As highlighted in a recent ODI Insight, the biodiversity crisis is intertwined with the climate one. A lot is riding on this COP15: the hope for a global framework that would halt and reverse biodiversity and ecosystem loss, as well as address the challenges that plagued the Aichi Targets – namely, a lack of coordinated governance and inclusive process coupled with inadequate funding.

The failure to reach the Aichi Targets highlights the critical finance gap for biodiversity and nature. Addressing the causes of this finance gap requires a complete overhaul of the biodiversity governance system, much like the principle established in the climate governance system under the ‘2.1(c) revolution’.

Under Article 2.1(c) of the Paris Agreement, countries agreed to make ‘finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’. A similar alignment of finance flows to nature is needed to ensure that the financial system supports, rather than undermines, biodiversity targets. Target 14 in the first draft of the Post-2020 Global Biodiversity Framework lists as a goal ‘that all activities and financial flows are aligned with biodiversity values’.

Perhaps surprisingly, financial institutions agree. Ahead of COP15, a group of 78 financial institutions representing over $11 trillion in assets stated that they ‘strongly believe that the Global Biodiversity Framework [that is to replace the Aichi Targets] should include an explicit expectation for financial institutions and businesses to align financial flows to global biodiversity goals, supported by appropriate regulatory measures and financial incentives’.

Finance for nature and biodiversity: where are we at?

A recent ODI report highlights the current finance landscape for nature and biodiversity across public, blended and private finance. Estimates of global flows of finance for biodiversity and nature vary between $78 to $143 billion. This comes from a range of actors and under different agendas. However, accounting for how much finance is delivered is often difficult given poorly harmonised and standardised monitoring and reporting systems, making it hard to measure actual flows.

Almost all sources agree that a vast majority of finance flows that support biodiversity come from public sources. For example, the UN Environment Programme estimates that 83% of finance flows to nature-based solutions– much of which can be considered biodiversity finance – are from public sources.

This is not to say that public finance is not responsible for biodiversity loss as well. The OECD estimates that although $67.8 billion per year of public domestic expenditure supports biodiversity, governments also spend approximately $500 billion per year on support that is harmful to biodiversity. Just as there is pressure for governments to reduce fossil fuel subsidies as part of Article 2.1(c), governments need to be held accountable for repurposing subsidies that are harmful to nature under biodiversity finance targets. There is also a greater role for international public finance delivered as bilateral and multilateral aid. Currently, overall official development assistance (ODA) that supports biodiversity and nature constitutes less than $10 billion.

The more ambitious challenge will be how to mobilise private capital for nature. Like ODA spending, private finance for nature represents a tiny fraction of the overall funds needs for protecting biodiversity. Some of this has been delivered through corporates, such as Unilever committing to deforestation-free supply chains and other principles that aim to protect biodiversity. Philanthropists such as Jeff Bezos have also been in the spotlight for supporting conservation efforts. However, like public spending, most estimates of overall private funding for biodiversity add up to less than $10 billion, a drop in the ocean of the $824 billion needed to halt biodiversity loss.

Large institutional investors need to be brought to the table to fill that gap, but biodiversity projects are often too small and context-specific for these types of financiers. Landscape and community-based finance models have been touted as a tool for unlocking scalable and replicable private finance across different supply chains, especially when they are de-risked by public development finance institutions.

Overall, public-private blended finance for biodiversity is expected to represent nearly 50% of global biodiversity finance by 2030. This includes not just blended finance instruments provided by development finance institutions, but public-private partnerships for natural infrastructure projects, green and sustainability-linked bonds or government-regulated carbon and biodiversity offset markets.

Addressing misaligned finance flows

Given the disjointed governance across multiple actors, what can take place at COP15 to ensure more consistent financial flows for biodiversity and nature? A crucial step forward would be the adoption of a financial consistency target. A binding target formulated within the Convention on Biological Diversity would need to be defined in such a way that it is measurable, and a reporting system would need to be put in place to strengthen accountability and limit inconsistencies across stakeholders’ reporting.

Even with an agreed accountability system in place, the implementation of such a target remains complex: what does it mean for finance to be aligned with a development pathway that protects biodiversity? A first entry point for implementation is to look at levers available to different actors for limiting, and eventually stopping, flows that deplete biodiversity.

For financial regulators, it means increased focus on the disclosure by corporations of their nature-related risks to improve transparency and foster nature-positive investments away from nature-depleting ones. Such a disclosure would cover dependencies and impacts for businesses associated with their governance, strategy, risk management and metrics. In essence, this means switching from a focus on the impact of business on biodiversity to looking at the effects of biodiversity loss for investors and companies, so that nature-related risks can be factored into investment decisions.

For governments, reforming subsidies that undermine nature is the largest lever for public spending realignment. About $520 billion per year goes to harmful agricultural subsidies. But such reforms are often politically difficult as they concern farming subsidies and the short-term cost of food.

For private finance, the pressure that fossil fuel producers are feeling at climate negotiations should be similar to what agri-food producers feel under COP15. They are large contributors to biodiversity loss and could face significant legal, policy and market risks if they do not shift from intensive and biodiversity-depleting production practices.

In a nutshell, the prospects for biodiversity and nature are limited if the dialogue stays focused on the funding gap for nature: it will only widen with time, unless the financial system changes the way it operates across regulators, public and private actors.