Where is the Money for Forests?

News 18.09.24

Posted by Nature4Climate
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Copyright © Todor Tilev/TNC Photo Contest 2021

Introduction 

Keeping the world’s remaining forests standing is one of the most important environmental challenges of the 21st century. Humanity will not limit global heating to safe levels or stem the ongoing loss of wildlife without them. This is something we can all agree on. 

We can also agree that, currently, forests are often worth more dead than alive, and various economic drivers are the leading causes of forest loss. Therefore, changing economic incentives is critical to curbing the tide of deforestation. 

So where does money to protect forests come from? Nature4Climate (N4C) surveyed existing resources and analysis to help answer this question. In the article below, we look at 14 sources and uses of finance to assess both their current and potential contributions to keeping forests around the world standing. Here are our three main takeaways: 

  • Public finance is critical, but it is unlikely that it will exponentially scale year on year. Rather, it’s about finding ways to allocate these resources in the most impactful way possible 
  • Scaling up private sector finance is critical, and while there are a number of mechanisms with long-term potential, the voluntary carbon market presents one of the solutions with the highest near-term potential. But to achieve this potential, the VCM must overcome significant headwinds and concerns over quality. 
  • It is important both to focus on improving and implementing the mechanisms that are available today, as well as continuing to push for new solutions, bigger, longer-term policy levers, and even the moonshots that could deliver massive impact. 

A note on Sources and Methodology

What sources did we draw on most for this analysis? We reviewed a wide range of excellent source material, but to name four of the resources we consulted most, Global Canopy’s Little Book of Investing in Nature stood out as an indispensable resource. Although it is a few years old at this point, its overview of existing flows, together with its projections through 2030 are great orientation. UNEP’s 2023 State of Finance for Nature report also provides fairly comprehensive data, while laying bare the massive finance gap for nature, including for forests. The Taskforce of Nature Market’s 2022 Global Nature Markets Landscaping Study is another important contribution to the space. And the recommendations outlined in the seminal 2019 report by The Nature Conservancy (TNC), the Paulson Institute, and the Cornell Atkinson Institute for Sustainability on how to plug the nature finance gap still hold true. Reducing harm, including through subsidy reform, generating new revenue streams, and investing smarter, are the key solutions. 

In seeking to answer our guiding questions, we want to acknowledge that there is no perfect way to organize such information. We have structured the sections below with sources of finance as the primary rationale for the framework. However, there are certain actions that can have a big impact on forest conservation without providing a direct source of finance, such as subsidy reform or supply chain regulation. Therefore, some drivers of action are also included in the relevant sections.  We also recognise that there are potentially clearer frameworks, such as that used by Global Canopy in terms of organizing solutions under specific catalysts such as “generating revenue,” “delivering better,” “realigning expenditures,” “avoiding future expenditures” and “catalyzing”. 

What’s more, this is not a comprehensive analysis of all sources and uses of finance. In fact, the UNDP BIOFIN Catalogue of Finance Solutions features no fewer than 60 generic mechanisms and 165 specific finance mechanisms used for financing biodiversity conservation. We very likely have missed some important mechanisms, and that’s why we want to hear from you. 

Finally, please note that this article was published in September 2024, and some numbers may be out of date by the time you are reading this. That said, we expect the broader findings of the analysis to hold true for some time. 

Chapters:

1. PUBLIC SECTOR ACTION

2. INTERNATIONAL ASSISTANCE

3. PRIVATE AND PUBLIC-PRIVATE FINANCE

4. HIGH-INTEGRITY CREDIT MARKETS

5. PHILANTHROPY

Public Sector Action 

Domestic policy, regulation and expenditure

According to UNEP, money spent directly by governments on protecting biodiversity and landscapes is the single largest pool of funding, amounting to $76 billion a year. The establishment and management of protected areas will continue to rely on public funding, and protected areas and avoided conversion are a cost-effective solution for the provision of critical ecosystem services. Governments can increase direct funding for protection and restoration, can raise fees and charges to support this work, and can also promote demand for investment in nature-based solutions through green public procurement. 

While critical, this funding is not enough on its own. And while government budgets can and do change, they do not often change exponentially. 

