How banks can bridge the $700bn annual biodiversity finance gap

Nature and climate change should be tackled together, says the UNEP Finance Initiative in guidance for banks published ahead of COP28

The banking sector should set targets for nature finance and mobilise $700bn in annual nature finance, says the UN Environment Programme Finance Initiative in new guidance that calls for nature loss to be tackled along with climate change. 

Approximately $58tn, or more than half, of gross domestic product is moderately or highly dependent on nature, according to consultancy PwC. The risk from “not adequately factoring nature and biodiversity into our financial system is clear”, Stephanie Maier, global chief sustainability officer at asset manager GAM Investments, tells Sustainable Views.

Nature recovery is expected to be a major theme at COP28, with Brazilian President Luiz Inácio Lula da Silva set to announce a global financing framework for the conservation of tropical rainforests. People involved with the plan told the Financial Times that the fund will start at $100mn but grow significantly.

Meanwhile, the World Bank will host a session during the second week of COP28 focused on mobilising finance for nature. Leaders should “deliver major investment packages and nature-related commitments, [including] the Mangrove and Coral Reef Breakthroughs, the Freshwater Challenge, and the Emirates Accord,” said Jennifer Morris, chief executive of global non-profit The Nature Conservancy in a statement.

“We can’t emphasise enough how important the world leaders and policymakers at COP28 are in [increasing nature finance],” James Mansfield, managing director at environmental impact investment advisory Finance Earth, tells Sustainable Views. 

“Both in terms of securing commitments to transition public investments away from nature-negative and into nature-positive activities, but perhaps even more importantly in helping to establish the long-term incentive mechanisms, regulations and nature-based market infrastructure needed,” he adds.

Nature target-setting

The UNEP FI says its guidance will help banks align their portfolios with the Kunming-Montreal Global Biodiversity Framework and the final recommendations from the Taskforce on Nature-related Financial Disclosures, which were published in September.

The Kunming-Montreal framework, agreed at the COP15 global biodiversity conference in 2022, has 23 targets for biodiversity aimed at protecting 30 per cent of land, sea and inland waters and restoring 30 per cent of degraded ecosystems by 2030.

“The [UNEP FI] guidance helps banks … to start assessing risks, dependencies, impacts and opportunities in [their] portfolio, to identify the high-impact sectors that drive biodiversity loss, and report on those and identify the clients that operate in those high-impact sectors and start engagement with them,” UNEP FI co-head of banking Puleng Ndjwili-Potele tells Sustainable Views. “The guidance aims to get banks started by giving them very practical things they can do.” 

Just over 300 banks and insurers, representing $98tn in assets, have signed up to the UNEP FI’s Principles for Responsible Banking. 

Banks making progress

A number of banks are taking steps to reduce biodiversity loss and finance nature, but “it’s a journey, a lot of the banks are right at the beginning”, Ndjwili-Potele says. The guidance commends the Bank of Ireland for its Woodland Nature Credits, which fund the planting of new native forests in Ireland through a biodiversity crediting system.

“Looking at [forests] through a natural capital lens, the value is in the whole host of ecosystem services that a forest provides — things like carbon sequestration, biodiversity uplift, the amenity value and flood prevention and purification of water,” Bank of Ireland sustainable product innovation lead Paul Harris tells Sustainable Views.

“We securitised the ecosystem services, but the ownership of the trees and the land on which the trees were going to be grown remained with Coillte, the nature trust we set up,” he says. “The only thing that was being sold was the flow of environmental benefits.” 

Société Générale is also commended by UNEP FI for its work assessing biodiversity indicators including deforestation free policies, targets and traceability.

A spokesperson from the French bank tells Sustainable Views that “awareness of the negative impacts of deforestation on local communities, water resources, biodiversity and, on a global scale, climate change, is critical”. It “recognises the importance of contributing its efforts to accelerate the decoupling between the production of agricultural raw materials and deforestation”.

Harris says that establishing nature targets as a bank is not without its challenges: “There needs to be robust measurement of the environmental benefit, there has to be credible data.”

While emissions can be recorded and quantified, biodiversity benefits in different regions can be hard to compare due to significant variety in ecosystem types. UNEP FI hopes the guidance will make establishing measurable targets easier by giving examples banks can use.

“Banks need appropriate policies [from governments] to help them to advance on these topics and to create certainty in the market,” Ndjwili-Potele says. 

“I’d hold up the UK government’s biodiversity net gain regime as a prime example of how policymakers should and could engage with financial institutions,” says Harris. “It’s important that governments and policymakers provide a very strong, defined framework … ambiguity around aspects of regulations is the enemy of financial innovation in this space.”

The first group of statutory instruments for biodiversity net gain will be presented to the UK parliament on November 30. The UK government says the proposed legislation will help the country reach its 2030 target of halting the decline in nature and wildlife.

“The UK government has recognised the need for urgent action and it has made big commitments – but has failed to keep them,” said Craig Bennett, chief executive of The Wildlife Trusts, in a November statement on the government’s “broken promises”. He said that delays to BNG, which was originally set to become a legal requirement in November 2023 and has now been pushed to January 2024, undermined government commitments.

UNEP FI says its guidance will help banks prepare for potential regulatory changes. Ndjwili-Potele suggests that it will not be long before other governments put regulation on nature restoration in place.

Integrating nature and climate

“We see that it can be very powerful for banks to combine [nature-based targets] with financial targets they may have for climate change mitigation because of how interrelated and interlinked nature and climate actually are,” Ndjwili-Potele says. 

“Climate change is a driver of nature loss and responding to nature loss and restoration and conservation is essential to achieving a 1.5C target,” she adds.

GAM’s Maier agrees an integrated approach to nature and climate is essential. “As with climate, these frameworks must support actions that drive the transition to a sustainable economy, and help financial markets and regulators take a harmonised approach,” she says.

Harris describes nature and climate as “different sides of the same coin. It is impossible to address climate change without reference to nature”.

This article was amended after publication to correct signatory numbers and delete a sentence suggesting that banks may lose their membership status if they failed to adopt the Principles for Responsible Banking’s guidance on biodiversity, as this is not correct.