Biodiversity loss could threaten the global GDP: Why nature-based financing is essential

The CDP, a nonprofit organisation that runs a global disclosure system, recently released a report outlining the need to de-risk nature-based finance in Asia, outlining how biodiversity loss is impacting the GDP of numerous countries. The report indicated that the threat to nature and biodiversity to low-income and nature-reliant countries in Asia could lower two-thirds of the continent’s GDP.

$250 billion more capital is needed to meet global goals for nature-based solutions by 2050, and therefore nature-based financing is crucial. Asia contains 18% of the world’s forests, making it an essential part of the global ecosystem. Asian ecosystems could reduce the world’s greenhouse gases by a third if $8 trillion is invested into nature restoration by 2050, according to the report.

There is a shortage of $737 billion needed every year to meet global biodiversity targets by 2050. Public funding is the main contributor to nature-based solutions, about $165 billion per year, fueling 82% of total financing in 2022.

Earlier this year, a report from the Green Finance Institute found that 12% of the UK’s GDP could be lost to nature-related risk and biodiversity degradation.

Financing of nature-based solutions shift the financial flows back into the economy. Simply put, not only our world, but our economic systems are better off when companies do not pump fossil fuels into the atmosphere or bulldozing over the natural environment to build energy-guzzling and carbon-intensive factories.

The CDP calls for industry to take further action in expanding their risk assessment portfolios to include financing for nature conservation, to increase the flow of both private and public funding into the environment, and to boost development of innovative models of nature-financing such as green bonds and sustainable loans.

The main challenges that Asian countries face in implementing nature-based financial solutions are impact measurement, costs, and legal and regulatory restrictions. There are still a need for further valuation methods and measurable, accurate, and detailed ways to assess biodiversity. Nature-based solutions also require a high degree of due diligence, which can be an obstacle in terms of cost and managing project costs. In regards to legal difficulties, there are frequent disputes concerning land ownership and acquisition for sustainable initiatives.

The report outlined six key actions that financial institutions should undertake:

1. Assess portfolio risk for impact on nature;
2. Update internal policies that include nature protection protocols;
3. Set financing targets for nature;
4. Using existing tools and products to boost nature-based solutions;
5. Generate blended finance strategies to de-risk initiatives in collaboration with financial institutions; and
6. Join forces with governments and regulator to implement regulatory change and align with global frameworks for biodiversity and nature restoration.

The report emphasised that local partnerships are key to ensuring that nature-related solution are undertaken, and that public funds cannot be the only source of funding for biodiversity-focused initiatives.

By driving capital into the environment, its cycles back into preventing further losses in asset recovery, which further discussed by ReBalance Earth’s Robert Gardner during Finextra’s Sustainable Finance Live conference.  

Additionally, businesses, financial institutions, and government bodies can use third-party technology to measure nature-related impact. LandScale, for example, measures the impact of landscape projects, and other firms such as Maya and 4EI Satellite Metrics use earth observation and geospatial technology to collect biodiversity data.

Dr Nicola Ranger who spoke at Sustainable Finance Live last week, stated that there are investment opportunities opening up in the biodiversity, water, and carbon sectors that financial institutions can take advantage of in developing their nature-related risk portfolios.

Asian banks are not working at the same rate as banks in the Global North on nature-based solutions, but there is considerable progress being made. The efforts being made in China and India can raise up to $1,037 trillion by 2030 for nature-related solutions. Yet, the CDP reported that only 14% of the 147 Asian financial organisations that operate through them assess water and forest-related risks in their portfolios.

These points indicate how safeguarding the world’s natural environment and driving financial flows to nature, not only does it make the world a better and safer place to live, but also improves the global economy. To make a positive difference on the planet, nature financing needs to take a higher priority for financial institutions, and there are paths that they can follow to implement these actions.