Title: Understanding Environmental Financing: Introduction to Nature Financing.
Almost half of the global domestic product (GDP) is dependent on nature and well-functioning ecosystems, yet humanity continues to jeopardize its existence through unsustainable activities. Nature-based solutions (Nbs) present an avenue to address global challenges in climate change, biodiversity loss and land degradation. Effective designing and implementation of Nbs have the potential to unlock a range of co-benefits aligning with the Sustainable Development Goals (SDGs) and the Rio Conventions, while mobilizing engagement with the public and private sectors.
Despite the critical role of Nbs, current investments are insufficient to meet the goals outlined in the Rio Conventions under the the United Nations Framework Convention on Climate Change (UNFCCC), United Nations Convention on Biological Diversity (UNCBD), and the United Nations Convention to Combat Desertification (UNCCD). While most funding originate from the public sector, there exists untapped potential within the private sector. Hence, necessitating leveraging on innovative financing mechanisms to attract investments from both sectors to effectively address existing and predicted environmental social challenges. Nature financing provides a crucial avenue to mobilize the private and public sector investment portfolios into nature initiatives and projects. By exploring innovative financing mechanisms, such as such as fixed income instruments, debt conversions, private equity and venture capital, actively managed funds, exchange-traded funds, and carbon and biodiversity credits, nature-investments can be mobilized to support national, regional, and international environmental goals for biodiversity and nature.
Such financing is pivotal in achieving commitments to biodiversity conservation and sustainable use of natural capital. Additionally, it contributes positively to the attainment of country-led environmental initiatives like the domestication of set Nationally Determined Contributions (NDCs) under the Paris Agreement and National Biodiversity Strategies and Action Plans (NBSAPs), which align with the goals and targets of the Rio Conventions.
Given the urgency of achieving Rio Conventions goals, nature financing emerges as crucial strategy to advance global, regional, and environmental objectives. It is essential to actively engage local communities as custodians of nature, the financing institutions, governments, and relevant stakeholders integrating their knowledge and perspectives into decision-making processes. The inclusive approach ensures sustainable climate action across the public and private sectors, thereby fostering a holistic approach to environmental conservation and sustainable development.
Date: 16 April 2024
Time: 12-1 pm (EAT)
Challenges in Nature Finance
While the trajectory of nature finance is promising and contributes to nature-positive investments its current momentum remains insufficient to meet international and national environmental goals. There are several challenges hindering the effective mobilization of nature finance at various levels.
Below are some key challenges leading to suboptimal mobilization of nature finance in different geographical locations.
- Institutional gaps in understanding the nature finance landscape including its structure, how it should be led, arrangement, and coordination.
- Lack of standardized, verifiable, and comparable data, along with limited access to high quality and affordable data for analysing associated risks of nature investments.
- Nature-related investments often are assumed to yield low returns o have extended timelines for financial return.
- Limited scalability and pipeline of nature investments, coupled with high transaction costs that deter private investment.
- Inadequate policy support to promote nature-positive investments, including insufficient policy reforms to regulate harmful subsidies.
- Inadequate involvement of industries and local communities in the implementation and domestication of nature-related investments to drive transformative change.
Opportunities in Nature Finance
Addressing the pressing challenges in advancing nature finance requires collective action and coordination among the public and private sector, with the inclusion of the financing sector and relevant stakeholders, to enhance nature-positive financial flows and impacts.
- Improved understanding of the nature finance landscape among stakeholders.
- Enhanced monitoring and reporting mechanisms for nature finance to access reliable data.
- Building capacity within governments, organizations, and local communities to plan and mobilize nature finance effectively.
- Aggregating nature-related projects to increase their scale and attractiveness to institutional investors.
- Utilizing blended finance models to de-risk nature-related investments and attract private finance.
- Creating an enabling policy environment, such as policy coherence, to institutionalize support for nature-related investments and achieve environmental targets.
Highlights and Recommendations from Plenary
- Emphasizing the inclusion of local communities in nature-financing investments and increasing their access to financing opportunities.
- Realignment and transition from nature-negative financial flows towards more sustainable investments
- Governments to create an enabling policy environment to support both private and public actions in addressing nature-negative financial flows.
- Scaling up and supporting the adoption of innovative financing mechanisms for example blended finance, to facilitate financial investment in nature.
Participants
A total of 94 participants joined the webinar
