Understanding Biodiversity

This educational read shares a holistic overview of the Biodiversity Ecosystem.

The report shares an overview of the biodiversity sector. Answers questions as to why the persevering biodiversity sector is key to a more equitable future and its impact on the society observed through the financial industry. Talks about sustainable finance, tools, metrics used to measure the effects of human interaction and policies on nature conservation and restoration. Recently, The middle Road became a member of the European Union Business @ Biodiversity platform, a global thought-leading platform enabling social change and impact within the biodiversity ecosystem. The middle Road is a thought leadership terminal blending Media and EdTech for a more sustainable and equitable future. Critical references are Finance for Biodiversity Guide on biodiversity measurement approaches, Positive Impact Finance for Business & Biodiversity, and the EU Biodiversity Strategy for 2030. 

Why is Biodiversity so important and what do we mean by the term Biodiversity?

Biodiversity is defined as ‘the diversity of species, variation of genes and different ecosystems’ (Term used by the Convention on Biological Diversity, CBD). 

About a million species are under threat of extinction. Based on World Economic Forum, more than 50 percent of the World’s Global GDP is dependent on nature and exposed to the risk of alteration of the natural habitat. This analysis forms the bedrock of the importance of nature for the social development of humanity. International Monetary Fund, World Economic Outlook Database, October 2021, estimates global GDP for selected countries to be $95.6 trillion approximately. According to World Bank national accounts data and OECD National Accounts data files, the top five countries, the United States, China, Japan, Germany, and the United Kingdom’s combined GDP, accounted for 52.2 trillion approximately, accounting for 55.2 percent of the World GDP. The inequitable distribution of national wealth shows the increasing responsibility of a few nations to drive the sustainable development agenda. Based on a report by Business for Nature & ICC, a nature-based transition could lead to $10 trillion in business opportunity creating 395 million jobs by 2030. The pandemic has shown the importance of preserving nature for bettering humans’ response to the wellbeing of society. One of the major reports on the economic impact on this subject matter is Das Gupta’s The Economics of Biodiversity: The Dasgupta Review. The analysis underpins the importance of biodiversity, both social and economic importance to the world. United Nations Conference on Environment and Development (popularly known as Rio “Earth Summit”) started the Convention on Biological Diversity (CBD) on 22 May 1992, where the adoption of the agreed text of Convention on Biological Diversity took place. The proliferation of worldwide drive towards sustainable development led to an accelerated focus towards facilitating policies for enhancing thought leadership for biodiversity.

In the words of CBD “It represents a dramatic step forward in the conservation of biological diversity, the sustainable use of its components, and the fair and equitable sharing of benefits arising from the use of genetic resources.”

Convention of Biological Diversity CBD, is the apex body overlooking the biodiversity sector globally. CBD was formed in 1992 during the Foundation United Nations Conference on Environment and Development also known as the Rio “Earth Summit”. An international legal instrument, CBD’s mandate is to drive the Global Framework of Biodiversity. Today 194 countries have ratified the agreement. The mission of CBD is to Encourage actions that lead to a Sustainable Future, its governing body termed COP or Conference of Parties, CBD has authority over all the signatories.

According to a report, the natural ecosystem has declined by 47 percent from the earliest recorded state. According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), human actions have significantly altered the natural environment. About 75 percent of the land-based environment and roughly 66 percent of the marine environment. With one million species under threat of extinction, the loss of biodiversity has a significant impact on the wellbeing and wellness of society. To top it all, The Biodiversity Finance Initiative (BIOFIN) estimates annual funding needs between $150 billion to $440 billion but only $52 billion is spent per year– translating to a gap of $98 billion to $388 billion per year. Further, WEF estimates more than half of the world’s GDP is exposed to the risk of nature loss. Looking at the enormity of the social and economic problem, multiple actors came together to work out a comprehensive plan to develop a framework for understanding positive biodiversity impact within the financial jargon. To devise policies and measure social and economic loss, policymakers, social impact practitioners, financial intuitions, and corporates need to understand the positive impact of financial institutions. To understand more about biodiversity and financial institutions, let’s look at Finance for Biodiversity Pledge group. A group of six financial institutions launched finance for Biodiversity Pledge on 25 September 2020; today has 84 members. The members have set minimum standards to achieve by 2024 (reverse and conserve nature loss) example, collaboration among various actors within the business and social ecosystem, set targets, engaging with companies, access impact, and reporting publicly, making the process more transparent.

