Financial markets group calls for currency for nature

Published 18:15 on November 30, 2022  /  Last updated at 04:47 on December 2, 2022  /  Biodiversity  /  No Comments

Developing a standardised currency unit for nature would help overcome challenges to establish biodiversity credits and other instruments that can channel finance to nature conservation, according to the Association for Financial Markets in Europe (AFME) and consultants EY.

Developing a standardised currency unit for nature would help overcome challenges to establish biodiversity credits and other instruments that can channel finance to nature conservation, according to the Association for Financial Markets in Europe (AFME) and consultants EY.

Ahead of the biodiversity COP15 in Montreal that begins on Dec. 7, AFME and EY on Wednesday published a report highlighting growing demand among investors for nature-related finance and some of the challenges of scaling new financial products to deliver those investments.

“While growing investor demand is creating new opportunities to develop nature-related financing products, the report finds banks and other market participants are struggling to mainstream and scale nature finance products,” they said in a statement.

“Banks also face challenges in particular from a lack of available data and common metrics for nature and biodiversity.”

Existing and emerging financial products for nature include sustainability-linked loans and bonds, natural capital funds, green trade finance, and biodiversity credits.

All of those face challenges related to a lack of a global corporate reporting framework, defining measurable impact on biodiversity through metrics and KPIs, and standardisation of product classifications.

While some of those issues are being addressed through initiatives such as the Taskforce on Nature-related Financial Disclosures and Business for Nature’s ‘Make it mandatory’ campaign, much work remains before a rigid global system can be put in place.

For biodiversity credits, the lack of a standard unit for reporting biodiversity gains leaves the emerging market open for greenwashing, the report said.

“While a reference unit – a tonne of carbon dioxide – exists and is readily tradable on carbon markets, the equivalent does not yet exist for nature markets,” AFME and EY said.

“The development of a currency for nature – such as a unit that could be attributed to biodiversity credits – could create additional sources of funding for nature conservation efforts.”

It said that while biodiversity credits have emerged as the frontrunner in this space, even the definition of what a biodiversity credits is remains contested, leaving the market nascent and untapped.

There are a handful of early-mover biodiversity credit types available in the market or underway, but so far none of them apply the same definition to what their credits represent.

“There is an opportunity to build from the lessons learnt from biodiversity offsets, high-integrity carbon credits, and payments for ecosystem services … to develop biodiversity credit schemes that are beneficial for people, planet, and business,” the report concluded, though without proposing what might count as a global nature currency.

By Stian Reklev – stian@carbon-pulse.com