Factbox: Biodiversity finance options grow, but pace of investment still slow

An aerial view shows trees and fog at the Amazon rainforest in Manaus, Amazonas State, Brazil October 26, 2022. REUTERS/Bruno Kelly

MONTREAL, Dec 14 (Reuters) - Global talks on protecting nature continue in Montreal, with the theme of Wednesday's session dedicated to finance.

The tricky issue of how to direct more money to projects such as preserving mangrove forests or expanding forest cover is a central sticking point for negotiators ahead of the end of the COP15 conference, slated for Dec. 19.

The need for more money was made clear by a recent United Nations report that said at least $384 billion a year would be needed by 2030, more than double current levels.

A group of 150 financial firms pledged on Tuesday to help preserve endangered natural ecosystems through their financing and investments, which currently collectively cover assets worth more than $24 trillion.

Below are some of the ways in which money is already moving, as well as several ideas for increasing the flow of finance.

SOVEREIGN DEBT

Linking biodiversity gains to the cost of a government's sovereign debt is expected to grow in popularity in the coming years as more emerging market countries look to secure cheaper funding to invest in nature.

Chile this year became the first country to issue a sovereign sustainability-linked bond, raising $2 billion to help fund its climate goals.

Other countries suffering debt distress have seen some of their debt written off in exchange for taking steps to preserve more of their natural environment in so-called "debt-for-nature" swaps.

BLUE BONDS

Billions of people rely on the world's oceans for their jobs, and governments and corporations say they are increasingly interested in protecting the seas.

Blue bonds are debt instruments where money is raised specifically to finance a marine or ocean-based project that provides environmental benefit, for example by preserving coral or limiting pollution.

Among those to come to market recently was Philippine lender BDO Unibank (BDO.PS), which raised $100 million in May to "help prevent marine pollution and preserve clean water resources, while supporting the country's climate goals."

FOREST FINANCE/AMAZON FUND

Among the most urgent priorities is to help prevent deforestation in countries with the largest rainforests, such as Brazil and Indonesia.

In Brazil, the government-backed Amazon Fund was established in 2008 to funnel money primarily from Norway and Germany to projects that promoted protection of the rainforest.

Right-wing President Jair Bolsonaro froze all new project approvals shortly after assuming office in 2009, citing irregularities among non-government organisations receiving funding, without providing any proof.

With the election of leftist Luiz Inacio Lula da Silva earlier this year, the fund is expected to restart with hope of finding fresh sources of money. The fund has raised 3.4 billion reais ($637.90 million) and disbursed 1.4 billion reais ($262.66 million), according to its latest annual report.

BIODIVERSITY CREDITS/OFFSETS

One model gaining some traction at COP15 is the creation of a market for biodiversity "credits" generated after a project can be confirmed as having protected or restored ecosystems.

Valuing nature in this way has long been contentious, and there is currently no single metric to measure progress or even agreement on how such credits should be structured.

Nevertheless, biodiversity credits have already been issued in Colombia and New Zealand, with further projects being planned in Africa and elsewhere.

Separately, some governments have developed biodiversity offset markets, where companies must buy credits or otherwise offset nature destruction. Several Australian states have already instituted offsets, while England will soon launch its own scheme.

BIODIVERSITY TAX

Raising additional tax revenues to be allocated solely to bolstering nature could have the potential to fill the finance gap.

To date, efforts have been small scale, for example Fiji's Environment and Climate Adaptation Levy, which puts taxes on some services, items and income and uses the money on climate and biodiversity objectives.

One future option could be for companies in the sectors most responsible for causing damage to the environment to face a special tax to help pay for it.

GLOBAL STRATEGIC NATURE RESERVE

Martijn Wilder, chief executive of investment and advisory firm Pollination, said another option could be to force companies to keep money back to help support nature protection and restoration projects, funding them as benefactors.

Such a model would echo requirements on banks to hold a financial buffer after the financial crisis, to ensure market stability, and would allow finance to move in scale more quickly, he added.

($1 = 5.3300 reais)

Reporting by Isla Binnie in Montreal, Simon Jessop in London and Jake Spring in Sao Paulo; Editing by Lisa Shumaker

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Global Climate & Environment Correspondent, based in Brazil. Interests include science, forests, geoengineering, cryosphere, climate policy/diplomacy, accountability and investigative reporting. His work on environmental destruction under Brazil’s President Jair Bolsonaro received awards from Covering Climate Now and the Society of Environmental Journalists. Previously based in China, he is fluent in Portuguese and Mandarin Chinese.