PUBLIC DEVELOPMENT BANKS AND BIODIVERSITY - How PDBs can align with the Post-2020 Global Biodiversity Framework Abridged Version - May 2021 - WWF
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PUBLIC DEVELOPMENT
BANKS AND
BIODIVERSITY
How PDBs can align with the Post-2020 Global Biodiversity Framework
Abridged Version - May 2021
WWF is working
with this
partner to
protect global
environments.
Authors
Leon Bennun, Renaud Lapeyre, Camille Maclet, Teja
Chalikonda, Adrien Lindon, David Meyers, Robin Mitchell,
Cheryl Ng, Nikki Phair, Tami Putri, Helen Temple, Thomas
White, Guy Williams and Malcolm Starkey.
Citation
WWF & The Biodiversity Consultancy 2021. Public development
banks and biodiversity. How PDBs can align with the Post-2020
Global Biodiversity Framework. Paris, WWF France.
Use and attribution
Material in this report may be used and shared subject to a
Creative Commons Attribution-ShareAlike 4.0 International
license. In summary, this requires that users credit this report
appropriately, indicate if changes were made, and distribute any
derived material under the same license and with no additional
restrictions. Citations or attributions to other sources in this
report should be maintained in any further use or sharing.
Disclaimer
This report includes interpretation of interview conversations
and survey responses from Public Development Bank staff and
subject matter experts. The views expressed do not necessarily
correspond to those of specific Public Development Banks,
WWF or The Biodiversity Consultancy.
Acknowledgements
This study was conducted by The Biodiversity Consultancy
(TBC) under contract to WWF (World Wide Fund for Nature)
France, with funding support from WWF Germany and Agence
Française de Développement (AFD). Renaud Lapeyre (WWF-
France) steered and co-ordinated the study and finalized the
report. We are grateful to members of the WWF Steering
Committee for the study and other partners for contributing
valuable insights, guidance and review: Celine Beaulieu, Hugo
Bluet, Kai Dombrowski, Fanny Gauttier, Kenan Hadzimusic,
Sergiu Jiduc, Matthias Kopp, Margaret Kuhlow, Bruce Liggitt,
David McCauley, Antoine Maudinet, Beatriz Merino, Florian
Titze, Ray Victurine, and Helena Wright. We sincerely thank
all the Public Development Bank staff and subject matter
experts who generously made time available for interviews
and for completing the online survey.
© Antonio Busiello / WWF-US
WWF 2021
TABLE OF CONTENTS
CONTEXT 4
MAINSTREAMING BIODIVERSITY IN PUBLIC DEVELOPMENT BANKS 8
GREENING FINANCE: REDUCING HARM TO BIODIVERSITY 13
FINANCING GREEN: SCALING UP NATURE-POSITIVE INVESTMENTS 17
THE ROAD TOWARDS NATURE-POSITIVE FINANCE FOR PDBS 20
RECOMMENDATIONS 25
CONCLUSION 34
REFERENCES 36
Design
Muscade
WWF® and World Wide Fund for Nature® trademarks and ©1986 Panda Symbol are owned by WWF-World Wide Fund For
Nature (formerly World Wildlife Fund).
All rights reserved.
Document published in June 2021
Any reproduction in full or in part must mention the title and credit the opposite-mentioned publisher as the copyright
owner.
WWF France, 35-37 rue Baudin - 93310 Le Pré Saint-Gervais
Cover photography: © Copyright Adam Oswell / WWF-US
3
CONTEXT
© James Morgan / WWF-International
WWF 2021
PRELIMINARY NOTE
This document summarizes the key findings and recommendations from a study carried out between
September 2020 and February 2021. For further detail, please refer to the published main study report.
STUDY BACKGROUND AND RATIONALE
Science has never been clearer about the unprec- cussions on the framework highlight that a coherent
edented extent and rate at which biodiversity is and concerted approach across the whole of society
being lost1, pushing vital ecosystems like oceans, will be essential if we are to achieve global goals for
forests and rivers to dangerous tipping points. This nature. Mainstreaming biodiversity within economic
erosion of global biodiversity is essentially caused by decision-making remains an urgent priority: while
human activities. The issue currently features high on this was central to Aichi Biodiversity Target n°2 in
the agenda of crucial international negotiations on the Strategic Plan for Biodiversity 2011-20204, this
climate, sustainable development and biodiversity, Target was far from being met5.
including the Convention on Biological Diversity’s
(CBD) post‑2020 global biodiversity framework2. Dis-
Transition risk
Biodiversity
Finance Impact (stock of natural
sector
capital)
Financing and
investing in
companies De
pe Ecosystem
nd
en
cy services
(flows of natural
capital)
Physical risk
Systemic risk
Figure A. Relationship between financial sector, economy, biodiversity and ecosystem services, and
resulting risks3.
1
IPBES 2019; WWF 2020; WEF 2021
2
https://www.cbd.int/conferences/post2020
3
Partially adapted from van Toor et al. 2020
4
https://www.cbd.int/sp/targets/rationale/target-2/
5
Secretariat of the Convention on Biological Diversity (2020)
5
More than half of the world’s total gross domestic urban development, not to mention the harmful
product (GDP) is moderately or highly dependent on effects on ecosystems of human-induced climate
nature and its services6. Yet in our globalized economy change. Only a fraction of this global investment is
damaging impacts to nature are not accounted for in being mobilized under appropriate conditions for
the valuation of goods and services, nor in the share environmental safeguarding and nature protection.
prices of the companies that are responsible for that
damage. Financial flows to conserve nature are hugely However, recently published studies have highlighted
outbalanced by financing targeted to activities that how harming nature also translates into tangible and
are directly harmful to biodiversity7. pervasive risks for investors and businesses, including
physical, transition and systemic risk (Figure A). In turn,
Financial institutions are funding activities destruc- these biodiversity risks translate directly into impacts
tive to nature in many sectors such as agribusiness on finance (Figure B).
and fisheries, extractive industry, infrastructure and
Biodiversity risk Impacts on business Impacts on finance
PHYSICAL RISK
Input scarcity, higher
Loss of biodiversity or more volatile prices
and ecosystem
services: Disruption of
production processes
Ecosystem and value chains
conversion and
degradation Deteriorating
operating conditions
Climate change
Decline of site
Overexploitation attractiveness Market risk
(losses on shares
Pollution Need for relocation and bonds)
Invasive species Assets and
collateral Credit risk
impaired (losses on corporate
loans)
Liquidity risk
TRANSITION RISK Project delays Reduced
(refinancing
constraints)
Increased mitigation profitability
Current and future
requirements Operational risk
regulation
Sourcing restrictions (liabilities, reputation,
Financing legal costs)
requirements Stranded assets
Societal expectations Damage to brand
Changing consumer Reduced market
preferences appeal
SYSTEMIC RISK Economic and
Large-scale disruption social crises
to natural systems
Figure B. Relationship between financial sector, economy, biodiversity and ecosystem services, and
resulting risks8.
