Investing in Nature: The case for Biodiversity Finance

3rd November 2020

Author(s) – Adwit KashyapShivani Verma

The Need For Biodiversity Finance

Biodiversity is an indispensable block of natural capital assets and underpins multiple
ecosystem services that they generate. It provides a responsive framework for all primary,
secondary, and even tertiary business entities, creating an impact on biodiversity either directly
through their operations or indirectly through their global supply chains. However, immoderate
dependency and consumption have disturbed the entire natural ecosystem. Approximately one
million of the estimated 8 million plant and animal species on the planet are now threatened
with extinction. At the same time, 14 of the 18 categories of nature's services that were
evaluated in 2019 have also deteriorated since 1970 (Global Assessment Report on Biodiversity
and Ecosystem Services, 2019).

Biodiversity finance is vital in achieving transformational improvements to stop and reverse the loss of biodiversity and ecosystem services. It implies a need to align investment strategies with the Sustainable Development Goals (SDGs) rapidly. An integrated framework, given by Stockholm Resilience Centre known as " Wedding Cake" clearly states that some SDGs are non-negotiable. This framework provides a safe operating space within which attainment of economic goals is fulfilled (Stockholm Resilience Centre’s (SRC) contribution to the 2016 Swedish 2030 Agenda HLPF report, 2017). The framework ensures fair and equitable developments extending into the environmental, social, and governance ecosystem where the business operates.

 

 

Figure 1 Wedding Cake: The biosphere underpins all other SDGs

Source: https://www.stockholmresilience.org/

The Biodiversity Financing Gap

As per Paulson Institute and Nature Conservancy report, actual expenditure on biodiversity
conservation is between $124 billion and $143 billion per year compared to an estimated
Overall biodiversity conservation needs of between $722 billion and $967 billion per year. As illustrated in figure 2, this accounts for $ 711 billion per year as the biodiversity financing gap
(Financing Nature: Closing the Global Biodiversity Financing Gap, 2020) .

 

The Need of a Regulatory Framework: The Task Force on Nature-related Financial Disclosures

As biodiversity-related threats become prominent in the sustainable development agenda,
many financial institutions are taking numerous initiatives to turn their attention to more
optimistic biodiversity activities and bridge the biodiversity financing gap. One such initiative is
the formation of Task-force on Nature-related Financial Disclosures (TNFD). Based on the
recommendations (presented in 2017) of the Task Force on Climate-related Financial
Disclosures (TCFD), TNFD is a regulatory framework to build awareness and competence to
enable the financial sector, reducing the adverse effects of market and systematic failures on
nature and biodiversity (TNFD, 2020) . The Informal Working Group (IWG), consisting of
governments & regulatory bodies, banks & financial institutions, and think tanks, will prepare a
two-year work programme for the Task Force. They will work together to maximize the
opportunities of efficient biodiversity management by discussing the reporting frameworks,
metrics, and data needs of financial institutions, and allowing them to acknowledge their
threats, dependencies, and impacts on nature.
World Economic Forum estimated that nature-positive transitions could generate up to US$
10.1 trillion in annual business value and offer 395 million job openings by 2030. Namely,

sustainable aquaculture holds the capacity to create jobs and protect the marine environment.
Globally, more than 20.5 million people are currently employed in aquaculture, with Asia
responsible for the bulk of employment in the sector at over 19.6 million. Organizations are
proposing various solutions for sustainable aquaculture backed by IUCN to demonstrate such
projects’ financial sustainability and provide support in rectifying negative impacts generated
during decades of unsustainable farming practices (World Economic Forum, 2020) .
All such initiatives and the creation of employment opportunities derive the pressing need for
introducing biodiversity conservation in mainstream finance where capacity and awareness
may be lacking (Beyond 'Business as Usual': Biodiversity Targets and Finance, 2020) . The
materiality assessment of risks related to natural capital for financial institutions and the
identification of various categories of risks have improved over the past years. For example, the
failing ecosystem services may result in inaccessibility of natural resources, causing disruptions
in production functions. It can propel the credit and investment risks for financial institutions
and lead to a loss of business or poor investment performance (Biodiversity Opportunities and
Risks for the Financial Sector, 2020) . Imperatively, the finance sector must strengthen risk
management and develop opportunities to align investment portfolios with global biodiversity
goals.

 


References:

(2020). Retrieved from TNFD: https://tnfd.info/who-we-are/

(2020, Oct 22). Retrieved from World Economic Forum:
https://www.weforum.org/agenda/2020/10/shrimp-aquaculture-jobs-environment/

(2020). Beyond 'Business as Usual': Biodiversity Targets and Finance. Swiss Federal Office for Environment. Retrieved October 13, 2020, from https://www.unepfi.org/wordpress/wpcontent/uploads/2020/06/Beyond-Business-As-Usual-Full-Report.pdf

(2020). Biodiversity Opportunities and Risks for the Financial Sector. Retrieved from
https://www.dnb.nl/binaries/Biodiversity%20opportunities%20risks%20for%20the%20financial%20sor_tcm46-389029.pdf

(2020). Financing Nature: Closing the Global Biodiversity Financing Gap. The Paulson Institute, The
Nature Conservancy, and the Cornell Atkinson Center for Sustainability. Retrieved from https://www.nature.org/content/dam/tnc/nature/en/documents/FINANCINGNATURE_FullReport_09520.pdf

Global Assessment Report on Biodiversity and Ecosystem Services. (2019). Retrieved 2020, from
Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (ipbes): https://ipbes.net/global-assessment

(2017). Stockholm Resilience Centre’s (SRC) contribution to the 2016 Swedish 2030 Agenda HLPF report. Stockholm University. Stockholm: Stockholm Resilience Centre. Retrieved from https://www.stockholmresilience.org/download/18.2561f5bf15a1a341a523695/1488272270868/SRCs%202016%20Swedish%202030%20Agenda%20HLPF%20report%20Final.pdf


About the Authors: 

Adwit Kashyap

Pro-Bono Member (ESG and Business Development)

Adwit is an experienced hand in consulting, business development and program management with a demonstrated history of working in the sustainable development space. With a bachelor’s degree from IIT Bombay and a business degree from the Indian School of Business (ISB), he brings an extensive experience of working with corporates, government and multilateral agencies in the Indian market.

Shivani Verma

Team Member (Content Developer)

Shivani Verma is a student at Indian Institute of Forest Management (IIFM), Bhopal, currently pursuing Post Graduate Diploma in Forestry Management (PGDFM). Having knowledge of ESG and Sustainability, equipped with the skill of mass communication, she is a part of vibrant team at JointValues as a content developer.