need to better monetise the value created beyond carbon reductions: for example, additional local income, higher land values, and asset protection values. To unlock the investment and finance needed to meet Target 19, governments have roles to play in reducing private sector free-riding, for example through more extensive use of taxes to disincentivise biodiversity-depleting activities in the first place, developing better systems of valuations to allow investors to better capture financial benefits from projects, including ‘beneficiary pays’ approaches.
Improve governance to unlock more concessional finance
The investment needed to halt and reverse biodiversity loss is most acute in emerging and developing economies. Excluding China, these account for around 90% of the investment opportunity from 2020–2030. East Asia, Latin America and Africa have the most critical sites for sustainable land use and nature preservation. Yet few countries in these regions have the fiscal capacity to fund all the necessary investments. High debt-to-GDP levels and lack of access to international capital markets makes it harder for them to raise debt at affordable levels. The use of low interest (concessional finance) from multilateral development banks is essential and indeed called for in Target 19.
So how do countries unlock these funds? Making the case for concessional finance requires countries to put forward investment propositions that deliver predictable benefits and meet strict performance expectations. However, unlike more mainstream types of infrastructure historically financed by multilateral development banks such as road and rail projects, the inherent complexities of nature mean economic and financial returns of biodiversity investment are subject to large uncertainties, their benefits derived over long time horizons. This requires stakeholders to be coordinated in their delivery and maintenance. There is a clear capability and capacity issue to overcome.
Governments without prior experience in biodiversity scheme development will need assistance in identifying viable projects, engaging multilateral partners early on in project definition, and putting the right leadership structures in place. Some projects, such as floodplain restoration schemes in combination with natural habitat expansion, could potentially span several administrative departments and external stakeholders. Again, coordination is key to developing solutions that meet investors’ needs for predictable benefits and clear performance metrics. Putting these fundamental elements in place is critical for bringing concessional finance to projects and action plans.
Increase funding for biodiversity, and source private investment
The creation of a market for voluntary biodiversity credits offers huge potential to scale finance for biodiversity. The market here would be different to that for biodiversity offsets; credits would be, purchased by companies seeking nature positive investments, rather than an offset for damage. There are some emerging schemes such as the Bosque de Niebla – El Globo Habitat Bank in Colombia, which has issued Voluntary Biodiversity Credits, each corresponding to 10 m2 of forest in the Bosque de Niebla preserved and/or restored for 30 years.
Meanwhile a working group of global financial institutions, convened by the Wallacea Trust, is developing a voluntary biodiversity credit methodology to be applicable in all ecoregions of the world. Credits would be issued by an internationally recognised body, sold to investors linked to an uplift or an avoided loss of biodiversity within a project application site. The credit would be a legal document, describing where the environmental action has taken place, who has developed it, according to what methodologies, and that it has been verifiably certified according to an agreed system. Buyers would be screened to ensure credits are not used as an offset for damage. Demand could come from companies with commitments on social responsibility, or obligations for nature-related disclosures under the emerging Taskforce on Nature-related Financial Disclosures (TNFD) Framework, which will strongly encourage companies to assess, manage and report their dependencies and impacts on nature through their supply chains. Governments could sell credits to the market to fund major biodiversity schemes, creating revenue streams as a funding source that would otherwise not have been possible.
For voluntary biodiversity credits to work, they will need to deliver high integrity outcomes. Through setting minimum prices for the credit, and strengthening land tenure rights, governments could help develop the market. While the model is promising, more robust data on ecological units and managed registers of biodiversity are needed for it to scale up to achieve its potential.
Beyond funding
The current focus on nature is overdue, but as the above examples have shown, the dynamics of converting funding sources into nature positive actions at scale are complex and challenging. We need a shift in appetite for investment tolerance, better accounting of benefits, and new governance structures suitable for biodiversity assets. The challenge will require intensified collaboration between governments, businesses and non-governmental organisations if we are to succeed in halting and reversing nature loss.