6
World Economic Forum (WEF) 2020, Deutz et al. 2020
7
OECD 2020
8
Partially adapted from van Toor et al. 2020
WWF 2021
In response to this, it is imperative that the finance roots in [...] respective economic and social fabrics,
sector addresses the impacts of its investments on [they] build bridges between governments and the
nature. This requires two inter-linked approaches: private sector; between domestic and international
agendas; between global liquidity and microeconomic
• Greening finance: so that investment decisions solutions; and between short-term and longer-term
include better consideration of nature-related risks priorities. [They] can significantly contribute to
and impacts, to avoid, minimise, restore and when reorienting global finance towards climate and SDGs.”
necessary offset negative impacts to biodiversity.
Building on the two linked but complementary aspects
• Financing green: through investments that can of ‘greening finance’ and ‘financing green’, the study
create a positive impact on nature, for example aimed to:
through protection and restoration of degraded
habitats, or by supporting economic and social • Review and assess how PDBs currently integrate
development that reduces the pressures on biodi- nature in their processes
versity. Such investments are increasingly termed and business models
‘nature-positive’.
• Outline constructive and
PDBs provide 10% of all
Public Development Banks9 have a unique role to play practical recommendations yearly private and public
financing and have a unique
in shifting financial flows towards sustainability. PDBs for how this could be im-
themselves provide finance of around $ 2.3 trillion proved, to strengthen the
annually, a significant component (10%) of all yearly
private and public financing10. But PDBs also have
role of PDBs in support-
ing the post-2020 global
role to play in shifting
much greater influence than this share would suggest.
As stated in the 2020 Joint Declaration of all PDBs
biodiversity framework
and the 2030 Agenda for
financial flows towards
in the World, “with [their] public mandates and Sustainable Development. sustainability.
METHODS
Relevant information was compiled through: • Thirty-four in-depth semi-structured interviews
involving 32 PDB staff from 17 institutions and
• Identifying and listing PDBs, reviewing docu- seven subject matter experts, followed by thematic
mentation for a sample of 98 institutions, and analysis
extracting information in AFD’s11 global database
of Public Development Banks12 • Compiling and rapidly reviewing around 150
further relevant reports and other documents.
• Developing and circulating a detailed online survey
questionnaire
9
Public Development Banks (PDBs) are defined as in Xu et al. (2020), who outline five qualification criteria for PDBs.
This is an inclusive definition that captures a wide diversity of institutions, including multilateral, bilateral, regional,
national and sub-national development banks. Multilateral, bilateral and regional PDBs are sometimes called
‘International Financial Institutions’ (IFIs). Another term is ‘Development Finance Institutions’ (DFIs), which is
often used to refer to a subset of PDBs that focus on private sector lending. Importantly, the study acknowledges, and
characterizes, the great diversity inside the common definition of PDBs. See below.
10
Basu et al. 2020
11
Agence Française de Développement (AFD)
12
AFD 2020
7
MAINSTREAMING
BIODIVERSITY IN PUBLIC
DEVELOPMENT BANKS
© Juan Carlos Munoz / WWF-International
WWF 2021
Although PDBs all share some key features, they are a very diverse group
in terms of size, shareholding, geographical scope and financing focus.
Below are main study results in this regard, which are important elements
to account for when advocating for further mainstreaming biodiversity
within PDBs.
PUBLIC DEVELOPMENT BANKS: COMMON DEFINITION,
DIVERSE INSTITUTIONS
• Public Development Banks (PDBs) are finan- • For this study, PDBs were categorised (based on
cial institutions with a mandate to finance a ownership, geographic scope and beneficiaries)
public policy on behalf of the State. They have as multilateral, bilateral, regional, national or
independent financial and legal status but sub-national banks. The vast majority of PDBs
operate under the authority and supervision are national development banks (Figure C).
of government.
• PDBs are fairly evenly spread across continents,
• PDBs are a very diverse set of institutions. In with a particularly large number in the Asia-Pacific.
total, 552 institutions were identified as PDBs, The Americas have a notably high number and pro-
based on membership of industry forums and/ portion of sub-national banks, which are unusual
or representation in AFD’s recently developed in Africa, while bilateral PDBs are concentrated
PDBs database13. in Europe.
400
300
Number of Institutions
200
100
0
l
l
al
al
l
na
a
na
er
r
n
te
io
io
io
at
la
at
eg
at
til
Bi
N
bn
ul
R
M
Su
Institution type
Figure C. Number of PDBs of different categories in the global dataset (N = 552 institutions; 11 multilateral,
30 bilateral, 38 regional, 397 national and 76 sub-national)
13
For further details on this, refer to the main study report
9
• PDBs range in size over six orders of magnitude. • There is a broad range of size in each PDB category,
The smallest have assets of US $2-3 million and the but average (mean) assets for both multilateral
largest, the China Development Bank, has assets of and bilateral banks (US$ 149 and US$ 139 billion
US $2.4 trillion. Small and mid-size banks (assets respectively) are around ten times larger than for
between US $100 million and US $10 billion) make regional (US $12 billion), national (US $ 15 billion)
up the majority (c. 61%) of or subnational (US $ 12 billion) banks.
The largest seven PDBs, PDBs (Figure D). While most
multilateral development • Globally, most PDB assets are held by a few very
including three Chinese banks, banks (MDBs) are large (assets
over US $ 10 billion) or very
large banks (Figure E). The largest seven PDBs,
including three Chinese banks, together hold
together hold over half of large (assets over US $ 100 bil- over half of global PDB assets, compared to only
0.05% held by the smallest 100 banks. Small
global PDB assets.
lion), regional banks tend to
be smaller. PDBs (assets < US $1 billion) and very small PDBs
(< US $100 million) are concentrated in low and
lower-middle income countries.
