The global biodiversity framework agreed at COP15 is likely to help to channel steady flows of private finance into conservation and restoration as well as scaling the nascent crediting market, biodiversity finance experts told a conference this week.

Less than a month after the deal agreed at the UN’s annual biodiversity summit in Montreal, experts convened on Tuesday for the semi-annual meeting of the Coalition for Private Investment in Conservation (CPIC), a cross-sectoral group that aims to drive private investment in conservation.

Several of the panellists described the agreement as a seminal moment for financing biodiversity.

Dubbed the “Paris Agreement for nature” in reference to the 2015 climate accord, the post-2020 Global Biodiversity Framework agreed in Canada includes a commitment to protect 30% of land and oceans by 2030 and sets out 23 targets to achieve this goal.

This includes a finance commitment that developed nations would increase their contributions to $20 billion per year by 2025 and $30 bln by 2030.

While a big step, this figure was watered down and well below the $100 bln developing nations had asked for.

Nevertheless, Juha Siikamaki, chief economist at the International Union for Conservation of Nature (IUCN), said he was “cautiously optimistic” for channelling finance into biodiversity in light of the agreement.

“Any framework is only as good as its implementation, but there are some reasons for optimism … Even though resource mobilisation was perhaps one of the most challenging parts of the negotiations, the end result is quite specific and quite ambitious,” he told the event.

Siikamaki referenced aspects of the agreement that seek to reduce subsidies for practices that harm biodiversity by $500 bln per year by 2030, as well as a specific target for finance flows that aims for $200 bln per year by the same deadline.

“With the new framework, we have a chance of having a structure where degrading nature becomes costly and saving it becomes becomes beneficial,” Siikamaki said.

He added however, that challenges with implementing the framework would arise given the context of some nations, especially relating to the target for cutting subsidies, that may prove “politically and economically costly” to governments.

Other speakers referenced the very fact that there was a finance day for the first time at the UN biodiversity event as sending a clear signal to the market that private investment is wanted and countries are open to working out how best to channel it.

There is now a “faith and trust” in private finance after the work done in the sector over the past decade, according to Eli Fenichel, an assistant director for natural resource economics and accounting as part of the US White House Office of Science and Technology Policy.

“This is a really critical moment between now and COP16 in Turkey where there will be more concrete actions,” he said.

“The key thing from a conservation finance perspective is that … there are resources available from [the private sector] to engage in ways that both secure a environmental future, a positive biodiversity future, and a positive economic future, so we can keep [these goals] all on a single track where they’re not competing with each other.”

There has been a wave of interest in biodiversity finance over the past year with investors calling for a strong deal during the UN summit, and some companies already moving to set internal 2030 goals.

FUNGIBLE CREDITS

One means of incentivising private actors to protect biodiversity may be in markets with several announcements during COP15 relating to scaling up the nascent crediting space.

Many see huge potential here, with global consultancy McKinsey earlier published a report in December that estimated nature-based markets including those to curb biodiversity loss are worth $10 trillion per year.

Ensuring fungibility will be key, according to Fenichel, urging the market to consider futures contracts and other drivers of liquidity to attract private finance and quickly and efficiently as possible.

“The greatest challenge is transaction costs killing liquidity in the market,” he said, recommending a move away from bespoke projects.

“We need to bring more people, and people who care about biodiversity but do not want to learn about the details of these hectares, or those soils, or those critters, or those trees,” he commented.

“They’re trying to balance a portfolio return and we need to get it to a point where biodiversity investment is just part of a responsible, balanced portfolio.”

The private and public regulators would also need to work together to ensure adequate infrastructures and frameworks are set up for biodiversity crediting.

“It’s about learning to dance together,” he said.

“We have the high level theory, we now need the boring planning, institutional development, and stomach for it, as not everything goes how you think it will,” he added.

MOVING FORWARD

But others view crediting with caution given negative public attention on carbon credits and offsetting in recent years, warning against the rush towards creating fungible units.

“[Credits] are [controversial] there is no question about that. There are lots of people who are up in arms about the very idea of a biodiversity credit,” one speaker during a side session under identity-protecting Chatham House rules noted.

This is thought to have caused growth on the demand side to have flatlined in 2022 in carbon credits, speakers during the WEF forum in Davos commented this week.

There may be lessons to learn from carbon markets, notably avoiding the excessive involvement of intermediaries that have inflated the cost of projects and prevented finance flowing to those most in need and best suited for conservation, notably Indigenous communities, according to a second speaker at the CPIC event.

“As we know from the carbon market, a lot of the money was creamed off by consultants, regulators, governments and so on. We need to make sure that the majority of at least 60% in some of the standards emerging, should reach indigenous people and local communities,” they said.

“Demand must be motivated and generated. There’s a lot of demand hopefully out there, but we’re not sure in practice. The number of actual sales is really quite low,” they added.

A third speaker also warned against allowing too much secondary trading into biodiversity markets when trying to scale.

“You may end up in worst case scenario where there is just one credit that’s constantly going around in circles and of course, in this case we’re not getting any biodiversity,” they said.

“From a biodiversity perspective we don’t want that, but from a market perspective they do. They love secondary trade as that’s how they make their money,” the third speaker added.

To ensure integrity in the biodiversity crediting, actions must be supplementary to existing protective measures and not offsetting for damaging activities, the audience heard.

“Biodiversity credits are additional, new things that companies can do which contribute to the global biodiversity framework, but they are not therefore available for people to say: I have done a bad thing over here, I’m therefore going to do this good thing over here,” the first speaker said.

Overall, speakers agreed that there was a need to find a metric to scale the market, but warned against simply looking at area, such as using hectares, as this may encourage land grabbing, and also does not take into account the highly localised nature of biodiversity.

This is a key difference to carbon markets that work on the ‘tonne is a tonne’ premise using a singular unit of measurement.

One suggested way forward would be to have one type of unit that considers area conservation, and another that takes into account species.

Several bodies are working on methodologies and pilots with developments expected throughout 2023.

By Roy Manuell – roy@carbon-pulse.com

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