“Even though there are a variety of finance mechanisms for governments, public resources are still limited, and there is intense competition to address other global challenges, such as renewable energy, public health, food security, and more . It is highly unlikely that domestic public budgets for biodiversity alone have the potential to scale up enough to close the biodiversity financing gap by 2030.” – Global Canopy 

So rather than expecting new government money to suddenly emerge to fill the finance gap, we should instead think about how to use this money more effectively. For example, governments can cooperate with financial institutions to stimulate investments and create blended finance opportunities, mobilize resources via de-risking tools, or create regulatory market frameworks conducive to incentivising biodiversity finance (OECD 2019a).

Additional facts and figures: 
  • Governments provide 82 per cent of finance for NbS, and direct expenditures will continue to provide the bulk of finance for NbS 
  • The largest share of public NbS finance (US$76 billion or 46 per cent) goes toward protection of biodiversity and landscapes. This has grown by 7 per cent from US$71 billion 
  • to US$76 billion since SFN 2022. More than half of finance for NbS to tackle biodiversity loss originates in four countries (US, France, Italy and Germany) – the global increase is related to increased spending in the US on wildlife conservation and in the EU under the EU biodiversity strategy to 2030. China also has significant expenditure on biodiversity, with roughly US$35 billion spent since 2017 
  • 5 countries account for >75% of global biodiversity spending
  • Research by TNC has found that while many countries have large public funding programs for NCS, they are not being efficiently allocated or utilized 

Subsidies

Governments are spending trillions on inefficient subsidies that are making climate change worse – money that could be tapped to help solve the problem. Agricultural subsidies are responsible for the loss of 2.2 million hectares of forest per year – or 14% of global deforestation. Repurposing these harmful subsidies could have an immense impact on deforestation rates around the world. This is one of the big ideas that we need to muster political support for. But it is tough and slow work. Alarmingly, these subsidies are actually increasing. In 2022, UNEP found that nature-negative public finance flows – estimated at US$1.7 trillion – had  increased by 55 per cent from 2021 levels. 

If subsidies are so harmful, why are they so persistent? On the one hand, much of the damage done by subsidies is unseen and emerges cumulatively and with lags, making attribution of damage difficult and weakening public pressure for reform. In addition, given the pervasiveness of subsidies, economies and people adjust to their presence, which builds inertia against change due to behavioral biases that favor the status quo. The benefits of the subsidy (explicit and implicit) also tend to accrue to special interest groups with a strong interest in perpetuating these policies and often commanding outsized influence over policy. On the other hand, damages from the policy are spread across entire nations, regions, and even generations, which makes forming coalitions for change difficult. Together, these characteristics are formidable forces against reforms, even though reforms may benefit society at large. – World Bank Detox Development Report

We clearly need to keep at this, but we shouldn’t expect massive shifts this decade. 

Additional facts and figures:
  • Subsidies that can lead to deforestation are worth between US$381 billion (£314 billion) and US$1 trillion (£825 billion) per year. 
Read more: 
  • Detox Development: Repurposing Environmentally Harmful Subsidies, World Bank, June 15th, 2023 
  • The nature funding gap: rerooting subsidies in nature, TNC, September 14th, 2020 
  • The Forest Pathways Report WWF 2023 Executive Summary, WWF, October 23rd, 2023


Supply Chain Regulation 

Several markets are developing policies that prohibit the sale or importation of products grown on deforested land. These efforts are most advanced in the EU, although it has faced strong pushback from developing countries, particularly for the impact these regulations could have on smallholder farmers. The UK also has legislation to ban certain products linked to illegal deforestation, the US has the FOREST Act, and Brazil and China have formed a “joint commitment.” While this progress is welcome, it is not quick or smooth. For example, the teeth and impact of the Brazil-China commitment has been seriously questioned, and the FOREST Act is stalled. 

