BwB are pleased to share their latest thought piece on the importance of considering how biodiversity is included when financing infrastructure projects.
Prepared by Chris Smith, Harry Wain, and Isaac Caiger-Smith with Aban Marker Kabraji
Special thanks to Mark Halle
Nature (including ecosystems and their biodiversity) plays a critical role in providing resources and services that underpin and support the planet and people in terms of human health and wellbeing; economic growth, jobs, and livelihoods; food security; and air, water, and soil quality. Nature plays a crucial role in helping to regulate our climate, acting as both a carbon sink as well as promoting resilience and adaptation to climate change through well-functioning and diverse ecosystems. BwB considers that Multilateral Development Banks (MDBs) have the potential through their influence,
financial firepower and development mandates, to contribute to the challenges of preserving and promoting biodiversity within large-scale infrastructure projects.
As global infrastructure expands and evolves, and acknowledgement of the importance of biodiversity and nature grows, opportunities arise for infrastructure to better incorporate and consider the needs of nature and biodiversity, as well as for nature and biodiversity to provide added value and co-benefits to infrastructure projects. This can happen firstly through improved consideration and inclusion of nature and biodiversity into ‘grey’ infrastructure and secondly, by replacing or enhancing, where appropriate, conventionally engineered infrastructure 1 with natural infrastructure solutions. The term ‘nature-based solutions’ or ‘NBS’ is a broad term which encompasses both green-grey infrastructure, as well as purely natural interventions 2 . The nascent world of natural and green infrastructure provides examples of how this can be done.
Recent research such as the IPBES Global Assessment Report on Biodiversity and Ecosystem Services and the Dasgupta Review of the Economics of Biodiversity 3 , show that human activity is causing biodiversity loss at an unprecedented level, with potentially far-reaching systemic implications for well-being, livelihoods, and economies. These studies have also explored the role of nature as capital and a form of infrastructure. Progress on global sustainable development, climate, and biodiversity goals, therefore, cannot be achieved without addressing the direct and indirect drivers of nature loss
and transforming the way in which we value, use, conserve and share the benefits from nature.
Currently, there is a vast financing gap for biodiversity conservation. According to Deutz et al. (2020), global financing for biodiversity conservation currently stands at approximately US$ 124-143 billion per year, 80-85% of which is public sector funded. This stands in stark contrast to estimated financial needs for global biodiversity protection, which they argue to be between US$ 722-967 billion per year. These estimates suggest a colossal biodiversity conservation financing gap of US$ 598-824 billion per year by 2030.
The recent report “Financing Nature: Closing the Global Biodiversity Financing Gap 5 ” identifies the nine economic and financial mechanisms that have the greatest impact in either reducing harm to biodiversity or providing benefits to biodiversity. The highest among these nine is the impact of investment. Ultimately, governments must play a major role in reducing biodiversity impacts through regulation. However, there is much that the banking and finance industry can do now to begin to reverse biodiversity loss and to prepare for, and inform, the regulation and investor pressure that will surely come.
The banking and finance sector has already started to address climate risks related to their investments, so the idea of addressing and mitigating investment risk related to biodiversity loss is something all banks and FIs can take on. Because of efforts such as the Task Force on Climate-Related Financial Disclosures, increasing numbers of banks and FIs have begun to mainstream the accounting and documentation of the climate impacts of their investments. Currently, the case for nature (biodiversity) loss as a systemic risk is not yet established and is lagging climate risk which is a mistake. Climate change and biodiversity loss are interdependent and should be treated as such 6 . Initiatives such as the Taskforce for Nature-Related Financial Disclosures 7 (TNFD), which BwB has been supporting, and voluntary green-grey infrastructure initiatives, however, are shifting the narrative, and an opportunity (as well as a duty) is emerging for banks and FIs to get ahead of this curve. Our planet as we know it will not recover if “net zero” is not reached, and the natural ecosystems that are affected by those emissions no longer exist.
With the recent CBD COP15 negotiations leading to landmark international agreements on biodiversity conservation expressed through the Global Biodiversity Framework 8 , the optimum time to begin acting on the issue of biodiversity loss is now. Moving into the future, it is clear that the role of banks in financing activities that cause biodiversity loss – for example through lending to and investing in large-scale infrastructure, energy, mineral extraction, agriculture, and other developments – will come under increased scrutiny, presenting heightened risks to banks from government regulation and investor pressure.