150
Number of Institutions
100
50
0
bn
bn
bn
bn
bn
l
e
e
e
l
al
al
rg
rg
iz
Sm
sm
1
0
0
0
-1
-s
la
La
0,
10
10
-1
,1
id
$
0-
$0
y
M
r
r
$1
Ve
Ve
Institution size
Figure D. The number of PDBs of different size classes , based on total assets (N = 454; 98 institutions in the
dataset do not have a size class assessed). Source: AFD PDBs Database 2020
PDBS are perfectly placed Given their public mandates,
authority and supervision,
governments, clients and private capital, to further
mainstream biodiversity in all relevant public and
to contribute actively to the combined with their signif-
icant scale of assets and fi-
private decision-making.
post-2020 global biodiversity nancing, public development The current draft of the post-2020 global biodiversity
framework includes the goal that “nature is valued
framework. banks are perfectly placed
to contribute actively to the through green investments, ecosystem service val-
post-2020 global biodiversity uation in national accounts, and public and private
framework agreed at CBD COP15. PDBs can play sector financial disclosures”14. PDBs have a critical
a catalytic role both in setting ambitious targets role to play in achieving this.
toward a nature-positive global goal, and support-
To better understand this potential contribution,
ing the implementation of agreed actions. Beyond
the study first took stock of current PDB practices.
simply mobilizing resources by unlocking public
Progress, constraints and challenges are outlined
finance and leveraging private finance, PDBs can
below, based on interview discussions, survey re-
strongly influence all sectors of society, including
sponses and document review.
Updated Zero Draft, dated 17 August 2020, Goal B, Sub-Goal B.2. See https://www.cbd.int/article/zero-draft-
14
update-august-2020
WWF 202112,000,000
10,000,000
Cumulative assets USD millions
8,000,000
6,000,000
4,000,000
2,000,000
0
0 100 200 300 400 500
Cumulative number of PDBs
Figure E. Cumulative institutional assets across PDBs (N = 454), sorted by asset size. A small number of
institutions hold the bulk of total assets. Data source: AFD PDBs Database 2020
STRATEGIC-LEVEL INTEGRATION OF BIODIVERSITY
For PDBs, ‘mainstreaming’ biodiversity15 into all limit for climate16. On the other hand, climate
public and private decisions requires first, and fore- commitments represent an opportunity to scale
most, a pro-active, anticipatory approach at strategic up nature-positive investment via nature-based
and political levels. solutions17 and experience already gained.
MAINSTREAMING ENVIRONMENTAL
• A few prominent PDBs, multi-and bilateral, are
leading the way to improve biodiversity main-
CONSIDERATIONS: BIODIVERSITY streaming. However, at present biodiversity is
poorly integrated into the strategies of most larger
LAGGING BEHIND CLIMATE banks, and is not even on the radar for most
smaller ones.
• Many PDBs made commitments to align their
activities with the goals and principles of the Paris
agreement and have now made significant progress
SUSTAINABILITY AND PDBS:
in integrating climate risks in their investments.
This is nevertheless proving a significant organiza-
MANDATES AND COMMITMENTS
tional challenge. Efforts needed to integrate climate • PDBs’ formal mandates are established in legal
considerations may thus be constraining PDBs from founding documents (Articles of Association)
starting on a similar process for nature. Another and mostly focus on economic and social
constraint is the lack of a single overarching goal goals. Only an exceptional few mention envi-
for biodiversity corresponding to the 1.5°C warming ronmental protection as part of their mandate.
15
The CBD defines the mainstreaming of biodiversity as “integrating or including actions related to conservation and
sustainable use of biodiversity at every stage of the policy, plan, programme and project cycle, regardless whether
international organizations, businesses or governments lead the process”.
16
The recent proposal of a succinct Global Goal for Nature (Locke et al. 2021) could usefully contribute to this discussion
17
IUCN defines nature-based solutions (NbS) as “actions to protect, sustainably manage, and restore natural or
modified ecosystems, that address societal challenges effectively and adaptively, simultaneously providing human
well-being and biodiversity benefits.”
11PDBs derive direction from their government own- with environmental funds or standards, and for
ers and shareholders and are typically supervised representation of environmental SDGs in PDBs’
by finance ministries. PDBs’ supervisors may not reports19. Stated commitments for general sus-
have a clear understanding of nature-related risks, tainability were more common than for climate,
which can hinder mainstreaming of nature and and still fewer PDBs had stated commitments
environmental sustainability in PDBs’ investment for biodiversity.
decisions. However, conversely PDBs are also
often able to influence and guide government on Beyond this (still limited) political and strategic
sustainability issues. integration of biodiversity by PDBs, biodiversity
issues also need to be mainstreamed in PDBs’ finan-
• The proportion of reviewed PDBs with stated cial and technical operations. Findings presented
sustainability commitments18 decreases from thereafter take stock of biodiversity integration at
multilaterals through bilateral and regional to the operational level, through the complementary
national PDBs (Figure F). A similar pattern was aspects of ‘greening finance’ and ‘financing green’.
evident for specific accreditations or engagements
A: Sustainability B: Climate
1.00 1.00
Proportion of Institutions
Proportion of Institutions
0.75 0.75
0.50 0.50
0.25 0.25
0.00 0.00
l
l
al
l
l
al
l
l
na
na
ra
na
ra
na
er
er
te
te
io
io
io
io
at
at
la
la
eg
eg
at
at
til
til
Bi
Bi
N
N
R
R
ul
ul
Legend
M
M
Institution type Institution type
Commitment ?
No
C: Biodiversity
Yes
1.00
Proportion of Institutions
0.75
0.50
0.25
0.00
l
al
l
l
na
ra
na
er
te
io
io
at
la
eg
at
til
Bi
N
R
ul
M
Institution type
Figure F. The proportion of reviewed PDBs of different types that had stated commitments on (A) sustainability, (B)
climate, and (C) biodiversity. Number of PDBs reviewed: Multilateral N = 11, Bilateral N = 21, Regional N = 9, National N = 57
18
Commitments may be stand-alone statements, included in strategic documents, or expressed through adoption of
environmental and social safeguards frameworks.