Source Finance for Biodiversity Pledge | YouTube Video 

Positive Impact Finance is defined in UNEP-FI’s Positive Impact Finance Manifesto as “that which verifiably produces a positive impact on the economy, society or the environment once any potential negative impacts have been duly identified and mitigated”.

Nature-Based Solutions and Transitions solve the equation of ecological imbalances enabling sustainable well-being for everyone and have significant quantifiable achievements. 

Business for Nature and ICC estimates nature-based transitions will lead to $10 trillion in the business opportunity, generating 395 million jobs by 2030. For countries example India, where most jobs are in the unorganized sector, nature-based solutions are a panacea for enabling social change and impact for the less privileged people of the society. Nature-Based Solutions can lead to one-third of the net reductions in greenhouse gas emissions required to meet the Paris Agreement’s goals based on the Global Biodiversity Outlook 5. The graph of alternative and nuclear energy as a percentage of total energy for the World, OECD member countries, and the US is increasing steadily. Note: Clean energy is noncarbohydrate energy that does not produce carbon dioxide when generated. It includes hydropower and nuclear, geothermal, and solar power. The figure for the world has shot up to about 13.35 percent in 2015 from 8.26 percent in 2010 as percent of total energy. The value for OECD member countries is similar to the US is roughly 11.87 percent. This confirms that the world is moving towards sustainable living over the period.

# Strategic Plan for Biodiversity 2011-2020 — Aichi Biodiversity Targets 

To have a fantastic overview of how the world performed during the last decade on key performance indicators, its important to look at the multilateral treaty Strategic Plan for Biodiversity 2011-2020. Under this treaty, Aichi Biodiversity Targets were set for the decade, the United Nations decade of Biodiversity. Aichi Biodiversity Targets are set of 20 Targets under 5 Strategic Goals set to achieve over the decade 2011-2020. Many of these targets overlap the United Nations’ seventeen sustainable goals. For example, Target 1 focuses on spreading high awareness about the biodiversity agenda. According to Global Biodiversity Outlook 5, a recent survey reveals that only more than a third of the population living in biodiverse countries have both a high awareness of the values of biodiversity and steps needed for its conservation and sustainable use. Sadly, the target is not met. Herein, we can see the global status of Aichi Biodiversity Targets. Out of 196 countries, about 67.35 percent, i.e., 132 countries, have not reported data on the Aichi Biodiversity Targets. There is a mismatch between national and the Aichi Biodiversity Targets. Only 10 percent of the national targets will be met and similar to Aichi targets leading to a divergence between global and local push towards achieving biodiversity goals. 15.31 percent of the countries covered i.e., is 30 countries have an insufficient rate towards achieving designated Aichi targets. Only 10.71 percent or 21 countries are meeting the global framework targets. But all is not lost. There has been limited progress since 2000. Over the two decades since 2000, there has been an increase in protected area estate. Key biodiversity areas have increased from 29 percent to 44 percent, marine areas from 3 percent to at least 7 percent, and territorial areas from 10 percent to 15 percent.

Selected milestones are as follows  

1. Almost 100 countries have incorporated biodiversity values into the national accounting system, Aichi Target 2.
2. The rate of deforestation has fallen by a third or 33.3 percent over the previous decade i.e. 2000 – 2010 with financial resources doubling for biodiversity. 
3. Nagoya Protocol on Access to Genetic Resources and the Fair & Equitable Sharing of Benefits is operational in at least 87 countries. Although the Nagoya Protocol was adopted on 29 October 2010 in Nagoya, Japan, it is only in the previous decade it entered force. 
4. A quick look at the financial tools and metrics to achieve Biodiversity Goal. In recent years, sustainable finance is emerging as a key differentiator in invigorating the sustainable development ecosystem. There is an in-depth presentation and webinar on this topic. Kindly check out the webinar and online courses section. Refer to articles on financial innovation example blended finance that has been within the mainstay finance for a while but common within the development sector in the previous decade. Check out the publication on the Sustainable Finance, know more about asset backed securities and stay tuned for more. Blended Finance has been within mainstream finance for some time but its use within the development sector has gained over the last decade. Asset backed securities are not a major portion of the overall sustainable issuance market globally. US leads this segment with China and Europe share growing.