BwB considers that infrastructure incorporating biodiversity has the potential to generate significant benefits as a result of its inclusion. This can be done through reducing operating expenses, tapping wider pools of capital and aligning stakeholders in the project. There is not only a need but a solid business case for integrating climate and biodiversity considerations into project-level decision-making. This increases the economic value of biodiversity, maximises co-benefits and minimises trade-offs. It also assists the governments to meet the GBF target of 30:30, ie 30% of land and 30% of ocean under protection.
Not only is there a huge untapped potential for biodiversity and infrastructure through integrating nature into grey infrastructure, it is also possible in many instances to utilise pure nature-based solutions to human infrastructure needs. We argue that there is a spectrum of nature and biodiversity protection/inclusion in infrastructure which can and should be utilised in transactional decision making at a project level to improve biodiversity outcomes. Moreover, the institutions which can act quickly and effectively in adopting this new mode of thinking will produce superior impact outcomes, whilst developing and maintaining their competitive edge.
Integrating nature-based solutions into infrastructure is increasingly being seen as a way to combine the benefits of traditional infrastructure development with those of natural systems. This approach is particularly relevant in urban and coastal areas, where human populations and infrastructure are concentrated, and natural systems are often under pressure. It is possible to reduce risks in infrastructure from a transaction standpoint through identifying the dependencies that the project has with the natural environment (e.g. dependency on water, soil quality, flood risk) and where value can be created by understanding these interdependencies.
The adoption of nature-based solutions is driven by the potential for financial and impact returns. For example, the use of natural systems in infrastructure can reduce the need for expensive engineering solutions, reduce the cost profile of the project through increasing the resilience of infrastructure to extreme weather events, and provide a range of ecosystem services that can benefit human populations. Additionally, the inclusion of natural systems in infrastructure can also promote biodiversity and improve the quality of life for residents in urban areas.
From Financing to Implementation – The next steps in sustainable infrastructure
Much research has been carried out on the opportunities presented by natural infrastructure for financial institutions to become more involved in enhancing biodiversity credits whilst continuing their existing mandates. Thus far these have been predominantly grant-funded rather than taken to a stage of being bankable by themselves. Making them bankable will require establishing the metrices that make natural infrastructure investible as we currently have for carbon and emissions.
Figure 1: Visualisation of strategic shift across the nature-infrastructure spectrum
Multi-Lateral Development Banks (MDBs), with their development mandates, and financial firepower, are in many ways well-positioned to lead the financial world in tackling the biodiversity challenge. Indeed, in a joint statement in advance of COP26, they expressed their collective commitment to ‘further mainstream nature into our policies, analysis, assessments, advice, investments, and operations, in line with our respective mandates and operating models.’ 9 A key part of this will be to begin reducing the financing gap that currently exists and finding products and establishing initiatives
that facilitate this. Prior to this, in 2020, MDBs also expressed their commitment to supporting ‘the transformation of the global economy and societies towards sustainable and resilient development.’
The combination of Infrastructure and nature-based solutions is an increasingly relevant and effective approach to addressing the challenges of urban and coastal areas. Multilateral development banks often play a critical role in the financing and implementation of infrastructure projects and should therefore be at the forefront of incorporating nature into infrastructure. We welcome the stance taken in CBD COP by the MDBs towards these issues and look forward to seeing what progress can be made with their leadership.
To read more on these issues, we suggest the following articles and reports:
United Nations. (2022). Harmony with Nature. Access at: http://www.harmonywithnatureun.org/
Green European Journal. (2020). “A Legal Revolution for the Rights of Nature.” Green European Journal, March 11, 2020. Access the document here
Biodiversity and finance
Government.NI. (2021). Biodiversity Footprint for Financial Institutions: Exploring Biodiversity Assessment in 4 Cases – Report. Ministerie van Algemene Zaken. Access the document here
Stats on biodiversity and finance:
Global Canopy. (2021). The Little Book of Investing in Nature: A Simple Guide to Financing Life on Earth. Access the document here.
Joint Declaration for supporting Paris:
Finance in Common. (2021). Joint Declaration of Public Development Banks. Access the document here
DOWNLOAD THE FULL PDF HERE: