How COP16 nature summit could boost biodiversity finance
By Aniska Bitomsky
- The world is facing a huge biodiversity finance gap. A collapse of the ecosystem services that biodiversity provides could slash $2.7 trillion off global GDP by 2030. In contrast, funding to protect and restore nature and biodiversity was equivalent to $15.4 billion in 2022.
- The COP16 presents an opportunity to mobilise private biodiversity finance. Research shows that biodiversity finance deals can generate positive financial returns. Reporting on and investing in biodiversity now also mean reaping first mover advantage.
Nature and the ecosystem services it provides, such as soil conservation and climate regulation, are rapidly degrading. A collapse of these ecosystem services could result in an annual decrease of $2.7 trillion in global GDP by 2030, according to the World Bank. In contrast, the OECD has calculated funding to protect and restore nature and biodiversity was equivalent to $15.4 billion in 2022. We are therefore facing a huge biodiversity finance gap, which could have severe consequences for the global state of nature. To address this gap and protect nature, the 16th COP of the Convention on Biological Diversity aims to mobilise private finance for biodiversity.
What is biodiversity finance?
Biodiversity refers to the variety of different species of plants and animals, ecosystems or habitats, and genetic diversity of living organisms. The European Commission defines biodiversity finance as “expenditures that contribute to biodiversity conservation, restoration or sustainable use, whether by directly targeting these objectives or by having positive effects on them”. This definition allows biodiversity finance to take many forms. For example, the World Bank’s International Finance Corporation and Banco Bilbao Vizcaya Argentina issued a biodiversity bond that is used to finance projects to restore wildlife habitats, conserve mangroves, and make agriculture more climate-smart in Colombia.
Biodiversity finance is a win-win for the private sector and the environment
The biodiversity finance gap can have drastic material implications for companies. Through their supply chains, 85% of companies in the S&P Global 1200 index have a “significant dependence on nature” and 46% have at least one asset in an area key to global persistence of biodiversity. In total, $28.9 trillion in these companies’ revenue was produced using around 22 million hectares of land in direct operations in 2021 alone. For a more in-depth discussion of nature-related risks for businesses, listen to the episode of Oxford Economics’ podcast featuring our nature experts here.
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The good news is that finance to protect nature and biodiversity has plenty of growth potential. This prospect is attracting increasing interest from private institutions and policymakers—with good reason.
An analysis of biodiversity finance deals closed between 2020 and 2022 shows that these deals do generate positive financial returns to private investors as well as significant positive biodiversity impacts. Financial returns are usually larger when the projects are purely financed through private capital, but those projects tend to be smaller than ones financed through a blend of private and public funding. Therefore, biodiversity finance helps financial institutions win but also benefits the broader economy and society through the maintenance of nature and the ecosystem services that flow from it. Just as well-maintained physical capital can help secure long-term revenue streams, so well-maintained natural capital can help secure long-term resilience. This is especially true when COP16 as an “implementation COP” promises to kickstart a new regulatory shift as well as mobilise new innovative biodiversity finance instruments.
Why should the private sector care about COP16?
The key thing COP16 will focus on is the implementation of the Kumming-Montreal Global Biodiversity Framework. The Global Biodiversity Framework was the main output adopted at COP15 in 2022 and outlines targets aimed at reducing the threat to global biodiversity. There are three targets the private sector should keep an eye on as they open up interesting opportunities to the private sector – targets 14, 15, and 19:
- Target 19—New finance instruments: The target sets out the goal to raise “at least $200 billion per year by 2030” for global biodiversity by “leveraging private finance” and investment, including through impact funds, green bonds, biodiversity offsets, and credits.
- Target 14—Nature-protecting financial flows: The private sector might have to align its activities and financial flows to the goals on protecting nature and preserving biodiversity set out in the framework. Harmful financial flows may need to be eliminated, phased out, or redirected.
- Target 15—Monitoring and disclosure: Companies and financial institutions may be required to monitor, assess, and disclose their “risk, dependencies, and impacts on biodiversity” along their supply and value chain. The goal is to reduce negative biodiversity impacts as well as biodiversity-related risks to the private sector.
Reporting on and investing in biodiversity now also means reaping first mover advantage
Disclosure of biodiversity-related risks and impacts is not a topic newly emerging with COP16. Many standards on biodiversity-related disclosure have materialised over the past few years and while they might seem overwhelming at first, they are also increasingly aligned, as we discussed here.
The information that these reporting initiatives provide allows for a more forward-looking assessment of risk and opportunities for companies and investors alike. In the case of biodiversity, it also opens the opportunity to reap first mover advantage when combining disclosure information with the new finance instruments the Global Biodiversity Framework proposes. Biodiversity finance has started to prove itself as a tool to generate positive financial returns and biodiversity impact. Aligning activities and financial flows with the framework ahead of COP16 positions companies and investors to take advantage of policy support for innovative biodiversity finance instruments and schemes and makes them better equipped to use the information from disclosure requirements to their advantage.
While biodiversity finance is a relatively new sector, we will see more evidence and action emerge in the future, with COP16 being a huge driver. The private sector should seize the moment as quickly as possible by upskilling and building knowledge and awareness to reap the most benefits.
This blog is produced by our Economics and Sustainability team. We analyse companies’ impacts on biodiversity and assess their nature risk exposure. We can help you plan for and mitigate risks associated with ecosystem service loss to ensure your business thrives in the long run. To unlock the power of climate change and sustainability insights for your business, click here to contact us.
For a more in-depth discussion of nature-related risks for businesses, listen to the episode of Oxford Economics’ podcast featuring our nature experts:
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