Understanding of positive and negative net gain is the key to deriving Biodiversity Net Gain, a measurement that incorporates Environmental, Social, and Governance aspects within its methodology to evaluate social impact. This forms the backbone for implementing investment strategies for financial institutions with biodiversity and natural habitat as the central tenet for investing. Corporates could focus on increasing biodiversity gain from projects in CSR or innovating products or processes that can lead to a positive biodiversity gain—for example, prioritizing products or suppliers of raw material from the sustainable agricultural sector. Biodiversity lies within the climate change agenda to increase carbon storage through preservation and restoration of forestry example, mangroves. Listen to the podcast with Alfredo Quarto for a more nuanced overview of Mangroves. Through its financial perspective program, the EU has started various programs to advance biodiversity. Example LIFE program shares grants within biodiversity, a standard agricultural policy that finances green infrastructure, among others. Grants are donations part of concessionary or better philanthropic funding that focuses on social return rather than economic return. Through blended finance, an innovative manner of amplifying and crowding private sector capital for development projects.  

Understanding Biodiversity | The middle Road

IFC defines blended finance as the use of relatively small amounts of concessional donor funds to mitigate specific investment risks and help rebalance risk-reward profiles of pioneering investments that are unable to proceed on strictly commercial terms. Structured as co-investments with private capital, the purpose is to fund sustainable development projects along with the financial return. Blended finance instruments vary across asset classes from equity, debt, risk-sharing or guaranteed products like first loss guarantee wherein donor capital forms the first layer of loss of capital to absorb initial losses in a project or a program. This form of funding is designed to fund projects targeting underserved or underprivileged sections of the society that otherwise do not attract capital due to market failures within the economy.

Refer to online courses on The middle Road. Look at microeconomic modules to know more about market failures.

# Sustainable Issuance and a Peek at Blended Finance

According to Credit Agricole and Bloomberg, Sustainable issuance in 2021 stood at € 782 billion /~ $893 billion for data until 19 November 2021. (Exchange figures used as of 15-01-2022). The figure does not cover US Municipals & US Mortgages and there are a few selection criteria as well. The total sustainable issuance is expected to grow to ~1.37 trillion in 2022 with Green issuance leading at 52 percent. Sustainability Linked Bonds will grow to 20 percent, it registered a 10 percent share in 2021 the highest percentage increase among green, social, and sustainability categories. Both Social and Sustainability would have a 14 percent share in 2022 of the over $1.37 trillion markets. Going forward, one key financial tool could be the sovereign sustainability linked bonds, a more in-depth tutorial will be coming out from The middle Road. Publication on Sustainable Finance here.

Graph: Data Source: Credit Agricole; Bloomberg | The middle Road

Eco-Business Fund is an excellent example of an entity using blended finance. Eco-Business Fund provides technical and financial assistance to entities in Latin America, the Caribbean, and sub-Saharan Africa. The fund focuses on sustainability in four economic sectors: agriculture and agri-processing, fishery and aquaculture, forestry, and tourism. Financed by both public and private investors and donors, the fund uses both concessionary and non-concessionary funds to fund target groups or intermediaries providing funding and technical assistance. For example, the fund provided a $30 million loan to an entity in Mexico to finance sustainable agricultural products. Since its launch in 2014, the fund has $430 million sub-loans outstanding, financed 120,000 hectares under agroforestry systems, enabled 4.5 million m3 liters of water savings through water-efficient technologies, etc. Blended finance is an important aspect of sustainable finance. A riveting example in sustainable finance is the recent largest blue bond for ocean conservation issued by The Nature Conservancy (TNC) and Credit Suisse. The Blue Bond proceeds enabled TNC to provide loans to the Belize government to retire outstanding Eurobonds at a steep discount to the face value. Blue Bonds are fixed income or debt instruments that target marine and ocean-based projects. The structure of this financial instrument is more complicated and will be discussed, at a later date.

