Increased private sector funding seen as critical to acceleration of investments to meet climate change, biodiversity and land degradation targets.
A rapid doubling of funding for nature-based solutions (NbS) by 2025 can achieve a ‘triple win’ for environmental sustainability goals, but must be accompanied by an end to ‘nature-negative’ price-distorting subsidies, a new UN report said.
Ahead of COP15, which is expected to finalise the Global Biodiversity Framework (GBF) over the next two weeks, the call for a significant scaling up of financing for NbS was made in the UN’s State of Finance for Nature report.
The report said private sector funding would need to rise “by several orders of magnitude” to support an overall increase from US$154 billion to US384 billion per annum in NbS financing by 2025, which is needed to achieve climate change, biodiversity and land degradation targets.
Currently, the private sector contributes just 17% (US$26 billion) of total investment in NbS. The report also estimates that NbS investment flows should rise to US$484 billion per annum by 2030.
Because of their multiple benefits, investments in NbS would represent “good value for money” at a time of global macroeconomic uncertainty, said Ivo Mulder, Head of the Climate Finance Unit at the UN Environment Programme (UNEP).
Mulder said the steep increase in finance flows to NbS “should not be too hard a stretch” given the current low starting point, but he emphasised the urgent need for action over the next two to three years to arrest the climate and nature crises, as well as the need for private finance to augment public sources, due to fiscal challenges faced by many governments.
The report said delaying action “was no longer an option” in light of the impacts of climate change, species extinction and land degradation. “If we rapidly double finance flows to NbS, we can halt biodiversity loss, significantly contribute to reducing emissions and restore close to one billion hectares of degraded land,” the report said.
NbS were defined at the UN Environment Assembly earlier this year as actions to “protect, conserve, restore, sustainably use and manage terrestrial, freshwater, coastal and marine ecosystems, which address social, economic and environmental challenges effectively and adaptively, while providing human well-being, ecosystem services and resilience and biodiversity benefits”.
The Sharm El Sheikh Implementation Plan signed at the end of COP27 encouraged parties to consider use of “appropriate nature-based solutions or ecosystem-based approaches” as part of their climate mitigation and adaptation actions. This was the first mention of NbS in the cover text agreed at the conclusion of a UN climate summit.
Mirey Atallah, Head of UNEP’s Nature for Climate Branch, said the recognition of NbS in the COP27 text was critical, and expressed hope that COP15 negotiators take further steps to align finance with policy objectives. “Where finance flows, action follows,” she said, adding: “Where finance flows lag, commitments wither.”
The UNEP report, co-produced with the Economics of Land Degradation Initiative and Vivid Economics, also recommended policy reforms to phase out nature-negative flows from public sources, which it estimates are currently three to seven times larger than existing NbS investment flows. These typically come in the form of government subsidies and price supports, primarily to the energy sector, estimated at US$340-530 billion per annum, and agriculture (US$500 billion).
Governments do not typically categorise expenditure in terms of its impact on nature, but a small number are beginning to use taxonomies to classify public sector spending as positive, neutral or negative. As well as initiatives in France and Colombia, the report cites the use of a budget tagging tool in the UK, which calculated that 95% of its autumn 2021 budget was nature-neutral.
“Clear and predictable” revenues
The report makes recommendations on how private sector actors can “combine net zero with nature positive” in business and investment strategies, prioritising disclosure of climate and nature-related risks. Other proposed private sector actions include increasing investments in sustainable supply chains, reducing activities with negative impacts on climate and biodiversity, offsetting unavoidable impacts through high integrity nature markets, paying for ecosystem services, and investing in nature-positive activities.
To unlock institutional capital, the report said the public and private sectors needed to work together to develop sustainable agriculture, forestry, and marine NbS with “clear and predictable” revenue flows. Existing innovations cited as supporting nature-positive outcomes included sustainability-linked loans and bonds in the corporate and sovereign markets and the increasing number of specialist funds focused on rural economies and natural restoration.
While noting the growing number of public-sector funds offering to provide first loss capital, the report warned that there was a limit to the role of the taxpayer. “Banks, investors and companies that have made ‘net zero’ or ‘deforestation-free’ commitments need to invest, it said.
“The growing number of loans and impact funds provides fertile ground to enable mainstream investors […] to increase their exposure in this nascent space by investing in fund of funds mechanisms, different types of bonds being underwritten by investment banks, etc.”
The proposed GBF includes a commitment by signatories to align public and private finance flows with its core objectives of reversing biodiversity loss and protecting and restoring nature, meaning it could prompt a shift in policies to scale up NbS initiatives and funding. UNEP says COP15 represents an opportunity for governments to adopt policies aimed at sharing NbS financing sources more evenly across public and private sectors, by creating an “enabling environment to catalyse private capital”.
This may include regulatory and supervisory actions to promote incentive-based instruments, concessional and blended finance, and support for high integrity nature markets, as well as the introduction of disclosures on nature-related risks and impacts, and public-private dialogue aimed at the mainstreaming of nature within decision-making.
As well as embedding global commitments on climate, biodiversity and land degradation into domestic legislation, the report recommended governments reform public expenditure, provide nature-focused development assistance and ensure that multilateral development banks and development finance institutions prioritise green finance.
“As we transition to net zero emissions by 2050, we must also reorient all human activity to ease the pressure on the natural world on which we all depend,” said Inger Andersen, Executive Director of UNEP. “This requires governments, business and finance to massively step-up investments in nature-based solutions because investments in nature are investments in securing the future for generations to follow.”