The Association for Financial Markets in Europe (AFME) and Ernst & Young (EY) have published a report that explores how finance can be channelled to help address biodiversity loss.
The report, entitled “Into the Wild: Why Nature May be the Next Frontier for Capital Markets”, provides an overview of the natural capital finance products currently in the market and showcases a number of practices currently being used by AFME members.
With more than half of global GDP dependent on nature, nature capital is rising up the agenda for policy makers and the financial services sector, say AFME and EY.
Their report highlights that the global biodiversity financing gap has recently been estimated at US$598 billion to US$824 billion per annum.
While growing investor demand is creating new opportunities to develop nature-related financing products, the report finds banks and other market participants are struggling to mainstream their nature finance products.
Banks also face challenges, in particular, from a lack of available data and common metrics for nature and biodiversity.
AFME and EY also examine the current regulatory landscape and make recommendations for policy developments that can help direct capital towards solutions to conserve and restore nature, including a strong global nature reporting framework.
Other recommendations for policy developments are the gathering and translation of nature-related data into decision-grade data for financial services, and an agreement on how to define measurable, meaningful impact on biodiversity through metrics and key performance indicators.
AFME and EY add that a standardisation of product classifications, and a development of a currency for nature, should also be put in place as policy developments.
The report, published in the lead up to the COP15 UN Biodiversity Conference (COP15), also provides a guide for those looking to understand the critical role for capital markets.
Ahead of COP15, AFME says it hopes this paper will continue industry discussion and market initiatives to harness the full potential of capital markets to finance the protection and restoration of biodiversity.
Oliver Moullin, managing director, sustainable finance at AFME, says: “The reorientation of capital in support of nature is a critical and urgent priority. AFME members have been key drivers of innovation in developing the products and financing solutions to help address the biodiversity financing gap and harness investor demand.
“We need to build on this momentum and proceed at pace with the work underway to create a strong global nature reporting framework and develop clear metrics for the measurement of investments’ impact on nature and biodiversity.”
Gill Lofts, global financial services sustainable finance leader at EY, comments: “The protection and restoration of nature is essential for future economic growth and development and should be a priority for governments and all economic actors, including the financial services sector. Without sustainable finance we cannot achieve a sustainable future.
“We need an effective post-2020 biodiversity framework, underpinned by a strong global nature reporting framework, consensus around measurable and meaningful metrics to define biodiversity impact, and the development of a currency for nature.”
