Closing the global biodiversity funding gap is addressing systemic challenges | Emine Isciel

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INSIGHT by Emine Isciel, Head of Climate and Environment at Storebrand and co-chair of the Finance for Biodiversity (FfB) Foundation working group on Public Policy Advocacy, developed this Op-Ed as a position ahead of the UN CBD COP16 preparatory meetings in May 2024, in Nairobi, Kenya. This article was first published by the Finance for Biodiversity Foundation. Photo credit: Kristian Skalland Moen/Storebrand.


 

| Aligning financial flows to reach the global biodiversity goals in the “decade of delivery”

Almost two years have passed since the 15th Convention on Biological Diversity (CBD COP 15) took place in Montréal, Canada, where world leaders agreed on a set of goals and targets to halt and reverse nature loss by 2030- the Global Biodiversity Framework (GBF). The Kunming-Montreal agreement stimulated a reckoning to align public and private finance with the biodiversity goals and targets. The roots for this lie in Goal D, which is to “aligning financial flows with the Kunming-Montreal Global Biodiversity Framework and the 2050 Vision for biodiversity”.

As we have entered the “decade of delivery”, the time is right to get serious about aligning finance with biodiversity action. As of today, most financial flows, including investments, are out of sync with the goals of the Kunming-Montreal Agreement, with a magnitude of hundreds of trillions, moves around with little recognition of impact or dependency on nature. When governments meet in Nairobi, Kenya, over the next weeks (SBSSTA-26, 13-18 May; and SBI-4 meeting, 21-29 May), to discuss how to mobilize resources for the implementation of the Biodiversity Plan, we encourage them to address systemic challenges that are slowing down the alignment of public and private financial flows.

 

| The biggest opportunity to close the biodiversity finance gap is to reduce existing harmful financial flows

Implementation of the GBF is through the action of developing and putting into practice national policies that give effect to the GBF commitments and clearly reflecting these in the national biodiversity strategies and action plans (NBSAPs) that all Parties to the CBD have committed to updating by COP 16 in 2024. Governments are expected to move towards closing the biodiversity finance gap of $700 billion per year and work towards aligning financial flows with the Biodiversity Plan. As large as the funding gap might be it  can be closed. Much of what’s needed is smarter policy that will influence investment choices, shifting the existing flows of private capital away from harmful behaviors and toward outcomes that benefit nature. This means that the biggest opportunity to close that gap is to reduce existing harmful private financial flows. When delegates enter discussions in a few weeks’ time, they should alongside their discussion on how to scale up commitments to biodiversity finance, also identify and apply strategies to reduce existing harmful flows.  By managing these risks and avoiding investments that may have negative impacts on biodiversity, significant flows of private capital can be shifted away from harmful behaviors and toward outcomes that benefit nature. Without substantial policy measures to mainstream biodiversity into existing flows, the goals and the targets in the GBF will not be met, regardless of significant actions in other areas. Implementing measures that will reduce existing harmful financial flows, in turn, reduces the future need for funding to counteract these impacts. This will, among other things, require governments to implement disclosure requirements that are consistent with international standards such as the Taskforce on Nature-related Financial Disclosures (TNFD) and stimulate open source and location-specific data, and then to address the sectoral policies that are causing harm to nature

 

| An environmentally sustainable future will require increasing involvement of finance ministers and a whole of government approach

Coherent disclosure requirements are an important step in the right direction but will not be sufficient. The current misalignment of financial flows reflects broader weaknesses and failures in the sectoral economic activities as they relate to nature. Alongside with improved transparency, governments in each country should reform financial flows through domestic sectoral policy and regulation. Nearly US$542 billion is spent each year on agricultural, fisheries, and forestry subsidies that we know are are harmful to nature, in turning crowding in private financial investment which are stimulated by those subsidies, significantly amplifying the harmful economic activities and their impacts. Redirecting those subsidies to incentivize more sustainable practices I those same sectors is necessary. The development of ‘whole-of-government’ strategy to coordinate an economy-wide just transition will be critical. We have previously called on finance ministers to give effect to the global policy goals and we strongly believe that an environmentally sustainable future will require increasing involvement of finance ministers. By fostering innovations, aligning incentives, and setting clear boundaries, they can steer sectoral pathways towards reducing negative impacts, increasing positive impacts, and catalyzing private finance at scale.

The increasing trend in the development of sustainable finance taxonomies across the globe offers an opportunity to create a common language for nature-related criteria and increase cross-border capital flows to environmentally sustainable projects to align private and public financial flows with biodiversity objectives. Taxonomies can contribute to guide disclosure practices and track finance and investments towards nature-positive activities and projects. Monitoring, reporting, and reviewing of implementation will be key to driving evidence-based progress.  Unfortunately, for now the main focus in sustainable finance taxonomy development remains narrowly on climate which has resulted in own definitions of what can be defined as an activity that contribute to biodiversity. This in turn has led to diversity of definitions for what economic activities can contribute to the conservation, restoration, and sustainable use of nature.

 

| Credible national actions need credible firm-level transition plans  

Given the importance of rapidly shifting from disclosure to action to halt and reverse biodiversity loss in this decade, countries must create credible national nature transition plans across their entire economies and require financial institutions and companies to have their own nature transition plans which align to the goals and aims of the national plans. Transition planning is a critical opportunity to bring the solutions to climate change and nature loss together. To date, the focus of transition plans has largely been on climate change where businesses and financial institutions demonstrate how they will manage climate risks and take action to reach their climate targets. Governments and regulators should require companies and financial institutions to develop meaningful nature transition plans alongside their climate transition plans, holistically.  For financial institutions, national regulatory regimes should require nature transition plans that address how individual institutions will meet the need to align their financial flows with biodiversity goals and targets. As regulatory obligations are placed on financial institutions, supervisors will assess the adequacy and execution of plans, with appropriate regulatory action being taken where the regulatory standards are not met. With a focus on implementation, transition plans can become a powerful tool for bringing sustainability risk into the time horizon that supervisors can consider, and act on.

 


All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.