The key to successful implementation of the EUDR lies with Article 30, a provision on cooperation with commodity producer countries such as Brazil, Argentina, Uganda, Indonesia and many more. Article 30 aims to cooperate with producer countries to address the root causes of deforestation, while assisting with compliance to the new regulations. – Matthew Sielski, TNC 

Additional facts and figures:
  • Agricultural production is by far the main driver of global deforestation, accounting for 80% of total forest conversion. The growing demand for agricultural commodities internationally continues to drive agricultural land conversion in the countries that produce these commodities. 
  • The EU alone is responsible for importing products that account for approximately 13-16% of deforestation associated with global trade, resulting in 203,000 hectares of cleared forests and 116 million tonnes of CO₂ released into the atmosphere. 
Read More: 
  • The EU’s New Deforestation Law Needs to Engage Producers from the Get-Go, The Nature Conservancy, TNC, November 23rd, 2023 
  • China and Brazil have a joint commitment to end illegal deforestation driven by trade. What does this mean for major importers like the EU, UK, and US?, Forest Trends, April 21st, 2023 

Biodiversity Offsets

Not to be confused with biodiversity credits, these are mandatory government programs that are focused on offsetting the impact of development, by requiring developers to offset the damage done by housing, mining and infrastructure developments by funding biodiversity projects, with sometimes mixed results.

UNEP estimates that roughly US$11.7 billion was invested in biodiversity offsets in 2022, with a potential to grow to more than US$160 billion by 2030. Mandatory biodiversity offsetting schemes, such as Biodiversity Net Gain in the UK or the New South Wales Biodiversity Offset Scheme in Australia, are emerging as a key regulatory requirement. More than 100 countries have policies on biodiversity offsetting. In the US, the Clean Water Act compensatory mitigation requirements stimulated the creation of mitigation banking programmes that annually issue more than one million water and stream credits. Mitigation banking is expected to grow by 13 per cent per year over the next five years. However, there are serious limitations for using these mechanisms as tools for forest conservation. 

While having large potential for growth, opponents of offset programmes argue that they give firms licence to pollute by allowing them to offset their impacts after development has taken place (OECD 2013). Other issues include the challenges associated with pricing biodiversity impacts and requiring biodiversity offset purchases, technical capacity issues related to programme implementation, and governance and enforcement measures (Deutz et al. 2020). One important issue is around equivalency: since negative social and environmental impacts may differ greatly from one location to another, the development may have larger negative effects than those captured under applicable offset programmes. –Global Canopy

International Assistance 

Official Development Assistance (ODA)

One of UNEP’s main recommendations is to increase direct finance flows to Nature-based Solutions through public domestic expenditure, as well as nature-focused Official Development Assistance (ODA), ensuring that multilateral development banks (MDBs) and development finance institutions (DFIs) prioritize green finance. ODA for nature currently sits at $2 billion a year. This is an area where progress can be made, but we should expect steady versus exponential growth. 

“ODA flows are small and are likely to remain small considering political pressures in donor countries. It is therefore critical to ensure that the flow of finance for NbS from developed to developing countries is not limited to ODA. Innovative financial instruments are needed to facilitate private investment in NbS where they are most cost effective.” –UNEP

“ODA is necessary, but not sufficient to finance biodiversity conservation at the level that is needed, which means ODA is best used to provide catalytic financing for other sources of finance. ODA can serve an important role in de-risking, encouraging and setting precedents for other types of investment in biodiversity.” –UNDP

Additional facts and figures: 
  • ODA flows have stagnated, and the share of ODA going to nature remains small (1 per cent in total finance flow to NbS).


REDD+ 

REDD+ is an important subset of ODA, where developed countries pay developing countries for verified results in reducing deforestation and forest degradation. As of 2022, more than $5 billion had been pledged or deployed to developing countries through donor countries and multilateral initiatives. Norway, Germany, and the UK have all been leading country supporters of this system, but support is more muted elsewhere. The Amazon Fund is an example of a REDD+ mechanism. It was created to raise donations for non-reimbursable investments in efforts to prevent, monitor and combat deforestation, as well as to promote the preservation and sustainable use in the Brazilian Amazon. It is also one of the more successful efforts, having received $640 million in new pledged donations from developed nations last year (2023). 

