How innovative financing instruments are accelerating action on nature

Since the adoption of the Global Biodiversity Framework (GBF) in 2022, increasing resources from the private sector have been allocated to bridge the $700 billion annual financing gap on nature. This is an encouraging trend, which should come in addition to and not in contrast to, the recognition of the indispensable role of the public sector in the transition toward a nature-positive future.

The GBF calls for reforming $500 billion of harmful subsidies by 2030; increasing finance for nature to $200 billion annually from all sources by 2030, including public and private, domestic and international; and increasing international biodiversity finance from developed to developing countries to at least $20 billion annually by 2025 and $30 billion by 2030.

According to the WWF’s National Biodiversity Strategy and Action Plans (NBSAP) tracker, released in advance of the COP16 summit, more can be done. Only 10% of countries have submitted their updated plans and another 33% have only updated their national targets.

Efforts have been slowed by a number of barriers including a lack of funding, insufficient data and political instability. However, policies and regulations are slowly being deployed at a local level to encourage investments in the protection and restoration of nature. These include: the Australian Nature Repair Market, which aims to set up the rules for voluntary biodiversity credits markets; the UK’s Biodiversity Net-Gain policy, which is the first-of-its-kind regulation requiring any new development to deliver positive net gain to biodiversity; the European Nature Restoration Law also incentivizes the use of financing instruments to meet national targets. Such government incentives and schemes will be pivotal to bringing integrity and scalability to nature-financing instruments.

In addition to these encouraging interventions are the increasing voluntary business actions on nature, which are supported by reporting and disclosure frameworks such as the Taskforce for Nature-related Financial Disclosure (TNFD) and the Science-based Targets Network. These frameworks are helping companies to assess, disclose, and act on their impacts and dependencies on nature. As a result, corporates are tackling risks and opportunities: over 400 companies committed to becoming early adopters of TNFD, and 12% of global Fortune 500 companies have now set clear targets for nature and biodiversity, a more than two-fold increase from the past years.

This momentum is translating into a multitude of opportunities. The emerging innovation among nature-financing instruments seems to be biodiversity credits, which have seen the first transactions in recent months up to $1.870 million. While this number might look irrelevant in relation to the magnitude of the financing gap, the trend is positive both for biodiversity and for the Indigenous people and local communities involved in projects in the ground.

However, to see transactions scale up to substantial levels it will be key to guarantee integrity through guardrails and principles. Following the publication of the first version of the High-level Principles for Biodiversity Credits in 2022, the World Economic Forum, the Biodiversity Credit Alliance (BCA) and the International Advisory Panel on Biodiversity Credits (IAPB) are now jointly publishing the report, which outlines a set of 21 principles designed to guide standard setters, project developers and buyers on the standards, requirements and other important considerations necessary to develop and engage with high-integrity projects.

The document consolidates a wide range of existing standards and guidelines to create a unified and widely agreed-upon integrity framework that could apply to all types of biodiversity credits under three broad categories: verified positive outcomes for nature, equity and fairness for people, and good governance for high-integrity markets.

Ensuring integrity in the market will be a determining factor for its success, but alone, it cannot lead to demand at scale for biodiversity credits. Corporates need a clear and material business case and clarity on how to link these financing instruments to their business strategies and sustainability transition plans.

To support businesses in this process, the World Economic Forum is publishing a new report on Nature Finance and Biodiversity Credits: A Private Sector Roadmap to Finance and Act on Nature. The report aims at empowering business leaders to take decisive actions towards a nature-positive future.

It offers practical guidance on how to get started on nature finance by outlining the concrete building blocks and the steps for businesses. These steps include the development of a nature strategy by using, for example, the ACT-D (Assess, Commit, Transform and Disclose) framework, incorporating the principles of the mitigation hierarchy of avoiding, reducing, and restoring before offsetting and contributing to net-positive outcomes. In addition, the report lays out the necessary steps to develop a nature finance action plan. The action plan details the approach of the nature strategies on how to finance nature positive outcomes by following four steps:

Overall, the report offers a first look at incorporating emerging financing instruments into corporate transition plans. However, no financing instrument or business model transition will be sufficient without appropriate actions from the public sector.

When the 196 Parties of the Convention on Biological Diversity signed the GBF in 2022, they formalized the goal of halting and reversing biodiversity loss by 2030. At the current rates of nature and biodiversity loss this remains a bold goal, and a sharp turn in direction is needed. A turn towards a new economic model, which recognizes the true value of the world’s natural capital, and towards financing instruments which will allow investment to flow at scale. The ongoing COP16 offers the opportunity for governments to demonstrate that leadership standing by those commitments and targets.