19
For 236 PDBs in AFD’s global PDB database.
WWF 2021GREENING FINANCE:
REDUCING HARM TO
BIODIVERSITY
© Peter Chadwick / WWF-International
13To ensure that financing at minimum does no harm to nature, biodiversity
must be accounted for when identifying, preparing, appraising, negotiating,
approving and finally implementing and evaluating projects and programs.
Study findings show that PDBs implement several processes and practices
to reduce harm to biodiversity, but major challenges remain.
UPSTREAM PLANNING
• Upstream planning20 (sometimes incorporated in and many other stakeholders; the responsibility of
Strategic Environmental Assessment - SEA) is a individual PDBs and remit for their involvement
highly valuable and important tool for enabling may not be clear; it requires significant resources
impact avoidance, and (which are not guaranteed to return from future
Upstream planning is a highly reducing project risks and
mitigation costs.
investment) and can be a lengthy and contentious
process. Nevertheless, some banks are leading the
valuable and important • However, it is still little de-
way through pro-active engagement in upstream
tool for enabling impact
planning, such as the International Finance Cor-
ployed by PDBs and there poration’s (IFC) work at country and sector level
avoidance.
are many barriers that pre- to de‑risk potential investments.
vent it happening. It involves
working with government
SAFEGUARDS FOR BIODIVERSITY
• Environmental safeguards21 are the main mech- Resources (dating from 2012, with guidance
anism used by PDBs for managing biodiversity updated in 2019) is widely influential among both
risk. Each MDB has its own environmental and public and private banks, and adopted by the
social safeguard framework, including standards 115 Equator Principles Financial Institutions22.
for biodiversity, while most bilateral development
banks have adopted IFC’s Performance Standards. • There is extensive conceptual and practical con-
Some banks only reference Environmental Im- vergence between the major MDBs’ respective
pact Assessments (EIAs), thus relying on (often biodiversity standards, expected to be enhanced
weak) national regulatory processes. further by current revisions. Key features of most
include:
• However, around half of regional development
banks and a large majority of national development – A risk-based approach
banks have no formal biodiversity safeguards
– Application of the Mitigation Hierarchy to
(Figure G).
avoid, minimize, restore and (as a last resort)
• IFC’s Performance Standard 6 on Biodiversity offset impacts
and Sustainable Management of Living Natural
20
In the context of this study, upstream planning refers to systematic, pro-active sectoral planning that can guide
future project development, taking into account technical and economic feasibility and environmental and social
constraints across a large spatial scale.
21
Policies, standards and operational procedures designed to identify and mitigate adverse environmental
impacts that may arise in the implementation of development projects (see e.g. http://assets.worldwildlife.org/
publications/844/files/original/SafeguardsonepagerFINAL.pdf )
22
The Equator Principles (EPs) is a risk management framework, adopted by financial institutions, for determining,
assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum
standard for due diligence and monitoring to support responsible risk decision-making. See https://equator-
principles.com/wp-content/uploads/2021/02/The-Equator-Principles-July-2020.pdf
WWF 20211.00
0.75
Proportion of Institutions
Legend
Safeguard Type
None
0.50
Referencing EIA
IFC PS6
Own framework
0.25
0.00
l
al
l
l
na
ra
na
er
te
io
io
at
la
eg
at
til
Bi
N
R
ul
M
Institution type
Figure G. Safeguard status of 98 reviewed banks, as proportion of each bank type (Multilateral N = 11, Bilateral N =
21, Regional N = 9, National N = 57)
– Criteria to identify biodiversity features of and checkpoints that force consideration and
high concern management of risk. Well-applied safeguards
strongly encourage developers to apply the mit-
– Requirements for measurable outcomes (e.g. igation hierarchy, especially to avoid potential
no net loss or net gain) for priority features project impacts through early planning and
alternatives analysis.
– Requirements for planning, implementing
and monitoring mitigation actions and (if
necessary) offsets. RISK SCREENING
• The requirements of MDBs’ biodiversity standards • Especially in the absence of upstream planning,
go well beyond those of typical EIAs. In many risk-screening is an essential step in the applica-
countries, EIAs are likely to fall well short of tion of safeguards, that identifies projects with
international good practice for managing biodi- potentially high biodiversity risk. Many PDBs
versity risk. screen for biodiversity risks and may decide on
this basis not to proceed further with high-risk
• Safeguards are essentially a reactive mechanism
projects. However, risk screening is not uni-
to avoid risks and reduce harm. This contrasts
versally or consistently applied and important
with the more ‘upstream’ proactive approach
impact avoidance opportunities may thus be
of integrated strategic planning (see above).
missed. The Integrated Biodiversity Assessment
Nevertheless, safeguards are considered to have
Tool (IBAT) is by far the most widely applied
great value, not least in defining a clear process
risk screening tool, but many PDBs lack access to it.
15CHALLENGES IN SAFEGUARD – Difficulty in applying to financial intermedi-
aries and corporate funding
IMPLEMENTATION – Not applicable to public policy loans
• Overall, PDBs’ implementation of biodiversity – Inconsistent interpretation and application
safeguards is variable and patchy, although with of requirements
performance generally improving among those
using formal safeguard frameworks. Larger banks – Poor consultant performance
in particular are aware of deficiencies in safeguard
application and are taking steps to address them. – Perceived complexity and cost, causing reduced
Identified challenges with implementing biodi- competitiveness
versity safeguards include:
– Data gaps and lack of simple, widely applicable
– Limited internal PDB capacity metrics.
– Capacity limitations among clients, regulators
and stakeholders
BIODIVERSITY OFFSETS
• Biodiversity offsets are an important element of
– Considering avoidance too late in the
safeguard frameworks. Offsets represent the final
project timeline
step in the mitigation hierarchy, a last resort to
– Inadequate budget provision for compensate for residual impacts that cannot be
mitigation costs avoided, minimized or restored. However, they
face many design and implementation challenges.
