Rules of the road: Measuring impact of biodiversity finance

Biodiversity – vital to a healthy planet, our economies, and livelihoods – is deteriorating worldwide at unprecedented rates. The landmark Kunming-Montreal Global Biodiversity Framework, reached in December 2022, presented an urgent and necessary shift in the global approach to tackling biodiversity loss. It calls for a whole-of-economy approach to halt and reverse biodiversity loss by 2030 by shifting to new ways of producing and consuming. This is a tall order to transform our $90 trillion global economy, and it simply cannot be achieved without the private sector and private capital.

Accelerating the Transition to Sustainability

The shift to new nature restorative business models, production practices and consumption can create enormous business opportunities and new jobs. A sustainable transition of food, land, and ocean use; infrastructure; and energy could create $10.1 trillion in annual business opportunities, 395 million new jobs by 2030, and significant opportunities for income diversification that support the local economy. 

Take agroforestry. Replanting coffee plantations with native tree species provides shade for coffee crops, resulting in better quality coffee sold for a higher price. It also improves the quality of soil, which translates to less need for fertilizer. This is how shifting to nature-smart production practices can help improve quality, boost farmers’ income, and protect biodiversity. 

Finance, including innovative financial instruments, is key to supporting the transition to nature-smart production practices and deploying nature-based climate solutions. The Global Biodiversity Framework (GBF) estimates the biodiversity finance gap as $700 billion a year between now and 2030.  While the GBF calls on governments to repurpose $500 billion per year in harmful subsidies, the remaining $200 billion a year will have to be mobilized from all sources – public, private, domestic, and international; and private sector and private capital will have to play a central role.  

The Global Biodiversity Framework (GBF) estimates the biodiversity finance gap as $700 billion a year between now and 2030.

Scaling Up Biodiversity Finance with Clear Rules of the Road

From our experience with green and blue finance, we know that a set of clear, transparent guidelines is key to mobilizing investors. In November 2022 IFC released first-of-its kind Biodiversity Finance Reference Guide to help investors and companies identify opportunities to shift to new restorative business models and production practices that address the key drivers of biodiversity loss, advance conservation and restoration, and integrate nature-based solutions across sectors.  Following the adoption of the GBF, IFC, in consultation with the UN Secretariat of the Convention of Biological Diversity, indicated how each of the eligible investments and project activities contribute to individual targets of the GBF to halt and reverse biodiversity loss. And today, IFC in collaboration with BNP Paribas, the Finance for Biodiversity Foundation, Natixis, the Taskforce for Nature-Related Financial Disclosures, and the Wildlife Conservation Society launched a supplement to the Guide that lays out impact reporting metrics for each eligible activity. 

This publication is another key step to grow biodiversity finance market in a transparent and credible way. It responds to the growing demand from the market for more comprehensive guidance on impact reporting for biodiversity and nature finance activities, enabling markets to efficiently transition to nature-smart approaches and to attracting private capital at scale.  

This publication is another key step to grow biodiversity finance market in a transparent and credible way.

The supplement provides specific metrics for each of the eligible investment activities and project components in the IFC Biodiversity Finance Reference Guide. These metrics should be established during the design phase of investment activities and project components to ensure that information can be collected from the beginning and outcomes can be measured against a baseline. They can be applied to individual projects for use of proceeds instruments or be aggregated across a portfolio of investments. Through these suggested metrics, investors can address the reporting challenges the private sector faces when attribution is challenging, such as when operating within a watershed shared by many stakeholders, or when certain ecosystem improvements could take decades to observe.

Unlocking Investment Opportunities

The private sector is beginning to see the benefits of investing in biodiversity. Since publication, the Guide has catalyzed ground-breaking investments in biodiversity that are unlocking new opportunities with IFC leading the way. Among IFC’s recent transactions are a $50 million financing to support reforestation in Latin America and bringing degraded land into production, a sustainability-linked bond to promote bioeconomy and regeneration of the Amazon, and the world’s first biodiversity bond in Colombia.  

The goal of the Biodiversity Finance Refence Guide is simple: help investors, financiers, companies, and governments identify investments that protect and rehabilitate biodiversity and ecosystems and close the biodiversity finance gap.

The goal of the Biodiversity Finance Refence Guide is simple: help investors, financiers, companies, and governments identify investments that protect and rehabilitate biodiversity and ecosystems and close the biodiversity finance gap. The new supplement now equips them with practical tools to track and measure their impact and contributions to meeting the GBF targets and to advance the whole-of-economy transformation to halt and reverse biodiversity loss.