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Webinar Report: Banks as Agents for Biodiversity

Mar 18, 2021 | Virtual (Online)

The Making Finance Work for Africa (MFW4A) Secretariat, Eco-Business Fund[1]  (EBF) and United Nations Environment Programme – Finance Initiative[2] (UNEP-FI) co-hosted a webinar entitled “Banks as Agents for Biodiversity”.

All economic activity depends on natural assets – like water, forests and clean air. Natural capital is a way of thinking about nature as a stock that provides a flow of benefits to people and the economy. Natural capital assets provide people everywhere with the means for healthy lives and underpin all economic activity. However, the world’s natural capital and ecosystems on which our economies depend are increasingly being degraded by pressures on nature, from pollution, climate change and biodiversity loss for instance, with real and immediate risks for our communities.

Biodiversity loss is a global challenge and the financial sector can play an important role in the preservation of the world biodiversity and ecosystems. According to Jessica Smith, EcoSystems Lead at UNEP-FI: “Banks are really important agent for change particularly when we think about SMEs and the opportunities around biodiversity-based enterprises.

Worldwide banks are funding projects linked to the destruction and the collapse of life-sustaining ecosystems by providing loans and underwriting services. A recent report by Portfolio. Earth[3] outlines the role of banks in the global biodiversity crisis. In 2020 alone, the world’s largest banks invested more than USD 2.6 trillion in the form of loans and other credit in primary sectors driving biodiversity destruction.

Africa has many of the key biodiversity areas and biodiversity hotspots in the world. From of a compliance angle, there are international norms evolving around how financing related to biodiversity and what are the safeguards around biodiversity to adhere to. In fact, many commercial banks in Africa have signed up to the Ecuador Principles and some such as Ecobank, Nedbank, Standard Bank are really leaders in the biodiversity space.

There is an urgent need to sensitize financial institutions on the nexus between finance and biodiversity. The webinar uncovered the role of banks in the global biodiversity crisis encouraging them to incorporate best principles into their processes to help sustaining ecosystems as well as harnessing ensuing opportunities.

Thomas van Viegen, Project Manager – Natural Capital Finance Alliance (NCFA) South Africa pointed out that: The financial sector needs to treat natural capital risk more seriously. It is important to demystify natural capital, biodiversity and ecosystem services and situate them within the context of climate change and sustainability. The ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) tool can help banks better understand how the financial sector is dependent on nature and how environmental change is creating risks in the sectors. It is also important to shed light on how natural capital considerations can be incorporated into credit decision making and in so doing contribute to biodiversity conservation and sustainable development”.

Driven by the belief that economic returns can go hand in hand with positive environment and social results, Finance in Motion is an impact assets manager currently with over USD 2.5 billion assets under management distributed across six (6) investment funds spread over the developing word to promote sustainable uses of natural resources; biodiversity conservation; and climate change adaptation and mitigation. Within Sub-Saharan Africa, it advises Eco Business Fund (EBF) initiated in 2015 to provide dedicated financing and technical assistance to financial institutions and businesses in four economic sectors: agriculture and agri-processing; fishery and aquaculture; forestry; and tourism.

A major challenge is to develop a strong value proposition that makes biodiversity bankable. How can financial intermediaries continue lending profitably to their clients while making a significant contribution to biodiversity conservation? Case studies of investments made by EBF in Latin America for instance in agroforestry systems related to coffee and cocoa value chains demonstrated the commercial value for investee banks of financing sustainable agriculture and the valuable contributions to biodiversity conservation of these investments, notably.

Federico Sinisterra, Investment Manager – Finance in Motion[4] stated that: “We strongly believe that if we want to make a lasting change, we need to aggregate the financial intermediaries in this dialogue and we need to have them see this as a profitable business because that is going to be what drives this to be a sustainable change in time. The approach we are taking is really to make this commercially viable”.

Interestingly, the phenomenal development in digital technology can help overcome barriers to aligning capital flows with the needs of nature and accelerate the promoting biodiversity conservation. fintechs can play an exciting role in enabling banks to design nature positive practices. The current landscape and trends in the fintech for nature finance segment shed light on how digital nature finance could evolve.

There are many opportunities of using biodiversity as a development asset as well as potential of using biodiversity to strengthen livelihoods in rural areas. In addition, biodiversity is also leveraged in the areas of sovereign lending and new proposals around nature-based sovereign bonds (e.g., Zambia recently issued a green bonds).

According to Marianne Haahr, Executive Director – Green Digital Finane Alliance (GDFA): “Currently, the way we structure these types of green loans is just through interest rates rebate…. but what we can also do as what Rabobank is doing in the Netherlands; they have actually introduced a Planet Impact Loan[5] to  farmers which quantify the biodiversity resources of dairy farmers with the aim of developing new revenues models”.

In conclusion as Al-Hamndou Dorsouma (2020), acting Director Climate Change and Green Growth at the African Development Bank (AfDB) stated: “Biodiversity has always played a critical role in human development and well-being in Africa. By providing food, health, water supply and many other services, it constitutes the engine for socioeconomic development. As a matter of fact, most African economies are largely dependent on their natural resources such as agricultural lands, forests, water resources, ecosystems and ecosystem services”.

 

For more details on this session’s content, the event recording is available below. The webinar presentation can also be downloaded via this link.

 

Finance in Motion is one of the world’s leading impact asset managers. Focusing exclusively on development finance, it has mobilized over EUR 5 billion for positive change in low and middle-income countries over the course of our operations.

The Eco Business Fund aims to promote business and consumption practices that contribute to biodiversity conservation, to the sustainable use of natural resources and to mitigate climate change and adapt to its impacts, in Latin America, the Caribbean, and sub-Saharan Africa. The Fund pursues its mission by providing dedicated financing and technical assistance to financial institutions and businesses committed to environmental practices in unique ecological landscapes both in Latin America and sub-Saharan Africa. The fund focuses on sustainability in four economic sectors: agriculture and agri-processing, fishery and aquaculture, forestry, and tourism.

United Nations Environment Programme Finance Initiative (UNEP FI) is a partnership between UNEP and the global financial sector to mobilize private sector finance for sustainable development. UNEP FI works with more than 350 members – banks, insurers, and investors – and over 100 supporting institutions – to help create a financial sector that serves people and planet while delivering positive impacts. We aim to inspire, inform and enable financial institutions to improve people’s quality of life without compromising that of future generations. By leveraging the UN’s role, UNEP FI accelerates sustainable finance.

 

[3] Portfolio.earth is a new initiative born out of rising concerns that our finance sector is not taking the human-induced 6th mass extinction seriously and is actively providing capital to sectors that governments and scientists agree is deemed harmful to biodiversity. It is a collaborative effort – a collective of individuals working with others to better understand the role of the finance industry in the destruction of the natural world.

[5] The loans propose an interest discount based on farmer’ scores on the biodiversity monitor for dairy farming. The Monitor is a new innovative tool developed together with the World Wildlife Fund, Royal Friesland Campina and the Sustainable Dairy Chain to quantify biodiversity results of dairy farmers with the aim of developing new revenue models. Key performance indicators relate to climate, land use, loss of minerals, soil, landscape and species. Farmers can be rewarded through supply chain partners and stakeholders, benefiting from farming for improved biodiversity.” https://www.accountingforsustainability.org/en/knowledge-hub/case-studies/rabobank--building-biodiversity-with-impact-loans.html