– Inadequate monitoring and supervision Many PDB staff and experts are sceptical about the
feasibility of implementing offsets successfully; and
– Inadequately addressing indirect and cumu-
offsets being implemented under PDBs’ safeguards
lative impacts
frameworks are mostly too recent for their actual
– Difficulty in applying to agricultural projects success to be determined.
and to supply chains
DISCLOSURE
• All MDBs have disclosure requirements for project • Improved disclosure will be important in driving
assessments both before and once funding is up standards. The emerging Task Force for
approved. Routine disclosure is far less common Nature-related Financial Disclosures (TNFD)
among other types of PDBs, practiced by around is a significant development, anticipated to
a fifth of the bilateral development banks and support and encourage PDBs to analyse, report
around 6% of national banks reviewed. on and address nature-related risk in investment
portfolios.
Reporting on project • Reporting on project out-
comes for biodiversity (i.e.
outcomes for biodiversity the implementation and ef-
fectiveness of mitigation and
remains generally weak. offset measures) remains
generally weak.
WWF 2021FINANCING GREEN:
SCALING UP NATURE-
POSITIVE INVESTMENTS
© Mazidi Abd Ghani / WWF-Malaysia
17There is need to go beyond a safeguard approach to contribute to an overall
nature-positive economy. Achieving global biodiversity targets will require
major scaling-up in positive investments that conserve and restore nature,
and also mitigate climate change. PDBs are centrally positioned to play a
role in this and influence the finance sector. The study findings outlined
below present the opportunities and challenges.
OPPORTUNITIES FOR NATURE-BASED SOLUTIONS
• Most multilateral, bilateral and regional de- proportion of such finance. Climate finance itself
velopment banks, though only a few national is still a small fraction of overall PDB lending
development banks, are making investments that portfolios that is not yet proportionate to the Paris
indirectly benefit nature, e.g. via climate funding Agreement.
(Figure H).
• Although still a small fraction of overall investment
• Far fewer PDBs are making direct investments portfolios, there is a rapidly growing demand for
in nature. Around two-thirds of MDBs do make impact investing focused on nature-positive out-
direct nature-positive investments, using a wide comes. But the ‘supply side’ of investment-ready,
range of financial mecha- bankable nature-positive projects is not yet well
The nature-based solutions nisms. However, this financ-
ing remains very small-scale
developed enough to enable societal or bank
aspirations to scale up nature-positive financing.
(NbS) sub-set of climate relative to other investments.
• PDBs have a clear potential role as matchmakers
finance presents the largest • The nature-based solutions between nature-positive projects and a range
opportunity for nature-
(NbS) sub-set of climate of investors, e.g. as enablers of blended finance
finance presents the largest mechanisms.
positive finance. opportunity for nature-pos-
itive finance. • The establishment of Natural Capital Lab units
within PDBs as incubators for innovative financ-
• Despite evidence and international declarations ing for nature (e.g. IDB followed by ADB, and
to increase funding for NbS as an integral part of EIB’s23 Natural Capital Financing Facility24) is
climate solutions finance (e.g. in France and the a promising development that could have large
UK), NbS projects currently form a very small leverage potential.
CHALLENGES TO SCALING-UP FINANCING GREEN
• Scaling-up is a major challenge facing biodiver- • There are technical challenges in measuring
sity positive investments. They are not direct, and demonstrating biodiversity value, and in
traditional business for PDBs and are widely aggregating small investment units and bundling
perceived as risky, low return, entailing high benefits, with, as yet, limited data or scalable
transaction cost, and with long lead-times for metrics. Intermediaries are needed to help identify
financial returns due to socio-ecological dynamics. and cluster projects, streamline assessment and
There are presently no markets for many of the reduce transaction costs.
biodiversity stocks and ecosystem services flows
that make up natural capital. • NbS is the biggest single nature-positive invest-
ment opportunity class. However, expertise, skills
23
Respectively the Inter American Development Bank (IDB), the Asian Development Bank (ADB) and the European
Investment Bank (EIB)
24
EIB nd
WWF 2021A: Investments directly benefiting Nature B: Investments indirectly benefiting Nature
1.00 1.00
0.75 0.75
Proportion of Institutions
Proportion of Institutions
Legend
0.50 0.50 Investment ?
N
Y
0.25 0.25
0.00 0.00
l
l
al
l
l
al
l
l
na
na
ra
na
ra
na
er
er
te
te
io
io
io
io
at
at
la
la
eg
eg
at
at
til
til
Bi
Bi
N
N
R
R
ul
ul
M
M
Institution type Institution type
Figure H. The proportion of 98 reviewed banks conducting (A) direct investment in biodiversity25, and (B)
investment that might indirectly benefit biodiversity26, split by type of bank. (Multilateral N = 11, Bilateral N = 21,
Regional N = 9, National N = 57)
and technical capacity to identify and assess NbS and metrics could limit biodiversity mainstream-
opportunities are limited, and an appropriately ing at operational level and slow the scaling-up of
tailored risk appraisal and rating process is lacking. nature-positive investments. Yet there have been
significant recent advances in available datasets
• Interviewees were generally circumspect about and methods. With biodiversity conservation now
the possibility of rapid scaling up in nature-pos- an increasing priority in the political, diplomatic
itive finance, given the substantial constraints and business arena there is scope to accelerate the
to overcome. development and use of these new approaches.
In both these complementary aspects of ‘greening
finance’ and ‘financing green, findings also high-
lighted that gaps in biodiversity data, analytical tools
25
Financing where the main or a significant aim is to improve the status of biodiversity (e.g. through ecosystem
protection or development of relevant capacity)
26
Financing that is not directly aimed at improving biodiversity status, but likely to be positive for biodiversity (e.g.
through measures to mitigate climate change)
19THE ROAD TOWARDS
NATURE-POSITIVE
FINANCE FOR PDBS
© Jame Morgan / WWF-International
WWF 2021Findings highlight several striking elements. They call for a differentiated
engagement strategy, where PDBs should aim at ambitious progress, but
considering their starting baseline.
