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Biodiversity Financing- Going Beyond Public Finance

While our businesses and policymakers are now increasingly committed to reducing GHG emissions, they do not yet realize the gravity of the situation that we are going to face due to the rapid loss of biodiversity. Species extinction or the loss of biodiversity is caused by many factors, but the human-induced loss is alarming. Human activities have caused species to become extinct 100 times faster than natural causes.

The loss of biodiversity reduces nature’s capability to provide us with some of the most critical services and products on which human life depends. The air we breathe, the water we drink, the food we eat… all originate from nature. Beyond this, our mental well-being and cultural and spiritual activities are intrinsically linked to nature. Nature also serves as our savior when it comes to hazards and extreme weather events. The contribution of biodiversity to our lives cannot be overestimated, but it has often been underestimated in many studies due to difficulties associated with its valuation and the limitations of our approaches.

However, with the world obsessed with valuation and pricing, scientists have estimated the annual value of biodiversity services, and different estimates range from USD 120 trillion to USD 160 trillion every year. But biodiversity is invaluable. In the absence of it, there is no life, and you cannot put a monetary value on humanity.

The Need for Biodiversity Financing

Conserving and restoring biodiversity requires a significant investment in biodiversity conservation and restoration. The total funding required for this is estimated to be in the range of USD 722 billion to USD 967 billion, but only a fraction (USD 78 billion to USD 143 billion per year) of this is currently available. ^1 Presently, biodiversity financing primarily relies on public finance, with private financing accounting for less than 15 percent. ^2.

A lack of financing for biodiversity conservation and restoration remains a challenge, a more serious challenge is the money flowing into activities that are destroying biodiversity. Globally, governments are spending six times more on activities that harm biodiversity than on restoring or protecting it. Subsidies going to sectors such as agriculture, forestry, fishery, and fossil fuel production need to be vetted to ensure that biodiversity loss is minimized.

The Biodiversity Financing Gap – Going Beyond Public Finance

The USD 500 billion-a-year biodiversity financing gap requires innovation in financing mechanisms and leveraging all available options. Sustainable investment instruments, such as green bonds and sustainability bonds, can be great options as they have provided much-needed capital inflow for sustainability agendas. According to the Climate Bond Initiative report, in 2022, the total volume of these bonds was USD 858.5 billion, but the share allocated to the biodiversity sector remains very low. Only around USD 50 billion has been directed towards sectors that may have biodiversity relevance, while the rest went to sectors such as renewable energy, energy transition, sustainable transport, agriculture, etc. A dedicated focus by government agencies and development finance institutions can help channelize more capital into the biodiversity sector.

The other options are biodiversity offsets and biodiversity credits. Biodiversity loss is sometimes unavoidable despite taking all feasible measures. In these situations, biodiversity offsets come into play to ensure that there is at least no net loss of biodiversity. A typical example of a biodiversity offset is the enforcement of restoring forests, wetlands, etc., in another location/site to compensate for the unavoidable loss of forests or wetlands due to road construction or mining (see the graphics below). Biodiversity offsets are already being enforced in several countries (you can explore the database of offset policies here), albeit in a limited way, contributing around USD 6.3 to 9.2 billion per year. Biodiversity offsets have the potential to contribute USD 162-168 billion every year by 2030^3.”

(Source: Biodiversity Offsets – Effective Design and Implementation)

Biodiversity credits are similar to biodiversity offsets, but unlike biodiversity offsets, they are not only meant for negating biodiversity loss. Biodiversity credits are used to channelize capital for any biodiversity projects that have a positive impact on species, nature, or ecosystems. This is not a new concept, as we have seen numerous transactions involving these biodiversity credits.

In Colombia, the conservation and restoration of the Bosque de Niebla forest leveraged Voluntary Biodiversity Credits (VBCs) created by Climate Trade and Terrasos. Each VBC corresponds to 30 years of conservation and protection of 10 square meters of the Bosque de Niebla forest and was priced at USD 30^4. Similar biodiversity credit transactions have also been carried out in Australia and New Zealand.

Resources for Further Reading

  1. The Economics of Biodiversity – The Dasgupta Review
  2. Biodiversity Offsets – Effective Design and Implementation
  3. Biodiversity Credits – An Opportunity to Create a New Crediting Framework for Nature Markets
  4. Biodiversity Finance – Reference Guide


One response to “Biodiversity Financing- Going Beyond Public Finance”

  1. Great read! Mixing public and private money can make a big difference. Adding nature’s worth in dollar terms to country’s wallets might also get governments on board. More brains, more gains!

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