Mobilizing Private Finance for Nature

Biodiversity and ecosystem services, or nature for short, underpin many aspects of economic activity and are deteriorating at an unprecedented level, with potentially far-reaching implications for economies worldwide. Sustained ecosystem damage can trigger regime shifts and generate systemic impacts on human well-being and economies. For example, the degradation of natural ecosystems has been associated with an increase in the probability of emerging infectious diseases. The COVID-19 pandemic is likely an example of how the disturbance of ecosystems can have systemic consequences. As biodiversity is often seen as a public and therefore open access good, its conservation, restoration, and sustainable use rely heavily on scarce public sector finance. Simultaneously, governments are spending vast amounts to promote economic activities that are potentially harmful to biodiversity.

This paper argues that governments and regulators, supported by financial institutions and multilateral development banks (MDBs), hold the key to mobilizing private finance at the scale needed to transform the way we build, produce, and consume in order to protect nature while fostering sustainable poverty reduction. The analysis looks at two key approaches to mobilizing private finance for biodiversity. First, it assesses opportunities for ‘financing green,’ that is, the financing of projects that contribute—or intend to contribute— to the conservation, restoration, and sustainable use of biodiversity and its services to people. Second, it looks at ‘greening finance,’ that is, directing financial flows away from projects with negative impact on biodiversity and ecosystems to projects that mitigate negative impact, or pursue positive environmental impact as a co-benefit. Despite growing innovation in both categories, significant challenges to scaling up private finance remain. These include policies that exacerbate the underpricing of biodiversity; lack of data, measurement, and reporting standards; and issues with biodiversity investment opportunities, which tend to be small scale and noncommercial—making private sector financing a challenge.

The paper provides a set of recommendations for governments, regulators, companies, financial institutions, and MDBs. These are synthesized into a set of “big five” approaches to mobilize private finance for biodiversity: environmental fiscal reforms to realign incentives with sustainable practices; national biodiversity data provision and planning; the establishment of a Taskforce on Nature-related Financial Disclosures (TNFD) to support biodiversity reporting; the establishment of a ‘Nature Action 100’ to drive change in the companies whose activities most threaten biodiversity; and the provision of catalytic, concessional capital for biodiversity funds and projects.