BIOFIN has assembled this supplementary guide for the BIOFIN 2018 Workbook to support public and private sector understanding and collaboration in biodiversity and ecosystem investment. This guide is aimed at financial practitioners, financial institutions, conservation-based organisations, and private sector investors. In four chapters, this guide addresses unlocking private capital investment to promote biodiversity conservation.

Investing in Nature

This chapter contextualises biodiversity in finance and explains the deeply rooted dependency of the global economy on natural capital and ecosystem services provided by biodiversity. The foundational idea of this chapter states that investors can support biodiversity by choosing an approach to mitigate negative impacts or produce positive impacts. Furthermore, the global impacts contributing to biodiversity’s decline are listed in descending order of their impact. They include:

• Changes in land and sea use
• Direct exploitation or organisms
• Climate change
• Pollution; and
• Invasion of alien species

Dependencies, Impacts, Returns, and Risks

This chapter describes the business rationale for biodiversity investment, dependency and risk, positive impact outcomes, financial returns from nature, and public, and private sector roles.

Inaction and lack of collaboration in biodiversity initiatives will exacerbate biodiversity loss and risk, so understanding business dependency on nature involves identifying the gains and losses of financial activities on biodiversity. Moreover, businesses dependent on biodiversity are open to business risk. These risks include:

• Operational
• Legal and regulatory
• Markets
• Reputational
• Societal

Although public, and private collaboration is central to this guide and key to sustaining long-term biodiversity conservation investment, there are risks associated to private investment in conservation including:

• Over-financialisaton
• Scaling up too quickly in immature markets
• The lack of an enabling market infrastructure
• Distortion of philanthropic giving and ODA flows
• Greenwashing
• Social risks

The Market

This chapter discusses regional market trends, participants in biodiversity investment, and the challenges and opportunities in scaling private sector solutions.

Geographically, impact investing in conservation varies depending on country policy, returns, and financing but some regions allocate more investment in some industries than others. However, globally, sectors receiving investment include:

• Water services
• Agriculture
• Forestry
• Fisheries and aquaculture
• Tourism
• Infrastructure and urban development

Participation is increasing in biodiversity and impact investment where 70% of investments are managed by for-profit entities. Among traditional investors and institutions are new investors including:

• Wealthy individuals
• Institutional investors
• Faith-based organisations
• Endowment funds

Delivering Finance Solutions for Nature

This chapter outlines BIOFIN’s financial mechanisms and solutions to assist directing financing to biodiversity conservation. The mechanisms are categorised as:

• Generate revenue
• Realign current expenditure
• Avoid future expenditure
• Effective delivery

The three financial solutions selected by BIOFIN to attract private capital in conservation are:

• Promotion of sustainable business practices
• Investment strategies and products that produce measurable impacts on biodiversity
• Public-private collaboration to spur innovation and create sustainable markets

BIOFIN endeavours to enhance private sector collaboration, and engagement in unlocking private capital for biodiversity and ecosystem conservation. Private sectors actors are signalled to understand their dependencies on nature, take accountability, and mitigate their impacts by creating finance solutions to conserve biodiversity and contribute to the greater global movement.

1. Finance and biodiversity are inextricably linked in the global economy. Gains on investments received by financial institutions and investors equate to a loss or consumption of a unit of natural capital or ecosystem service, so it is vital to hold the finance sector accountable for its impacts on biodiversity and nature. This guide recognises this notion by delivering sustainable and biodiversity finance information to investors, financial institutions, and conservation agencies to assist them in creating creative finance solutions to offset their impacts and contribute to biodiversity conservation.
2. Investment opportunities arise from influences and factors beyond the market. Other sources of influence originate in public policy developments, regulation, and public incentives. Largely, public sector policy holds substantial influence over directing private sector investment and capital allocation in biodiversity conservation.
3. International organisations are developing risk management frameworks and regulatory practices to support the finance sector’s understanding of their own dependencies on biodiversity. Frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) establish a disclosure and reporting framework for financial institutions to recognise their dependencies and impacts on nature.
4. BIOFIN estimates that the value of incremental market opportunities from ecosystem services alone could add up to USD 365 billion. Additionally, investors participating in this market have achieved rates of return between 5% – 10%, with for-profit investors expecting for returns greater than 10%. These estimates and returns emphasize the growing potential and role of private capital contributions in biodiversity and makes the business case for biodiversity investment.
5. Impact investing activities are found to be concentrated in USA and Europe whereas initiatives restoring ecosystem services are prevalent in North America and Australia. However, investments in developing regions are also critical in accelerating global biodiversity conservation. For example, funding projects to strengthen food and water security in developing regions can redistribute resources and financing towards sustainable agriculture and resource extraction processes. This initiative restores biodiversity and supports local communities simultaneously, so it is vital for investments to target developing regions as much as it is to target developed regions.
6. This report provides practical examples and case studies articulating the relationship between a company’s impacts and dependencies on biodiversity and ecosystems. Economic reliance on and impacts to biodiversity are seen to result in significant additional finance costs over the long term. In a case study on almond farmers in the US for example, the death of natural pollinators, like bees, driven by deforestation has can be seen to impact crop yield, forcing farmers to pay a collective US $655 million annually for commercial pollination. Using this example, inaction in addressing biodiversity loss is shown to create unavoidable financial costs in the long-term.
7. This guide includes case studies in countries BIOFIN has issued their assistance in. In these examples, the best practices and early examples of BIOFIN’s actions are presented to solidify the theoretical planning and strategy into practical examples.