Financial Institution’s Role in Addressing the Biodiversity Crisis with 50% of global GDP depending on natural resources. This loss of biodiversity affects the poorest economies most, with Malaysia, one of the most biodiverse countries in the world, facing a potential 6% annual loss of GDP by 2030 in case of a partial
Financial institutions can help solve this crisis by reorienting capital flows away from activities with a detrimental impact on biodiversity and toward those that will safeguard, restore, and protect the natural world. This will require institutions to understand the biodiversity risks in their portfolios and work with companies to prioritize and address these risks[2].
In the Asia-Pacific region, financial institutions are testing the TNFD (Taskforce on Nature-related Financial Disclosures) framework, which is designed to help financial institutions identify, assess, and manage nature-related risks and opportunities. The pilot testing of the TNFD framework in Asia-Pacific during 2022 involved 70 financial institutions and three corporates from Singapore, Hong Kong SAR, Taiwan, and New Zealand. The pilot testing made it clear that organizations do not need to wait for the final version of the framework to begin preparing for TNFD adoption. Immediate recommended actions include raising awareness and educating internal teams about the financial sector’s role in restoring, conserving, and protecting the natural world[2].
The IFC (International Finance Corporation) has updated its Biodiversity Finance Reference Guide to indicate how individual indicative investment activities and project components may contribute to achieving the targets set out in the Global Biodiversity Framework. This guide is a practical tool for financial institutions, investors, and companies to identify investment opportunities to protect, maintain, or enhance biodiversity and ecosystem services[3].
In addition to the TNFD framework and the IFC Biodiversity Finance Reference Guide, financial institutions can also use green bonds, risk-sharing facilities, and concessional finance to close the investment gap in nature-based solutions. UNEP (United Nations Environment Programme) is at the forefront of this effort, marshalling financing through innovative tools such as the Land Use Finance Impact Hub, the Positive Impact Indicators Directory, and the UNEP Finance Initiative[5].
In conclusion, financial institutions have a critical role to play in addressing the biodiversity crisis. By reorienting capital flows, understanding biodiversity risks, and using innovative financial instruments, financial institutions can help protect the planet and strengthen livelihoods.
Citations:
[3] https://www.ifc.org/content/dam/ifc/doc/mgrt/biodiversity-finance-reference-guide.pdf
[4] https://www.ifc.org/en/stories/2023/biodiversity-finance-interview-with-irina-likhachova
[5] https://www.unep.org/news-and-stories/story/countries-search-financing-counter-biodiversity-crisis
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