Scaling up conservation finance: the role of development finance institutions and multilateral development banks

Jul 14, 2022

CPIC Secretariat

No longer a futuristic prospect, the shift from a nature negative to nature positive world is picking up pace. Examples of this were on display at the most recent semi-annual meeting of the Coalition for Private Investment in Conservation (CPIC).A panel discussion, titled ‘Scaling conservation finance: the role of development finance institutions’, delved into how development finance institutions (DFIs) can support nature positive investments.

What is the role of DFIs in unlocking finance for conservation?

The Working Group on the Post-2020 Global Biodiversity Framework concluded its meeting held in Nairobi in June with little progress. Countries were unable to agree on key elements of the Framework, including tangible outcomes to be achieved by 2030 and by 2050.

Despite this, Gerard Bos, Director – Global Business and Biodiversity Programme at IUCN sees a positive signal: “What was interesting […] was that at the very opening stage, there were interventions from businesses and the finance community. They called on the Parties to adopt a global goal for nature […]. The aim of this panel is to demonstrate that there is a willingness to invest in nature at scale, without waiting for the political stars to align.” he added.

With political progress moving at a glacial pace, how can DFIs and multilateral development banks (MDBs) step in and work towards a nature-positive world?

Setting standards and maturing markets

Eva Mayerhofer, a Senior Environment and Biodiversity Specialist at the European Investment Bank (EIB) sees the central role of MDBs. In her role, she leads the EIB’s efforts to support EU and international biodiversity policies, mainstream biodiversity in the bank’s operations, and build an understanding in biodiversity risks and valuation.

Mayerhofer recalls the swift reaction of the EIB to the introduction of the concept of “nature-positive” in the lead up to the COP 26 in November 2021. A joint MDB statement on Nature, People and Planet signed by ten MDBs resulted from this work. It commits the signatories to maintain thought leadership in the development of standards and safeguards and risk management for biodiversity, as well as foster nature-positive investment.

One example is EIB’s work with the World Economic Forum and the Pollination Group to explore the requirements needed for a robust natural capital market, starting in the Asia Pacific region. “We are trying to design the building blocks of markets to reflect and capture the value of nature,” Mayerhofer added. “If you have the MDBs coming together and setting out those standards and requirements, it has a knock-on effect on the market.”

Business and finance ’embedded’ in nature

Assessing the risks and opportunities linked to nature is another key role that DFIs and MDBs can play. The Agence Francaise de Développement (AFD) worked with Banque de France, the French Biodiversity Office and CDC Biodiversité on a recent study of those risks in the French financial sector. The results showed that 42% of the value of shares and bonds held by the French financial institutions scrutinised are issued by companies that are highly or very highly dependent on at least one ecosystem service.

“We are embedded in nature. […] With these kinds of methods, we try to understand what are the sectors at stake, and where we should look for opportunities for investment – either to shift current financial flows, or to invest in new opportunities.” said Julien Calas, Senior Biodiversity Research Officer at AFD.

Shifting investments from nature-negative to nature positive

DFIs and MDBs can support this shift in many ways. Firstly, by highlighting some of the many opportunities for private investors to get involved. The Little Book of Investing in Nature, developed by Global Canopy with support from AFD, aims to do just that: it provides a guide on a range of innovative financial products and services that are nature-positive.

Another route is to create a favorable environment for the private sector to come in. Roland Wittner is part of the recently established Equity and Funds department at KfW, which focuses on mobilizing private money through the use of public funds. The department currently has EUR 4.5 billion assets under management. KfW aims to attract private investors by providing quality assurance of the funds they are investing in.

KfW is also moving towards an integrated investment approach. “We started in the past with very focused funds, but now many topics are integrated. […] We really want to combine different topics, like conservation, carbon and climate.” said Wittner. A recent example is the Worldwide Alliance for Land-based Decarbonization (WALD), which aims to establish a series of funds in the next years to invest into carbon sequestration projects globally.

Metrics and definitions for a nature-positive world

One key underlying issue that must be addressed to scale biodiversity finance is that of definitions and metrics. How is nature-positive defined? While taxonomies are being developed – including by the EU – the sector still lacks consistency. Understanding what activities fall under nature positive and how we can track impact is crucial.

“What the conservation community is looking for are metrics that connect business activities with what is going on on the ground” said Malcolm Starkey, Chief Technical Officer of The Biodiversity Consultancy. “Fifteen years ago, most biodiversity assessment by companies were at the site scale, and they were mostly qualitative. We are now going to the next two scales: the scale of corporates […] and of financial portfolios.” New metrics are enabling this change: the STAR metric was specifically designed to provide this type of connection between company activities and impact on the ground. STAR goes further by highlighting solutions that can reduce identified threats to species.

DFIs and MDBs also have a role to play in the harmonization of metrics. AFD is currently undertaking an assessment to compare different metrics and better understand their individual practical uses. This assessment could be used to inform the recently released TNFD framework.

Development finance institutions leading nature positive innovation

The momentum behind nature positive finance is seemingly unstoppable. With governments around the world unable to reach agreements, the private sector has an historic opportunity to deliver innovation that protects and restores the natural world. It is clearer than ever that we all depend on nature and biodiversity – finance is no exception. But with innovations from development finance institutions, the path to a nature positive world is becoming clearer and clearer.