[Explainer] What is biodiversity finance?

Biodiversity finance is the practice of raising capital and managing funds for biodiversity conservation. It comes under the umbrella topic of conservation finance, which aims to financially support the conservation of land, water, and other natural resources in a long-term diversified manner.

Currently, biodiversity finance, to a large extent, is dependent on funds from governmental agencies and private philanthropies. However, the focus is now shifting towards sourcing finances across a variety of funders (from public, private, and non-profits), types of funding (through loans, grants, tax incentives, market mechanisms, etc.) and scale of funding (local, state, national). These include finance mechanisms such as tourism-related taxes/fees, debt-for-nature swaps, conservation trust funds, and payments for environmental services.

Currently, biodiversity financing as a global initiative is being piloted by several institutions such as the World Wildlife Fund (WWF) and the United Nations Development Programme (UNDP). The UNDP, which runs the Biodiversity Finance Initiative (BIOFIN), works with countries to create sustainable financial solutions for ‘nature positive economies’ that can not only protect biodiversity, but will also let it flourish.

Why is biodiversity finance important?

According to the 2020 report on global biodiversity finance by the Organization for Economic Cooperation and Development (OECD) based on data from 2015–2017, global financial support for biodiversity conservation stands at $78-91 billion per year. This includes public domestic expenditure ($67.8 billion per year), international public expenditure ($3.9-9.3 billion per year), and private expenditure ($6.6-13.6 billion per year). However, governments spend more than $500 billion on projects harmful to biodiversity, which is roughly 5 to 6 times more than that spent for conservation.

The 2021 State of Finance for Nature report, which is jointly authored by the United Nations Environment Programme (UNEP), World Economic Forum, and Economics of Land Degradation, states that a $4.1 trillion finance gap must be bridged by 2050, in order for the world to meet mitigation targets for climate change, biodiversity, and land degradation. If 2020 is taken as the base year, the current state of finances amounts to only $133 billion, of which, 86% is through public funding and 14% through private financing.

Given these huge gaps between funds required for and funds given to biodiversity conservation backed by nature-based solutions, biodiversity financing is of immediate and great importance.

What is the state of biodiversity finance in India?

In India, there is currently an effort to develop methodologies to quantify the biodiversity finance gap and bridge it. To bridge this gap, options to improve the cost-effectiveness of conservation efforts by integrating biodiversity conservation into mainstream development and sectoral planning at the national level are being explored.

The biodiversity expenditure review 2018, published by the Wildlife Institute of India indicates that between 2012-13 and 2016-17, finances for conservation were flowing from 116 schemes from 24 central ministries and 29 departments to the tune of about Rs. 20,000 crore ($2.64 million) per year. However, a biodiversity financial need assessment for implementing India’s National Biodiversity Action Plan for the same time period, pegs the required finances at around Rs. 90,000 crore ($12 billion) annually. The most recent estimate in 2018, suggests that at least $2.5 trillion will be required to meet India’s climate change actions by 2030. The report also outlines four key problems that biodiversity finance faces in India – externality, search costs, information asymmetry, and scalability. Externality refers to the lack of recognition or reparation that commercial businesses provide for the environmental degradation that they cause. Search costs refer to the difficulties that investors encounter when they look for genuine biodiversity-related projects to finance. Information asymmetry represents the lack of clarity on what activities are ‘green’ or ‘beneficial for biodiversity’. Scalability issues arise because very few projects seem to be scalable beyond $5 million, which deters large institutional investors.

Another study in 2020, which mapped sources of funds for biodiversity in Maharashtra, reinforces previous findings that biodiversity finance in India is highly fragmented and lacks clear policies and road maps. It finds that multiple government institutions direct biodiversity financing, often with overlapping functions, but have no coordination or systematic tracking arrangements to ensure that the funds are utilised correctly.

Nivedita Krishnamurthy, a student from the TERI School of Advanced Studies, highlights this aspect when she talks about her project on district-level biodiversity financing, “I decided to focus on funding for biodiversity conservation through centrally sponsored schemes from two rather surprising sources. One is the Department of Agriculture, which has the largest number of schemes related to biodiversity, and the Department of Rural Development, which has the highest amount of funds invested in biodiversity projects.” She explains that the fact that a huge amount of money goes into biodiversity conservation from both these sources – and not, as one would perhaps expect, from the Forest Department – is both good and not-so-good.

On the one hand, it is encouraging to see that both agriculture and rural development plans include biodiversity conservation in their purview and their activities have positive outcomes like improved water resources and supplementing rural incomes. However, it is also clear that tree-plantation drives by schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA) could be better managed.

“In addition, the methodologies used for classifying projects as being important for biodiversity conservation are highly subjective and rather ambiguous. Also, it’s difficult to measure whether the funds allotted for a project actually are being utilised effectively, which is a huge undertaking in itself,” says Krishnamurthy.

What is the way forward?

According to a working paper on biodiversity finance from the National Institute of Public Finance and Policy (NIFPP), states that the central government’s steps towards implementation of the Sustainable Development Goals are an important way forward for bridging the biodiversity conservation finance gap in India. However, biodiversity finance in India still needs clear policy statements and better coordination between different government departments to improve effective expenditure of funds.

Nandan Nawn, a professor at Jamia Millia Islamia and member of the Biodiversity Collaborative says, “Much of the information collected on biodiversity finance in India is actually on the money allocated, not money spent. Often, there is a huge difference between the two. For example, if some funds are allocated to a particular project, but approvals to release the funds come in very late, then it is practically impossible to spend all of those funds within the given time frames. If that money is not spent within the given deadline, say, that fiscal year, the funds are no longer available for that project.”

Nawn’s group is currently in the process of gathering data to determine actual expenditures on biodiversity conservation measures. This data, when combined with data on conservation outcomes, will be invaluable in understanding what schemes work best for biodiversity conservation.

In addition to these steps, the NIFPP report also states that there is huge potential for biodiversity finance in India through mainstreaming biodiversity in the social sector and in development projects, as well as by leveraging funds from corporate social responsibility schemes.

 

Banner image: Tiger in Madhya Pradesh. Biodiversity financing as a global initiative is being piloted by several institutions such as the World Wildlife Fund and the United Nations Development Programm. Photo by Jenis Patel/Wikimedia Commons.