A good read on this subject is Belize’s Big Blue Debt Deal: At last, A Scalable Model? By Clemence Landers and Nancy Lee, a highly recommended read. A brief about Eurobonds. Eurobonds are external market bonds that are issued in a foreign currency underwritten by an international syndicate. An example is a Euro Dollar Bond or Euro Yen bond. The first Euro bond was in 1963 by Autostrade in Italy.

To know more about Euro bonds and Debt Markets refer to the online courses at The middle Road. Now we come to metrics used to calculate biodiversity footprint. We will not go into detail but share an overview. Financial institutions use corporate loans, listed and private equity, corporate and sovereign bonds as asset categories.

Corporate Biodiversity Footprint is calculated using the Mean Species Abundance metric or MSA. Refer to the Finance for Biodiversity Pledge report for an in-depth understanding of various metrics. MSA measures the average of native species within a habitat compared to its original state. It can be both relative and absolute. An MSA measure of 70 percent means 30 percent of the original native species have been depleted over the time covered. MSA also includes km2, i.e., measures the value of biodiversity within square km of area. The other method known as Potentially Disappeared Fraction uses regression analysis to understand the causal effect of pressure response variables. For example, the causal effect of an increase in temperature by 1 C on biodiversity or the casual impact of the rise in carbon emissions in parts per million by volume ppmv. Although CO2 is the benchmark for calculating carbon footprints, gas like methane and nitrous oxide are even more harmful. According to The Global Warming Potential (GWP), which compares various greenhouse gas emissions in terms of potency, measuring how much energy one ton of a greenhouse absorbs as compared to 1 ton of carbon dioxide. Based on this parameter, Nitrous Oxide (N2O) has a GWP 265–298 times that of CO2 for a 100-year timescale. This framework ( Potentially Disappeared Fraction) is used in biodiversity footprint financial institutions. Another framework is STAR (Species Threat Abatement and Restoration).

OECD framework has a schematic of the pressure-state-response indicator framework and how it relates to the Theory of Change —– framework for identifying and structuring indicators. Pressures are Multiple Anthropogenic Pressures (factors) that are exerted on biodiversity causing measurable damage. State indicators represent the indicators of environmental conditions, and Response indicators correspond to the indicators of societal response. For a theory of change model, the indicators would include input, process, output, outcome, and impact.

OECD pressure list includes

• Habitat loss and fragmentation (e.g. particularly from agriculture expansion)
• Over-exploitation of natural resources
• Pollution
• Invasive alien species
• Climate Change (Greenhouse Gas Emissions)

Example: land use

Source: OECD (2019[4]) Summary Record from the OECD International Workshop on The Post-2020 Biodiversity Framework: Targets, indicators and measurability implications at global and national level. Image: OECD

Pressure = Indicators of Environmental Pressures

State = Indicators of Environmental Conditions

Response = Indicators of Societal Response

Listen to the podcast with Dr. Helene Clark for a rigorous understanding of the Theory of Change program logic. 

References

• Finance for Biodiversity Pledge | YouTube Video
• Finance for Biodiversity Pledge report
• Podcast Nishant Malhotra on Biodiversity on The middle Road (themiddleroad.org)
• OECD (2019[4]) Summary Record from the OECD International Workshop on The Post-2020 Biodiversity Framework: Targets, indicators and measurability implications at global and national level.
• Belize’s Big Blue Debt Deal: At last, A Scalable Model? By Clemence Landers and Nancy Lee
• Convention on Biological Diversity https://www.cbd.int/sp
• The Nature Conservancy (TNC). (2019). Investing in Nature: Private Finance for Nature-Based Resilience. Retrieved from https://www.nature.org/en-us/what-we-do/our-insights/perspectives/investing-in-nature-private-finance-for-nature-based-resilience/
• World Economic Forum (WEF). (2020). Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy. Retrieved from https://www.weforum.org/reports/nature-risk-rising-why-the-crisis-engulfing-nature-matters-for-business-and-the-economy
• Business for Nature & ICC. (2020). The Business Case for Nature. Retrieved from https://www.businessfornature.org/advocate

References and OECD framework elaborated after initial post.