Introduction

The report underscores the intertwined crises of biodiversity loss and climate change, referred to as the biodiversity-climate nexus. Both challenges threaten economies, ecosystems, and human livelihoods, with biodiversity decline alone projected to result in global GDP losses of $2.7 trillion annually by 2030. Financial institutions are called to integrate biodiversity into their climate strategies, recognising the synergies and trade-offs between these areas. The Kunming-Montreal Global Biodiversity Framework (GBF), adopted in 2022, serves as a key international framework to guide actions, aiming to restore 30% of degraded ecosystems and mobilise $200 billion in biodiversity funding annually by 2030.

Defining the nexus

The nexus reflects the interdependence between biodiversity and climate change through four pillars:

• Climate change drives nature loss: Climate change exacerbates biodiversity loss, with warming projected to drive the extinction of up to 29% of species under a 2.7°C trajectory.
• Biodiversity conservation enables climate action: Ecosystems act as critical carbon sinks, but land-use changes and degradation risk turning these sinks into carbon sources.
• Biodiversity solutions can exacerbate climate change: Solutions like desalination or monoculture reforestation may have unintended climate impacts.
• Climate action can harm nature: Climate initiatives, such as bioenergy projects or afforestation, can negatively affect biodiversity if poorly managed.

International agreements, such as the Paris Agreement and the GBF, aim to bridge the gaps between climate and biodiversity policies, though significant funding and action are still required to address this dual challenge effectively.

Synergies and trade-offs of key nexus solutions

Nature-based solutions (NbS)

NbS, including ecosystem restoration and sustainable forestry, can provide over one-third of climate mitigation required by 2030. However, improperly designed projects, such as monocultures, may harm biodiversity. Financial institutions should adopt a “Do No Significant Harm” approach and ensure projects are verified and additional.

Agricultural solutions

Agriculture contributes 13–21% of global greenhouse gas emissions and is the largest driver of biodiversity loss. Regenerative agriculture, plant-based systems, and reducing food waste offer synergies between biodiversity and climate. Financial institutions should support these solutions by engaging companies on deforestation-free supply chains, offering financing for sustainable farming technologies, and incentivising reduced food waste.

Alternative energy sources

Renewable energy solutions like wind, solar, and hydropower play a pivotal role in decarbonisation but can disrupt ecosystems and biodiversity. For instance, poorly located wind farms may lead to habitat loss, while biofuels linked to deforestation harm both biodiversity and climate. Lifecycle assessments and exclusion lists can help mitigate these impacts, and innovative technologies should be prioritised.

Circular economy

Circular economy practices, such as plastics recycling and e-waste management, reduce resource extraction and pollution, contributing to both biodiversity and climate goals. Financial institutions are encouraged to back R&D in recycling technologies and promote sustainable alternatives like seaweed-based bioplastics.

How financial institutions can address the nexus

To address the biodiversity-climate nexus, financial institutions are advised to:

• Finance synergy-generating solutions: Support regenerative agriculture, NbS, and circular economy projects, using innovative tools like blended finance to bridge funding gaps.
• Prioritise high-impact sectors: Focus on agriculture, energy, and materials—sectors with the largest biodiversity and climate footprints. Tools like the CDP Climate Change and Forests rankings can guide sectoral prioritisation.
• Engage with companies: Collaborate with corporates to set science-based targets for both biodiversity and climate. Frameworks like the Equator Principles and initiatives such as Nature Action 100 provide valuable engagement strategies.
• Establish sector policies: Develop sector-specific guidelines and exclusion lists to avoid financing harmful practices, such as deforestation-linked projects. Certifications like RSPO and Bonsucro can support policy enforcement.
• Integrate biodiversity into climate strategies: Extend climate policies to include biodiversity targets, leveraging frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) and aligning actions with the GBF.

Conclusion

The nexus between biodiversity and climate change is both a risk and an opportunity for financial institutions. Addressing this dual challenge is essential for mitigating physical and transition risks, ensuring long-term financial stability, and supporting global sustainability goals. By integrating biodiversity into decision-making, fostering innovation, and prioritising impactful sectors and projects, financial institutions can lead transformative change while exploiting synergies and managing trade-offs. This integrated approach represents a fundamental shift towards sustainable, nature-positive finance.