TOOLS AND METHODS TO SUPPORT
GREENING FINANCE AND FINANCING GREEN
An increasingly large range of biodiversity metrics help PDBs to integrate biodiversity considerations
and tools is now available to help PDBs improve the in their strategic approaches. At the operational
biodiversity performance of their activities. project level, tools and metrics (e.g. IBAT, STAR28)
and improved spatial datasets can significantly
The study identified six key ongoing trends: improve risk-screening processes and support better
application of the mitigation hierarchy, including
1. More varied, more precise and more useable
through upstream planning. Metrics and tools fo-
data layers;
cusing on opportunities (e.g. STAR) and integrating
2. Practical tools for portfolio- and corporate‑scale nature and climate elements (e.g. NatureMap, FAO’s
biodiversity assessment; EX-Ante Carbon-balance Tool) can help to focus
nature-positive investments and the standardization
3. Practical metrics for assessing biodiversity op- of nature-based solutions, reducing risk and cost
portunities as well as impacts; and facilitating their development at scale. Finally
at the disclosure and reporting level, harmonized
4. Integrated availability of climate and biodiversity
metrics (e.g. the Global Biodiversity Score - GBS,
data;
and STAR) can help PDB teams and boards, experts
5. Standardised tools and processes for demonstrat- but also importantly civil society, to monitor PDBs’
ing alignment with societal goals for biodiversity; progress against their stated commitments and
strategies.
6. Standardised tools for reporting and disclosure
of biodiversity performance. Overall, the rapid develop-
ment of data, metrics, meth-
The rapid development
Taken together, these trends should allow PDBs to
better mainstream biodiversity at different levels.
ods and tools in the field of
biodiversity provides PDBs
of data, metrics, methods
At the strategic level, science-based methodologies with the technical means for and tools in the field of
biodiversity provides PDBs
(e.g. the Science-based Targets Network27) can pro- deep mainstreaming; but
vide PDBs and their public supervisory authorities this will come with greater
with possible means to align their portfolios with
targets agreed upon in the CBD post-2020 global
responsibility and scrutiny,
including by civil society
with the technical means for
biodiversity framework. Better tools to assess risks
and dependencies (e.g. ENCORE, Trase Project) can
organizations. deep mainstreaming.
27
See https://sciencebasedtargetsnetwork.org/
28
Species Threat Abatement and Recovery (STAR) Metric (Mair et al. 2021)
21BIODIVERSITY MAINSTREAMING
MID-SIZE PDBS: EMERGING
PDBs are a big and diverse group, and different
PDBs are at very different stages in mainstreaming
biodiversity. Considering PDBs by overall size of
assets is therefore useful here. COMMITMENTS BUT LIMITED
CAPACITY
LARGE PDBS: CHAMPIONS BUT CAN DO Mid-size PDBs (predominantly the members of
STILL BETTER EDFI or IDFC29) present a varied picture. Their
attention to biodiversity relates in part to how far
Several of the large MDBs are leading the way in they are commercially versus policy focused. A few,
‘greening finance’, although the focus mainly remains following strong government direction, are at the
on safeguards for now rather than a deeper integra- global cutting edge of thinking and action. However,
tion of nature into strategy and process. Some are most are much more reactive regarding nature. While
actively innovating on nature-positive investments signed up to strong safeguards (and sometimes
and promoting policy reform, though at relatively other strong commitments) on paper, there are
small scale. In contrast to climate financing, hardly evidently large gaps in capacity and implementation.
any of these PDBs as yet have clear stated investment Few have biodiversity specialists on staff, relying
targets for biodiversity. on a generalist E&S function and external advice.
They do not appear to have clear internal targets
Capacity is growing, These leading banks have a
cadre of committed and expe-
on climate or biodiversity investment, with very
few exceptions.
standards and guidance are rienced staff and are working
actively to address gaps and
being refined, and there is a challenges in safeguard imple- SMALL PDBS: ENVIRONMENT BARELY
generally improving picture. ON THE RADAR
mentation. Capacity is grow-
ing, standards and guidance
are being refined, and there is
Among smaller banks, there are a few outstanding
a generally improving picture. However, the problems
examples of commitment and positive activity,
are hard to crack and environment-focused staff are
though focused more on climate than on biodi-
also busy with project work and may have limited
versity. For most others the environment is barely
power to convene processes and influence decisions
on their radar. Some are engaging with climate
in their organisations.
issues, but the vast majority have very limited or
Even among the leaders, there remain some signif- no commitments, processes or staffing in place to
icant gaps between stated ambition and implemen- address biodiversity concerns, beyond the standard
tation reality, and some large PDBs are lagging well regulatory mechanisms for project approval that are
behind. China has several of the world’s largest PDBs, weak in many countries.
but these lack stated biodiversity commitments or
well-developed safeguards, relying on the EIA process
to manage risk.
BIODIVERSITY SAFEGUARDS: PRACTICAL CHALLENGES
AND PATCHY REPORTING ON IMPLEMENTATION
Safeguards remain a very valuable if imperfect tool despite net gain requirements in some instances.
for reducing harm. However, they still have very Effective application of safeguards requires a robust
limited effect in promoting nature-positive financing, framework, significant resourcing for ensuring and
29
Respectively the the Association of European Development Finance Institutions (EDFI) and the International
Development Finance Club (IDFC)
WWF 2021verifying implementation, internal systems and a PDBs face practical challenges applying safeguards
culture to make sure that biodiversity concerns are in contexts of financial intermediaries and public
considered in project appraisal and approval, a robust policy loans, and where the regulatory framework is
disclosure and reporting framework that encourages weak and governments (as clients) have not bought
both clients and banks to meet the standards, and into safeguard provisions. In addition, budgetary
a powerful ombudsman or similar oversight mech- constraints and commercial competition still tend
anism. Only a few PDBs have such a well-specified to create an uneven playing field – favouring finance
approach in place. that has less rigorous environmental requirements.
Most PDBs (and particularly the smaller national and PDBs’ reporting on how safeguards are implement-
sub-national banks) do not have formal safeguard ed, and the outcomes, remains very patchy and
frameworks at all for biodiversity, and may not see incomplete.
biodiversity as a major issue, even though their
financing may be causing damage to nature.
FINANCING GREEN: TOWARDS A NATURE-POSITIVE
ECONOMY
THE WAY AHEAD: BIODIVERSITY
nature‑positive investments could either be linked
to sustainability criteria in recovery lending, or be
PIGGYBACKING ON CLIMATE embedded in potential debt relief and restructuring
mechanisms (e.g. debt swaps).
