Three Measures to Step Up Biodiversity Mainstreaming in Finance

International biodiversity finance is estimated at almost $143 billion a year. And according to the OECD, the contribution of Official Development Assistance, from AFD Group, for example, amounts to about $6 billion. This falls short of offering any hope of halting the catastrophic decline in animal populations. Indeed, according to WWF, the average size of vertebrate wildlife populations has fallen by 73% over the last 50 years. The degradation of ecosystem services is following a similar path.

Watch the video How to build a pro-nature economy?

Studies show that the needs differ. The Kunming-Montreal Global Biodiversity Framework adopted in 2022 calls for the mobilization of at least $200 billion and the elimination, by 2030, of the annual total of $500 billion of subsidies that are harmful to biodiversity.

A general mobilization is needed and financial actors are not exempt. Especially as biodiversity loss also concerns them on more than one count: in a recent analysis, the International Monetary Fund warns that the degradation of ecosystem services “generates significant threats to the global economy and financial system”. Public Development Banks are already playing a major role in getting the financial sector to take greater account of biodiversity. Here are three examples.

Promoting Investment in Nature-Based Solutions

Nature-based Solutions (NBS) are highly effective in tackling climate change and safeguarding biodiversity. They have benefited from global standards for several years now, including the International Union for the Conservation of Nature (IUCN) standard, which was created with financial support from AFD. These standards make it easier for investors to identify projects that deploy these solutions, and help them harmonize their practices.

Nature & Biodiversity – AFD Activity Report 2023

But NBS, which aim to protect, sustainably manage or restore ecosystems, and at the same time address other challenges facing society, remain poorly implemented. Actors such as the Asian Development Bank have taken steps to remedy this shortcoming, with the launch of the Nature Solutions Finance Hub (NSFH). The aim of the NSFH is to identify and appraise bankable projects that implement Nature-based Solutions across Asia and the Pacific. It also intends to pool public, private and philanthropic funds, and involve lead environmental protection organizations, such as WWF and The Nature Conservancy. AFD is contributing a €1 million grant to this initiative.

More Clearly Identifying the Risks Related to Biodiversity Loss

The actors most exposed to the risks related to biodiversity loss are not necessarily those who  are better prepared. Researchers are thus working to make it easier for large corporations and financial institutions to analyze these risks.

“If an ecosystem service is degraded and a company that depends on it starts to fail, there is the risk that they will no longer be able to repay their loans or contribute to the State budget,” says Julien Calas, a researcher specialized in biodiversity at Agence Française de Développement. “So, banks have every interest in identifying issues related to the dependence and impact on biodiversity of the companies they finance, to avoid being in turn exposed. It’s also about identifying sectors where investment opportunities are less risky.”

Further reading: Biodiversity Degradation: 3 Risks for Finance

Between 2021 and 2023, AFD conducted a study in South Africa on the country’s macro-financial exposure to these risks. “We looked at the vulnerability of the banking system through a granular spatially-explicit assessment. For example, we found that economic sectors that are highly dependent on water supply were concentrated in a handful of municipalities where there are recurrent problems of access to water, which could get worse,” says Paul Hadji-Lazaro, an economist specialized in biodiversity at AFD. The South African Reserve Bank and Development Bank of Southern Africa have shown great interest in these findings.

A project financed by AFD’s ECOPRONAT program is also working on a comparison of several existing “biodiversity metrics”. Public Development Banks can today use them to assess the impact of a project or economic activity on biodiversity, with varying degrees of effectiveness. The objective is to ensure that they take greater account of biodiversity in their risk analyses and financing decisions. The main findings will be presented at COP16. “We want to make things easier for our counterparts who are asking the same questions as us,” says Julien Calas.

View study results: "Comparative analysis of biodiversity measurement approaches for public development banks"

The action taken in this field also includes training. On 28 October, AFD Group Campus is launching an MOOC, in partnership with the Caisse des Dépôts, where participants will be able to acquire an overall vision of nature-related financial risks. This module is free and open to all, and available in French, English and Spanish. It lasts about 90 minutes and comprises 6 sequences, each around 10 minutes. The speakers include Étienne Espagne, a Senior Climate Economist at the World Bank, and Nathalie Borgeaud, from the Taskforce on Nature-related Financial Disclosures (TNFD).

Consult the Nature-related Financial Risks MOOC

Making Use of Blue Carbon Credits

Blue carbon credits are among the new “blue finance” tools used to protect marine biodiversity. This mechanism draws on the ability of coastal ecosystems, such as mangroves, seagrass beds and coastal marshes, to absorb up to four times more atmospheric carbon per unit area than terrestrial forests. This makes them essential allies in the fight against climate change. But their services go way beyond this: they also provide a habitat and resources for a wide variety of aquatic and terrestrial species.

Further reading: “Boosting Blue Finance to Protect the Oceans”

A mangrove conservation or restoration project can thereby generate blue carbon credits and sell them to companies, enabling them to offset their own emissions in compliance with their regulatory obligations, and in line with their greenhouse gas reduction strategies. This provides a way of diversifying sources of financing for nature protection projects and ensuring their sustainability, as these are long-term credits, meaning they provide returns throughout the project lifetime. 

Agence Française de Développement launched its Blue Carbon Facility in June. This €6 million fund will be a testing ground for this new blue carbon credit financing mechanism for biodiversity protection projects. All with the aim of promoting the conservation and restoration of these precious environments.

Further reading: AFD Launches New Program to Protect Marine Ecosystems