Biodiversity, economics and finance: unlocking financial flows towards reversing of biodiversity loss

Nature provides all sorts of essential services to our societies: clean air and water, food, pollination, carbon sequestration and pollination, it sustains tourism and leisure activities, it contributes to mental and physical health and delivers many other functions. In many instances, nature is also the most effective insurance policy – protecting us from floods, landslides, fires, or extreme heat.

However, we are facing an unprecedented crisis of biodiversity loss, posing a serious threat to our future welfare. 75% of the land-based environment and about 66% of the marine environment have been significantly altered by human actions. Nearly 1 million species are at risk of extinction from human activities. The loss of clean air, drinkable water, pollinating insects, forests, and species pose as big a threat to species survival as climate change. The loss of biodiversity increases the challenge of limiting climate change, as healthy ecosystems naturally absorb carbon from the atmosphere.

At the same time, Research findings[[ Jung, M., Arnell, A., de Lamo, X. et al. Areas of global importance for conserving terrestrial biodiversity, carbon and water. Nat Ecol Evol5, 1499–1509 (2021). https://doi.org/10.1038/s41559-021-01528-7 and IPCC report ‘Climate Change 2022: Impacts, Adaptation and Vulnerability’]] indicate that the conservation and effective management and guardianship of at least 30% of the planet in the most important places for biodiversity could protect up to 80% of plant and animal species, and secure 60% of the planet’s carbon stocks and 66% of the planet’s clean water. The latest IPCC report complements this statement: conservation of approximately 30% to 50% of the planet will also be key in maintaining the resilience of biodiversity and ecosystem services at a global scale. UNEP report on the State of Finance for Nature[[ State of Finance for Nature | UNEP - UN Environment Programme. ]] states that investments in NBS need to triple by 2030 and to quadruple by 2050[[ To amount to USD 8.1 trillion, and will be over USD 536 billion annually. USD 133 billion currently flows into nature-based solutions annually, with public funds representing 86% and private finance only 14%.]] if the world is to meet its climate change, biodiversity and land restoration targets. As underlined in the same report, more research is needed on how private financing can be strengthened and what are the low-hanging investment opportunities.

The EU sustainable finance taxonomy and other similar initiatives are underway with the aim to help guide investments towards more sustainable outcomes, in line with the objectives of the European Green Deal. They constitute a unique opportunity for ramping up investments in natural capital and projects that substantially contribute to biodiversity, as well as to other challenges, such as nature-based solutions and ecosystem restoration contributing to climate mitigation and adaptation.

Mobilising private investment, in particular to support the scaling up of NBS and the market for NBS in the European Union is key, in the context of a market characterised by smaller scale projects predominantly grants funded by the public sector.

The project(s) should:

• Co-identify, analyse, and explore solutions to address potential barriers and hurdles in the implementation of the Taxonomy Regulation, for example related to the interpretation and the collection of data for biodiversity relevant technical screening criteria. The project(s) could address the technical criteria ‘Substantially Contribute’ to climate change mitigation and adaptation while following the ‘Do No Significantly Does Harm’ in terms of the protection and restoration of biodiversity and ecosystem; as well as the criteria ‘Substantially Contribute’ to the protection and restoration of biodiversity and ecosystem, especially for activities related to land management, restoration of ecosystems and remediation;
• More particularly, identify for which criteria/sectors there are practical implementation barriers and gaps, for example through analysis of case studies, when collecting the remaining Research and Innovation gaps;
• Building on the existing community's engagement in relevant Horizon 2020 and LIFE projects[[ Such as LIFE PACTA which engage ‘financial institutions, retail investors, financial regulators and civil society’ and LIFE FinACTION.]], engage the relevant stakeholders from the financial and biodiversity and NBS community involved in the implementation of the regulations in this analysis, and in the exploration and co-development of solutions in order to close the implementation gaps. This includes for example academics, regulatory bodies, financial institutions, civil society, industry and NGOs having co-developed relevant standards, protocols and certification schemes;
• Analyse the investment landscape in relation to protection and restoration of biodiversity and ecosystems, identifying best-practice case studies and evaluating the leverage potential of the EU taxonomy and its key success factors. Explore pathways for the future development of the taxonomy that could generate the most positive biodiversity outcomes;
• Provide the necessary guidance, training, and tools both for financial entities and for entrepreneurs engaged in “nature positive” activities, for the interpretation and collection of data of the technical screening criteria for determining whether an economic activity substantially contribute (SC) to one or more objectives, as set in the Regulation. It should also guide the interpretation of the technical screening criteria for determining whether an economic activity does significant harm (in relation to the DNSH principle) to the protection and restoration of biodiversity and ecosystems, as set in the Regulations. This should support compliance with related reporting and disclosure regulations;
• Identify potential skill gaps and propose a capacity building strategy to tackle them;
• Provide economic actors such as investors including Investment Fund Managers, corporates and financial institutions with tools, guidance, and methodologies to gather reliable, consistent and standardised data to enable incorporation of biodiversity considerations into their investment decisions and risk management processes;
• Involve actively and co-create with the end-users and stakeholders (non-financial corporations, financial institutions, governments etc.) to fully account for their respective views and needs;
• Issue recommendations at EU as well as other levels on enabling conditions for biodiversity-focused sustainable finance and accounting principles, exploring synergies with other EU initiatives, such as the Non-Financial Reporting Directive (NFRD)[[ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0095. Adopted by the Commission in April 2021, a new proposal will extend the scope of the NFRD to all large companies and all companies listed on regulated markets (except listed micro-enterprises) and will introduce more detailed reporting requirements that are coherent with the Taxonomy’s concept of SC and DNSH. https://eur-lex.europa.eu/legal-content/EN/HIS/?uri=CELEX:52021PC0189.]] and the Corporate Sustainability Reporting Directive[[ https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en.]], as well as with relevant ‘biodiversity-friendly’ labels and standards.

Actions should bring together from the start multiple types of scientific expertise in social sciences and humanities, in particular in economics and finance, as well as scientific expertise in biodiversity and natural capital.

Actions should envisage clustering activities with the project(s) of the same topic and relevant topics on sustainable finance and valuation of ecosystem services[[ Notably Horizon Europe projects ‘SELINA’ and‘Invest4Nature and projects resulting from the calls: ‘HORIZON-CL6-2021-BIODIV-01-07: Ecosystems and their services for an evidence-based policy and decision-makin',’HORIZON-CL6-2022-COMMUNITIES-01-05: Assessing the socio-politics of nature-based solutions for more inclusive and resilient communities’ , ‘HORIZON-CL6-2024-BIODIV-01-4: Biodiversity, economics and finance: Understanding macro-financial risks associated with biodiversity loss’,’ HORIZON-CL6-2023-BIODIV-01-10: Build up of knowledge on Nature Positive Economy and supporting its scale-up’.]]. To this end proposals should foresee dedicated tasks and appropriate resources for coordination measures, foresee joint activities and joint deliverables.