For PDBs, and the finance sector as a whole, climate
is far ahead of biodiversity as a concern for both INVESTING IN NATURE: UNLOCKING
greening finance and financing green. So-called
‘green’ investment is nearly entirely climate-focused, PRIVATE FINANCE VITAL BUT NOT
STRAIGHTFORWARD
mainly on technology. Hence, climate progress forms
a platform for biodiversity progress, both in process
and substance. While investment remains at very
Direct nature-positive investment by PDBs (and
small scale, and there are mixed opinions about the
the finance sector generally) is still very small-scale
potential to scale up, nature-based solutions are a real
and patchy. It appears that much of current PDB
potential bridge between climate and biodiversity,
nature-positive financing is
which need to be promoted.
not really commercial but in
the nature of grants and facili- Post covid-19 economic
POST COVID-19 RECOVERY tation of external funding (e.g.
stimulation packages should
NATURE-POSITIVE FINANCE:
from the Global Environment
Facility - GEF). be re-directed at nature-
THE WEAK LINK Private finance must be un- based opportunities.
locked to scale up nature-pos-
Financing for COVID-19 recovery, including in itive investment significantly.
massive infrastructure investments, has so far paid A large suite of finance tools is available for this, but
little attention to nature30. This both misses an there are many practical challenges. Study respondents
opportunity and potentially does significant harm. had mixed opinions about the feasibility of scaling up
Economic stimulation packages should be re-directed investment, and the role of ‘blended finance’ approach-
at nature-based opportunities – such as sustainable es. Nevertheless, for PDBs that can access or provide
agriculture and fisheries, ecosystem-based coast- concessionary funding, blended finance does hold
al protection and watershed management. Here, potential as a catalyst for private investment – which
PDBs could play a central role. To this end, such is the key for going to scale.
30
Vivid Economics & F4B (2021)
23A TIERED APPROACH
TIER A: BIODIVERSITY
Overall, PDBs can be classed in three tiers in relation
to their level of biodiversity mainstreaming, how
they manage biodiversity risk and how far they
invest in nature. MAINSTREAMING BEGUN, BUT
FURTHER WORK NEEDED
TIER C: NO CONSIDERATION OF NATURE Most MDBs, some other larger PDBs (especially those
Most small PDBs, including most national and with a public-sector focus) and a very few small PDBs
sub-national banks, as well as some larger PDBs, at regional to sub-national scale have clear stated
currently do not recognise either biodiversity risks or commitments to biodiversity. They consistently
opportunities. They do not have stated environmental apply biodiversity safeguards, supported by relatively
commitments, rely on regulatory EIA processes robust (if not always fully adequate) structures and
rather than safeguard frameworks to manage risk, capacity. They have climate investment targets, and
and have no investments in nature. a few are developing targets for investment in nature
as a component of these. Their investments in nature
TIER B: SOME CONSIDERATION OF are still at a low level, but increasing and driven by
institutional policy.
BIODIVERSITY RISK, LITTLE NATURE PDBs in all tiers can take steps towards greening
INVESTMENT OR MAINSTREAMING finance and scaling-up financing green, but for each
tier different steps are appropriate and feasible.
Many mid-sized PDBs, including most regional and
bilateral banks, do recognise the need to manage
biodiversity risk. They typically have at least general
environmental commitments and apply biodiversity
safeguards (IFC’s PS6, or in their own frameworks)
though with limited supporting structures or capacity.
They usually have few if any direct investments in
nature, and these are not driven by institutional policy.
31
Document CBD/SBI/3/5/Add.3
WWF 2021RECOMMENDATIONS
© James Morgan / WWF-International
25RECOMMENDED ACTIONS FOR PDBS
Measures needed Constraints identified Policy Organisational Technical
Mainstreaming Methods to assess Develop and implement Integrate biodiversity Develop investment
biodiversity risk not and report on risks and nature-positive across PDB processes assessment approaches
a priority for PDB impacts are not well institutional commitments, and performance that integrate climate and
supervisory authorities developed, spatial data and update mandates indicators nature
Fully integrate on investments often
biodiversity risk into lacking
investment decisions
PDBs are currently Assess biodiversity- Establish joint PDB co-
Assess biodiversity risk
preoccupied with related financial risks and ordination mechanism
and footprint across
mainstreaming climate integrate into decision- to catalyse work on
portfolios
issues making technical challenges
Upstream planning
perceived as difficult,
unclear who should lead Improve spatial
Support effective country
investment data and
Improve upstream platforms for sustainable
SOLUTION: Reduce biodiversity metrics for
planning and early risk finance
the harmful impacts finance
screening to enable
of investments impact avoidance Patchy application of
risk screening tools and
datasets Continuously improve risk
Most PDBs do not apply Identify opportunities and Secure collective access
screening by identifying
biodiversity safeguards, pro-actively take lead on to risk-screening tools
and deploying new
rely on often inadequate upstream planning across all PDBs
datasets and tools
EIAs Gaps in safeguard
implementation for
agriculture/commodities,
Apply effective intermediaries, Support policy reform Strengthen internal and
Limited implementation Require data sharing from
PROBLEM: safeguards to reduce supervision, indirect by governments to external capacity for
capacity among PDBs, clients’ environmental
Investment in and compensate for and cumulative impacts, strengthen regulatory biodiversity safeguard
clients and consultants assessments
activities that harm harm to biodiversity reporting frameworks implementation
nature (by PDBs and
others) far outweighs
Biodiversity safeguards
investment in Biodiversity offsets hard Develop standards and
seen as too stringent Support development Strengthen biodiversity
activities that benefit to implement, often implementation toolkits for
and impacting cost of target-based elements in financing
nature not linked to broader biodiversity safeguards
competitiveness where compensation schemes agreements
regulation is weak conservation plans useable by all PDBs
Scale up investment in NBS often overlooked in Incorporate explicit
Specify investability Develop shared green
nature-based solutions favour of technological nature-positive goals into
criteria for nature-positive taxonomy for nature-
to meet climate and approaches climate and Covid-19
projects positive financing
other development goals recovery finance
SOUTION: Increase Individual projects
financial flows into Narrow range of viable typically small-scale,
investments positive business models, inefficient to structure Support a collective
Set clear targets Identify landscapes with
for nature perception of high risks, for investment and not platform for natural
for nature-positive potential for clustering
low returns, long lead coherent at landscape capital ‘accelerators’ and
investment nature-positive projects
Scale up direct times level investment funds
investment in nature
conservation and
restoration Enabling environment
Metrics and methods Encourage cadre of Test, innovate and
requires socio-political Engage with governments
to assess biodiversity skilled intermediaries promote financial
and policy interventions to create an enabling
outcomes not well bridging conservation and instruments for scaling-up
that are outside scope policy environment
developed finance sectors investment in nature
of PDBs
Figure I. Summary of problem statement, actions needed, constraints identified and recommendations to address thesePDBs are an integral part of the larger, complex community of finance
institutions. While many recent reports on biodiversity and finance have
already put forward a range of recommendations, this study focuses on
actions particularly relevant to PDBs – with the emphasis on practical
actions that can be started immediately.