While it is likely that these donor countries will continue to support this system, it is unlikely that REDD+ will grow extensively beyond these countries under the current system. However, there are indications that REDD+ could form the basis of Article 6 transactions, which could substantially increase demand. For example, the UAE-based company Blue Carbon LLC has signed deals worth hundreds of millions of dollars for the right to develop REDD+ projects in developing countries for the Article 6 market. Serious integrity-related concerns, however, have been raised about these deals. 

Overall, non-market funding for REDD+ result-based payments has been very limited in relation to the REDD+ results achieved by developing countries. For example, the GCF committed 500 million USD as part of its first request for proposals in 2018 and has not replenished this fund since 2020, when the fund was fully depleted. A few programs outside the UNFCCC provided non-market result-based payments, e.g. Norway’s International Climate and Forest Initiative (NICFI) through the Amazon Fund (and others) and the REDD+ Early Movers financed by the German Government. Overall, these financial sources amounted to only a few billion USD altogether. Considering the limitations in funding through the GCF and bilateral agreements, there has been widespread interest in developing new financial opportunities for REDD+ through multilateral funds and private sector investments. –TNC

Read more: 
  • International REDD+ Standards and Financing: Eligibility Requirements, TNC, November 2022
  • Climate Finance Thematic Briefing: REDD+ Finance, Climate Funds Update, February 2022
  • A brief explainer of how REDD+ finance works, CIFOR-ICRAF, May 30th, 2018

Debt Refinancing 

This category, which covers debt-for-nature (DFN) swaps, represents exciting potential through work being led by organizations like The Nature Conservancy, with increasing support among multilateral development banks. To date, most recent deals have focussed on marine conservation, but there is potential to target them toward forest conservation as well. Currently, at least 20 countries are considering halting repayment of $US685 billion of debt, swapping debt for investment in climate. While this sounds like a big number, how much money would actually flow directly to conservation remains a question. According to Global Canopy, since their birth in the 1980s, the United States has been the largest player in the DFN market, forgiving USD 1.8 billion, or 64%, of the total DFN debt market, and generating USD 400 million for conservation in 21 countries. In several cases, there is evidence that DFN swaps have contributed to lower rates of deforestation, although, in others, environmental outcomes have been harder to demonstrate. DFN swaps in other high-income nations totalled USD 1 billion in debt swapped with USD 500 million raised for conservation. 

Positive momentum has been limited in large part due to the transaction costs associated with DFN swaps. Challenges include the length of time that interest rate and debt restructuring negotiations typically take (UNDP 2017). Although DFN swaps have raised relatively small amounts of finance compared with other mechanisms, there may be growing opportunities to deploy them as low- to middle-income countries invest in reducing their infrastructure gaps. New lending structures may be able to use DFN swaps to incentivise more sustainable infrastructure investments. In particular, as the effects of the economic crisis precipitated by the COVID-19 pandemic push countries to renegotiate their foreign debt, DFN swaps may provide a way for countries with high debt burdens to restructure their obligations in a way that incentivises sustainable economic activities. – Global Canopy 

The largest deal to date was announced in 2023 with Ecuador. As part of the debt-for-nature deal, the country committed to spending more than $323 million over about 18 years on conservation in the Galápagos region, particularly to manage and monitor the Hermandad Marine Reserve, a newer protected area the government announced in 2021. 

These deals are also complex to put together and many have been relatively small to date. Issues around scale, impact, sovereignty and governance have also been raised. This definitely an important area with significant room for growth, Global Canopy estimates only a US$1 billion potential by 2030. 

Read more: 
  • Q&A: Can debt-for-nature ‘swaps’ help tackle biodiversity loss and climate change?, Carbon Brief, July 15th, 2024 
  • Relieve Debt to Protect the Environment, Foreign Policy, July 25th, 2024 
  • How debt-for-nature swaps have protected the world’s tropical forests for 25 years, WWF, June 28th, 2024 
  • Ecuador Completes World’s Largest Debt-for-Nature Conversion with IDB and DFC Support, IDB, May 9th, 2023 
  • Climate finance: What are debt-for-nature swaps and how can they help countries?, World Economic Forum (WEF), April 26th, 2024 
  • A new wave of debt swaps for climate or nature, UNDP, 2023.

