Current efforts to address global biodiversity loss are inadequate and face a financing gap of between 598 billion and 824 billion dollars per year, a new study has concluded. To address this gap, governments and businesses need to support the introduction of ‘biodiversity credit markets’, to be modelled in a manner similar to the carbon credit markets that already exist.
The study, conducted by the public-private Taskforce on Nature Markets in collaboration with Pollination, a London-based international specialist climate change investment and advisory firm, reviews the role of law, regulation and policy in biodiversity finance.
Financing efforts to fight biodiversity loss currently cover less than a fifth of what is needed. The report argues that a strong international governance framework is essential to help biodiversity credit markets scale and mature and ensure that they can reach their potential “without resulting in perverse outcome”.
“There is increased recognition of the paradox that we are destroying and degrading the very biodiversity that we need for our society and economy to thrive,” the report said. “As a result, there is renewed focus and a global effort to close the biodiversity financing gap, with particular emphasis on the role that market-based mechanisms can play.”
Current biodiversity finance mechanisms not sufficient
Over the last three decades, conservation organisations have collaborated with both public and private sectors to create innovative mechanisms that finance positive biodiversity outcomes. These mechanisms include debt-for-nature swaps, payments for ecosystem services, and commodity certification schemes.
However, the report noted that these measures have not been sufficient to close the global biodiversity financing gap. As of 2019, current spending on biodiversity conservation was estimated to be between 124 and 143 billion dollars per year, leaving an estimated financing gap of between 598 billion dollars and 824 billion per year to address global biodiversity loss.
This gap is similar to estimates presented at the end of last year by the United Nations Environment Programme, which said that the amount of money that needs to be invested in biodiversity solutions needs to go up by a factor of around four to six, to initially 480 billion dollars per year by 2030, and 650 billion dollars by 2050.
Recent work of the Taskforce on Nature Markets has highlighted the opportunity to transform current nature markets and develop new market mechanisms with robust governance and integrity. These mechanisms can deliver much-needed positive outcomes for nature and biodiversity, as well as for Indigenous Peoples and Local Communities and society more broadly.
In this context, the study’s authors pointed out that biodiversity credit markets are increasingly being recognised as one mechanism that can drive financing into the protection, regeneration, and stewardship of biodiversity.
Carbon market experience as ‘critical enabler’
“Drawing on the experience from the development of carbon markets, we know that putting strong governance and integrity measures in place, underpinned by a framework of laws, policies, and regulations, will be a critical enabler in the development of biodiversity credit markets,” the report said.
“It is key to realising their potential to unlock private finance and help close the biodiversity financing gap. This is required to give both supply and demand-side market actors the confidence to scale their investment in biodiversity at the pace required to address the biodiversity crisis.”
The report recommends that biodiversity credit markets should be viewed, governed and regulated at the international level as one of a suite of mechanisms that drive financing into the protection, regeneration and stewardship of biodiversity through supporting the local stewards of biodiversity.
Mandatory natural capital accounting
Governments should proactively determine whether they will play a market administration or
market enablement role in the development of biodiversity credit markets, it said. To prevent market abuse as markets mature and participants move towards secondary trades, securitisation and derivatives, governments and financial services regulators should ensure the regulation of biodiversity credits as financial instruments.
To help scale biodiversity credit markets, the report said governments could pursue options like mandatory natural capital accounting at national and sub-national levels; mandatory nature-related risk reporting and disclosure; and tax incentives for disclosing risk and setting nature targets.