As the Dasgupta Review observed, many of the processes that shape the natural world are “silent and invisible”. As a result it is challenging to communicate both the use we make of ecosystem services and the economic activities which are adversely impacting nature. In order to catalyse action by the finance sector, public policy should address this barrier by setting actionable targets which provide clear direction and ambition for business and finance. This should start with the Convention on Biological Diversity adopting clear actionable high-level goal, such as the ‘halt and reverse nature loss by 2030’ proposed by Business For Nature, as well an objective of making all financial flows consistent with that goal (c.f. Article 2.1(c) of the Paris Agreement).
Such a framework would not only send a strong signal to any business whose activities contributed to nature loss, but it could also be translated into national biodiversity action plans focussed on the key drivers of biodiversity loss in each country. In order to track their achievement, national plans would need to be supported by the development of national and, in some cases, regional baselines and biodiversity finance gap assessments to assist governments in understanding where private finance will be needed and also where policy changes would be useful.
For the finance sector, such a package of national goals and baselines, supported by financing plans and ideally policy roadmaps for key sector, would allow investors to quantify the nature-related transition risks of those companies contributing to nature loss and give financial institutions the confidence and encouragement to request information from clients around nature-related risk exposure.
At the same time, establishing national targets, sectoral roadmaps and baselines will enable financial institutions to understand where opportunities lie in terms of investments helping to focus fund flows, and to determine how best to partner with public sector finance. Having agreed-upon targets and baselines would also better enable the development of standards and impact metrics that in turn could support the growth of nature-related financial products such as loans for positive nature outcomes, sustainability-linked loans with biodiversity KPIs, or discount rate loans to finance land-use transition.
Assessments of baselines, targets and finance gaps are currently carried out by the United Nations Development Programme’s (UNDP) Biodiversity Finance Initiative (BIOFIN) in 40 countries to date, including Mexico, South Africa, India and China, with Ireland being an early adopter in Europe. The assessments follow a three- step process: measuring at national level expenditure levels (public and private), costing national biodiversity goals, and crafting national financing strategies with the most promising financing options to fill the gap (including understanding where subsidies may be negatively impacting a nature-positive strategy).
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RECOMMENDATION IN PRACTICE:
BIOFIN's Biodiversity Finance Plans
National level implementation of Biodiversity Finance Plans is at various stages in the 40 countries participating in BIOFIN. Several teams successfully moved biodiversity finance to the forefront of national policy and fiscal agendas:
- In the Philippines, BIOFIN helped fill a gap in protected area legislation (2018) and supported the formulation of a US$43 million budget proposal for protected areas, adopted late 2019 for the 2020-2 budget. A new app ‘GCash Forest’ was launched with payment platform GCash/Alipay, combining incentives for sustainable behaviour with payments for tree planting, resulting in over 100,000 trees planted.
- New legislation was formally adopted on multiple finance solutions in Kazakhstan in 2017 and a new Environmental Code followed in 2021, including a host of initiatives that will help protect and restore the country’s nature: biodiversity offsets, voluntary payments for ecosystem services, principles of sustainable ecotourism, and the development of methods and approvals for calculating greenhouse gas emissions, including in the forestry sector.
- In Georgia, the Environment Ministry saw a budget increase for biodiversity conservation from US$30,000 to US$270,000 after making a better investment case in 2019. Since then the budget allocation was preserved providing a total of US$420,000 additional generated resources for biodiversity finance.
- In Guatemala five coastal municipalities increased the funds available for coastal and marine biodiversity conservation and management by over 50% from 2018 to 2019 using results-based budgeting (over US$ 1 million in total).
- Mexico successfully re-designed two major environmental funds: (1) a national climate fund (previously not operational and not focusing on biodiversity) that since saw a turnover exceeding US$ 3 Million, with US$ 2 million directed to nature-based solutions for ecosystem resilience, and; (2) a green fund of Mexico City, resulting in a saving of US$ 3 million per year through efficiencies identified by BIOFIN and a more articulated focus on biodiversity.
- Sri Lanka adopted a sustainable finance sector policy and sustainable tourism certification in 2019. Sri Lanka and Cuba are implementing Payments for Ecosystem Services for the first time.
- Zambia enacted a national framework for green bonds early 2020.
- The Seychelles parliament formally adopted all of the finance solutions and launched the first ever Biodiversity Finance Unit in 2019.
- Belize started a Biodiversity Unit in April 2020.
- Kyrgyzstan became the first country to set an official reform agenda to revisit agriculture subsidies with a negative impact on biodiversity.
- Indonesia secured a US$ 2.7 million investment for a bird conservation centre in the Maluku Islands from Sukuk finance (type of Islamic bond).
- Finally, Ireland became the first West-European country to implement part of the BIOFIN methodology, completing the Biodiversity Expenditure Review and Policy and Institutional Review.