A PROPOSED THEORY OF CHANGE
Figure I (page 26) summarizes the overall problem, 4. Scale up investment in nature-based solutions to
necessary actions, constraining factors and recommen- meet climate and other development goals
dations identified in this study. Within the framework
of the complementary approaches of greening finance 5. Scale up direct investment in nature conservation
and financing green, and building on the third report and restoration.
of the CBD panel of Experts on resource mobilization31,
Outlined below are the measures needed, the con-
five key PDBs’ actions are identified:
straints to implementing these key actions, and finally
1. Fully integrate biodiversity risk into investment the ways that these constraints could be addressed.
decisions Recommendations are at policy, organisational
and technical levels and aimed at PDBs, some are
2. Improve upstream planning and early risk screen- also relevant for governments, Non-Governmental
ing to enable avoidance of impacts Organisations (NGOs) and researchers. Prioritized
recommendations are then presented for the different
3. Apply effective safeguards to reduce and compen- tiers of PDBs.
sate for harm to biodiversity
GREENING FINANCE ACTION 1: FULLY INTEGRATE
BIODIVERSITY RISK INTO INVESTMENT DECISIONS
CONSTRAINTS IDENTIFIED
sustainability, with a public
commitment to overall pos-
Civil society organizations
• Mainstreaming biodiversity risk is often not a
itive outcomes for nature
as part of a holistic set of
could play an important role
priority for PDBs’ supervisory authorities. Often
these are state treasuries or finance ministries
social and environmental in advocating to shareholders
and supervisory authorities.
imperatives. Preferably,
with a strongly economic focus.
this would be established in
• PDBs are currently preoccupied with mainstream- an updated legal mandate.
ing climate issues, which constrains their capacity Here, well-capacitated civil society organizations
to integrate nature as well. could play an important role in advocating to
shareholders and supervisory authorities (gov-
• Methods to assess and report on risks and impacts ernments, parliaments, ministries), and ensuring
exist but are not well developed. Spatial data on that biodiversity commitments, plus disclosure of
investments is often lacking which is a challenge progress towards these, are requested from PDBs
for assessing risks and impacts. (e.g. as part of their mandate).
POLICY RECOMMENDATIONS
• Assess the economic benefit of managing biodiver-
sity risk. PDBs could recognize the need to assess
and act on financial risks related to biodiversity,
• Develop and implement specific nature-positive
and start the processes to begin such assessments.
institutional commitments. PDBs can engage with
This would make the business case for better
supervisors and shareholders to re-align the in-
mainstreaming of biodiversity within PDBs.
stitutional remit and investment strategy towards
27• Support effective country platforms for sustainable
finance. Country platforms that bring together a
TECHNICAL RECOMMENDATIONS
range of finance institutions can help to create • Establish a joint PDB co-ordination mechanism to
common standards (and thus a level playing field) catalyse work on technical challenges. PDBs could
for sustainability in financing. PDBs are well placed set up and resource a co-ordination mechanism for
to lead or support such initiatives. collective technical work to allow sharing experi-
ence and learning, and co-ordinated follow-through
ORGANISATIONAL RECOMMENDATIONS with governments, partners and stakeholders.
Although some PDBs’ working groups already
• Integrate biodiversity across PDB processes, per- exist on biodiversity issues, they mainly concern
formance indicators, reporting and disclosure, sub-sets of PDBs (federations, clubs) and remain
including for sectors that are particularly high rather internal. There is need for a larger platform
risk (e.g. agriculture). To mainstream nature in catalysing technical work with partners.
decision-making there is need to review internal
processes to ensure that nature considerations • Develop investment assessment approaches that
are integrated with all stages and elements of integrate climate and nature. To fulfil the poten-
investment decision-making and monitoring. tial of nature-based solutions, tools are needed
By supporting The Task Force for Nature-related to consider climate and nature together, not in
Financial Disclosures (TNFD), PDBs can also separate silos, when assessing investments.
help develop an effective common framework
• Improve spatial investment data and biodiversity
for nature-related risk analysis, reporting and
metrics for finance. PDBs could proactively engage
disclosure in the financial sector.
with and further support initiatives and processes to
• Assess biodiversity risk and footprint across improve spatial data and metrics for finance that can
portfolios. Using existing tools, PDBs could support scaleable assessment, mitigation, monitoring
develop at least an initial understanding of the and reporting of biodiversity risk in future.
potential biodiversity risks present in their current
investment portfolios.
GREENING FINANCE ACTION 2: IMPROVE UPSTREAM
PLANNING AND EARLY RISK SCREENING TO ENABLE
IMPACT AVOIDANCE
CONSTRAINTS IDENTIFIED
up collaborative efforts for upstream planning
in landscapes and sectors of strategic interest, an
effective way to ‘de-risk’ future projects with as-
• Upstream planning perceived as difficult, and
sociated time and cost savings. Strategic planning
unclear who should lead. For PDBs, upstream
is also an opportunity to design a compensation
planning is generally seen as ‘someone else’s job’,
framework (for residual impacts to biodiversity,
with concern about the cost, time required and
after rigorous mitigation) that is as effective as
the potentially burdensome need to work closely
possible for conservation.
with governments and many other stakeholders.
• Play a stronger role in supporting policy in partner
• Patchy application of risk screening tools and
countries (through policy loans or grants to sup-
datasets. Many PDBs do not apply screening, or do
port mainstreaming) and build best practice and
not fully use the range of relevant and up-to-date
standards into national regulation, including in
tools available.
helping to establish policies for no net loss (NNL)
and net gain (NG) at a national scale. In turn, this
POLICY RECOMMENDATIONS also entails necessary support for capacity building
for governments to implement these policies and
• Identify opportunities and pro-actively take ensure compliance.
lead on upstream planning. PDBs could ramp
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