The Association for Financial Markets in Europe (AFME) and EY today published a new report “Into the Wild: Why Nature May be the Next Frontier for Capital Markets”.
The report, released in the run-up to the UN biodiversity conference COP15, examines how funding can be channeled to combat the loss of nature. With more than half of global GDP depending on nature, natural capital is on the agenda of policymakers and the financial services sector.
The global biodiversity funding gap was recently estimated to be between US$598 billion and US$824 billion per year. While growing investor demand is creating new opportunities to develop nature-related finance products, the report notes that banks and other market participants are struggling to establish and scale nature-finance products. Banks also face challenges, particularly from a lack of available data and common metrics for nature and biodiversity.
The report also provides an overview of the natural capital finance products currently on the market and presents a number of case studies of innovative practices currently in use by AFME members.
Oliver Moullin, Managing Director, Sustainable Finance at AFME, said: “Realigning capital in favor of nature is a critical and urgent priority. AFME members have been key innovators in developing products and financing solutions to bridge the biodiversity funding gap and mobilize investor demand. We need to build on this momentum and move forward with the ongoing work to create a strong global framework for nature reporting and to develop clear metrics for measuring the impact of investments on nature and biodiversity. We hope that COP15 can catalyze progress and that the public and private sectors can work together to maximize the capacity of private funding to support nature.”
Gill Lofts, EY Global Financial Services Sustainable Finance Leader, said: “Protecting and restoring nature is critical to 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, a consensus on measurable and meaningful metrics to define impacts on biodiversity, and the development of a currency for nature.”
The report concludes with an examination of the current regulatory landscape and provides five key recommendations for policy developments that can help direct capital towards conservation and restoration solutions:
1. Collecting and translating nature-related data into actionable data for financial services;
2. A strong framework for global nature reporting;
3. Agree on how to define measurable, meaningful impacts on biodiversity through metrics and Key Performance Indicators (KPIs).
4. Standardization of product classifications; and
5. Developing a currency for nature.
The report provides a useful guide for those wishing to understand the crucial role played by capital markets. Ahead of COP15, AFME hopes that this paper will continue to stimulate dialogue and market initiatives to harness the full potential of capital markets to finance biodiversity protection and restoration.
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