With COP16, the biodiversity COP, kicking off this week, the biggest question on the agenda is how to fund nature recovery and restoration. The headlines about amazing initiatives to protect and restore nature created a buzz around New York Climate Week. Yet, most of these transactions are single hero investments. The big question on the agenda for the next couple of weeks is how to take current financing of USD35bn and turn it into USD700bn of mainstream finance flowing towards nature. The answer is largely in making the exciting boring by standardizing and replicating financial structures that work at speed and scale that is required.
The biodiversity crisis, and the role of nature in reducing greenhouse gases and making lives and livelihoods more resilient to the impacts of climate change, is slowly attracting more attention. As is the need for huge amounts of finance to stop the current negative trends. Experts estimate the biodiversity finance gap at $700 billion a year. This includes USD200bn for target 19 of the global biodiversity framework (mobilize finance from all sources) and USD500bn for target 18 (reduce harmful incentives). The latter target is in particular trouble as harmful subsidies have been rising.
At Climate Week NYC in September, we brought together NGOs, bankers, investment managers, asset owners and insurance companies to understand ways to solve this puzzle. We started with examples of how insurance can be used to create cashflows for investment into nature.
One example we showcased came from the Philippines. The country boasts a diverse marine ecosystem that is crucial for coastal communities, offering benefits such as fisheries, tourism, and cultural and coastal protection. However, the Philippines faces significant vulnerability to climate change, especially from typhoons and storm surges. These extreme weather events threaten lives, livelihoods, and ecosystems. We explained how, by investing in equitable insurance solutions, there is potential to safeguard biodiversity, ecosystems, and the resilience of coastal communities, ultimately contributing to sustainable development in the region.
But individual transactions are nowhere near enough. Although they may bring significant beneficial impacts for nature and local communities, they also often take many years to pull together. Simply said, we don’t have enough time to solve the nature crisis one small intervention at a time.
So the question of replicability and standardization comes up again and again, as it did at the conference hosted by the Royal Society in London on how ecological risk relates to commercial risk. Here, we talked about the need to collaborate early in project development stages, so that impact for practitioner and scientific communities as well as ability to replicate is built into projects.
One of the big problems, as we realised when we started to explore this question as part of the A-track consortium — a €11 million project aimed at accelerating business, finance, and government action for nature — is that nature finance is mostly seen by mainstream finance as dealing purely in impact investment, rather than day-to-day finance terms. This framing stops the conversation switching from considering nature financing as a specific need to examining how to finance the reduction of pressures on nature via mainstream business models.
The misperception continues that risks from nature loss are for the future. This is totally wrong. Risk from nature is firmly already on the books today. And even more interestingly, financing the protection and restoration of nature is also already financially beneficial for companies.
Take the example of a heavy industry company, such as a cement company, which is deeply reliant on water. Financing ways to reduce and recycle water usage will contribute to the reduction of water withdrawals from the ecosystem and lower costs for the company in question. The same goes for food and farming companies. Financing actions to improve soil health and to help the transition to regenerative agriculture would be financially beneficial in increasing crop yields and addressing pressures on nature.
As the international biodiversity COP begins in Colombia, the conclusion is simple. Conversations and decisions should be not just about increasing nature conservation or individual case studies, but on enabling private finance to play a full role in reducing pressures on nature as part of its daily operations.