Private and Public-Private Finance

Supply Chain Action 

Supply chain reform is a hugely important part of corporate action to help reduce deforestation. And investment in sustainable supply chains represents an important channel of finance.  Many companies have already made deforestation-free commitments which include setting deforestation policies, achieving supply chain traceability, engaging with suppliers, and monitoring progress. But progress toward these goals has been inconsistent. 

Corporate action needs to be matched by concessional financing from multilateral development banks and development finance institutions to incentivise producers along a supply chain to engage in more sustainable production practices, and by governments introducing laws that prohibit harmful supply chains – such as the EU Regulation on Deforestation-free products (see above). 

A shift towards more responsible supply chain management practices provides firms with an opportunity to safeguard revenue in the long term by ensuring the sustainability of habitats that deliver important commodities. The scale of the contribution to biodiversity conservation by certified sustainable commodities markets is difficult to estimate, but recent research suggests that at least US$ 5–8 billion is directed annually towards protecting biodiversity through these markets. – Global Canopy 

We need to see all financial institutions that have not already done so commit to make a start on tackling deforestation before the onset of 2025, set a deforestation policy by the start of next year, and aim to centrally integrate ending deforestation into transition plans before COP 30, with the ambition of eliminating the issue well before 2030, as well as  allocating significant sums of capital to nature based solutions to help hasten this progress. Work being done by the Science-based Targets Network (SBTN) and the Taskforce on Nature-related Financial Disclosures (TNFD), to enable more robust, consistent and transparent target setting and disclosure towards these and other nature-related goals,  is showing promising signs and gathering momentum. Improved data and information – for example Global Canopy’s Forest IQ –  are supporting these efforts, but uptake is still slow. One of the major challenges is the persistent lack of traceability and transparency in supply chains.

Additional facts and figures: 
  • Private investment in sustainable supply chains provides the second largest private finance flow for nature at US$8.6 billion in 2022. Sustainable supply chain certification is a major market with a third of cocoa and half of coffee production under some sustainability certification, and demand is increasing.
  • Multi-year programs announced by six companies CPI analyzed total roughly $US 2.8 billion, or about USD 443.5 million on average annually. This is equivalent to only 1.25% of the combined annual net income of these MNCs (i.e., USD 35.3 billion) suggesting that they could greatly increase their climate investments. 
  • Global Canopy estimated that these markets could grow to $US 12-19 billion by 2030. 
  • Direct investment of farmers into conservation agriculture provides a further US$1.5 billion per annum, bringing total finance flows to sustainable agriculture to US$10.1 billion per annum.
  • While a significant share of total private finance to NbS, private finance to sustainable agriculture is only a fraction of the value of agricultural commodity markets of US$4 trillion annually (US$1.3 trillion is traded globally; Taskforce on Nature Markets 2022). This small share stands in stark contrast to the evident need and potential of transforming food systems. –UNEP SFN 2023 
  • Almost 90% of the world’s forest loss is driven by the expansion of agriculture, thanks to growing consumer demand for commodities like coffee, cocoa, beef, soy, palm oil and timber. 
Read more: 

Investment in Forest Conservation 

This category includes investments in natural capital that are designed to deliver impact alongside returns. UNEP estimates that impact investing mobilized US$ 4.6 billion of investment in nature in 2022. Examples in this category include Mirova’s €350 million strategy to raise investments from public bodies and institutional investors to support agroforestry, sustainable forestry, and regenerative agriculture projects in developing countries, while preserving and restoring nature and the climate. Or the BTG Pactual Timberland Investment Group’s $1 billion reforestation strategy in Latin America that aims to protect and restore approximately 135,000 hectares of natural forests in deforested landscapes and also plant millions of trees in sustainably managed commercial tree farms on another approximately 135,000 hectares of previously deforested and degraded land. Such investments typically contain a carbon credit compliment (see below).

Natural capital is fundamental to global economic output and directly represents approximately 4.5% of global GDP, yet the sector remains severely underinvested with allocations to natural capital strategies estimated to account for just 0.2% of total AUM globally. As policy-makers worldwide implement stricter environmental regulations to address issues such as climate change and biodiversity loss, we see a growing number of investment opportunities in the space. Accelerating commitments toward net zero emissions from governments and organisations represent structural tailwinds which are increasingly driving investment into nature-based solutions, particularly in compliance markets. –Bob O’Donnell, Climate Asset Management

Additional facts and figures: 
  • The size of the certified forest products market is estimated at ~US$220 billion. 
  • Planted forests comprise only 7% of the world’s forest area but provide almost half its commercial timber. Sustainable management of these planted forests can help meet the growing demand for renewable materials while reducing pressure on natural forests and their rich biodiversity. 
  • Research from TNC found that there is significant funding to be realized if countries can find demand and create nature positive economies around sustainable timber and non-timber forest products. 
Read More: 
  • Can tree farms save a forest? Brazil is about to find out, Conservation International, November 20th, 2023 
  • What is Natural Capital Investment?, Timberland Investment Group, December 1st, 2023 
  • 5 ways sustainable forestry can support climate action, development and biodiversity, WEF, April 23rd, 2024


Green financial products

Green financial products are a collection of financial mechanisms, primarily debt and equity, that facilitate the flow of investment capital into companies and projects that have a positive impact on biodiversity. An estimated total of USD 4–6 billion is invested annually in biodiversity conservation through green financial products. 

Green bonds are a promising revenue generation mechanism for biodiversity because they can complement sustainable land use and other biodiversity projects. However, many biodiversity conservation projects are too small for the green bond market. Questions have also been raised about how much positive impact for forest conservation they have actually driven. Many fear that largely, to date, they have more been an effective mechanism for greenwashing. However, considering that the green bond markets are projected to reach US$ 1 trillion by 2030, private and public conservation actors should take advantage of an increased appetite for green bond fundraising to mainstream capital into biodiversity conservation. For example, in June 2024, the World Bank announced it would issue a new bond expected to raise $200 million to support its sustainability activities and reforestation in Brazil’s Amazon. 

Government incentives and regulation are key tools to catalyse private finance flows to sustainable land management and restoration. In addition, scaling of innovative financial instruments, for example, green bonds, blended finance funds and debt for nature swaps, can support the scaling of private action that is needed to reach Rio targets. – UNEP 

Additional facts and figures: 
  • As of 2026, of the US$ 700 billion invested in green bonds, only 1 percent went to investing in forests and sustainable agriculture. 
  • Despite growth in green bond issuances, their contribution to biodiversity has been small. Deutz et al. (2020) estimated that in 2019, only 0.5–1.0% of total capital raised via green bonds was directly or indirectly allocated towards biodiversity protection measures.
Read more:
  • How effectively do green bonds help the environment?, Science Direct, January 2024 
  • Green Bonds, TNC, 2024 
  • Green Bond Framework, TNC, 2022 
  • IFC Issues Innovative $152 Million Bond to Protect Forests and Deepen Carbon-Credit Markets, IFC, October 31st, 2016 
  • From India to Indonesia, Green Bonds Help Countries Move Toward Sustainability, World Bank, April 10th, 2023

Eco-tourism 

Valued at an estimated $185 billion, the worldwide ecotourism segment is expected to exceed $374 billion this decade. Access to wildlife tourism can support conservation efforts and some protected areas rely heavily on these revenues. However, as the Taskforce on Nature found in a recent report, “the extent to which the nature-related tourism industry adequately prices in the value of nature, and whether it has a nature-positive impact remains uncertain.”

Ecotourism is also highly context dependent. Ecotourism hubs within Chinese and Cambodian forests have been successful at reducing deforestation, but the same hubs in the Himalayas showed no change (Brandt et al., 2019; Lonn et al., 2019). In regions of high deforestation pressure, ecotourism often improves forest conservation. However, in regions of low deforestation, ecotourism may actually stimulate forest loss due to bringing tourism into pristine habitats. Regardless, ecotourism is on the rise and has the potential to mitigate biodiversity loss. – Global Canopy

Read More: 

 

Credit Markets

Carbon markets

The value of the global voluntary carbon market topped $1 billion in 2021, and although the market value dipped in 2023, in part due to increased corporate hesitation following a series of high-profile media investigations, many still project that the market could be worth between US $5 – 30 billion per year by 2030 – with some estimates ranging higher – with perhaps two thirds of this channeled into nature-based solutions, including forest protection. By 2050, if integrity concerns are addressed and the appropriate market infrastructure is in place, projections put the market at more than $200 billion. Looking at a different metric, Climate Focus estimates that carbon markets could deliver up to 32% of the global cumulative potential of NBS by 2030, and 10 to 12% of the overall mitigation needed by then. However, in the last three years, only 1.2% of the annual cost effective potential of NbS has been unlocked by the VCM. Because of this, many see NBS carbon credits as one of the most realistic tools available to mobilize private sector finance to help address the finance gap for nature by 2050. 

A high-integrity voluntary carbon market has the potential to mobilize, at speed and scale, billions of dollars a year in additional climate finance that removes carbon or cuts emissions that help the world stay within the 1.5 degrees C limit of the Paris Agreement, and that benefits communities and ecosystems more broadly. – Lucy Almond, N4C

Additional Reading: 
  • Nature as a critical climate solution: Busting the myths around nature-based solutions, N4C, September 12th, 2023


Biodiversity Credits

Biodiversity credits are an economic instrument that allow private companies to finance activities, such as forest conservation or restoration, that deliver net positive biodiversity gains. There is a lot of optimism in this area, but it is still a nascent space. Only a few companies are currently offering credits for sale, and the industry faces challenges around how to measure  “biodiversity.” Is there a standardized unit that can measure biodiversity across diverse ecosystems? There are also questions surrounding the business case for purchasing these credits. Would they allow companies that purchase them to claim they are nature positive for example?  

Read more: 
  • Biodiversity Credit Markets, Nature Finance, 2024 
  • Unprecedented Focus on Biodiversity Spurring Nature Credit Markets, OPIS, May 2nd, 2023 
  • Can ‘Biodiversity Credits’ Boost Conservation?, WRI, March 12th, 2024 
  • Pricing Nature: Can ‘Biodiversity Credits’ Propel Global Conservation?, Yale School of the Environment, April 6th, 2023 
  • Biodiversity Credits: Unlocking Financial Markets for Nature-Positive Outcomes, WEF, September 2022


Payment for Ecosystem Services 

Payment for Ecosystem Services (PES) refers to the voluntary finance flows between ecosystem service users and providers conditional on agreed rules of resource management for generating ecosystem services (Wunder 2015). Data is obtained from the OECD: Tracking Economic Instruments and Finance for Biodiversity study which captures PES based on a survey conducted in late 2020 including 153 PES programmes in 37 countries (OECD 2021). But when it comes to forests, PES covers REDD+ and carbon markets, which are outlined above. 

Read more: 

Philanthropy

Philanthropy as a source of finance includes contributions from private foundations, business-related foundations and conservation NGOs such as The Nature Conservancy or WWF. Large philanthropic foundations generate revenue through an initial endowment that is managed in perpetuity. The finance available from philanthropy sources was estimated by Global Canopy at US$ 2–3 billion annually in 2019, and by UNEP at US$ 1.3 billion in 2022. Philanthropies can provide catalytic capital that can mobilize other sources of capital, as well as fill funding gaps that traditional financing sources simply cannot.

International and domestic public finance has been, and continues to be, the largest funding source for biodiversity. However, in recent years there has been growing interest in, and activity involving, novel approaches to financing biodiversity conservation. In connection with this shift, public, philanthropic and private sources of financing are no longer viewed as mutually exclusive alternatives. Instead, a more collaborative approach that leverages the strengths of each of these sectors and leverages existing synergies through blended finance approaches is becoming increasingly common. –Global Canopy 

Additional facts and figures: 
  • While the share of overall philanthropic giving directed to the environment remains small—an estimated 3% of total giving in the United States and <2% in the European Union, for example—environmental philanthropy is among the fastest growing philanthropic sectors.  
Read more: 
  • Philanthropists must not turn their back on the planet now, TNC, September 11th, 2023 
  • Conservation philanthropy: Growing the field of research and practice, Conservation Science and Practice, May 27th, 2023

     

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