We need transformative change at the biodiversity COP16 - what role should green finance play?

This month, policymakers from around the world are convening in Cali, Colombia, for the COP16 conference on biodiversity. This is the first meeting since the landmark agreement of the Kunming-Montreal Global Biodiversity Framework (GBF) in December 2022 at COP15, which set out 23 targets for 2030 to achieve its longer-term goal of a society that “lives in harmony with nature”. With just six years to meet these targets, COP16 is a key moment to take stock.

And yet, more than 85% of the 196 countries signed up to the GBF have not met the deadline to update their National Biodiversity Strategies and Action Plans (NBSAPs). This glacial progress is frequently attributed to a lack of adequate finance to support biodiversity goals. Consequently, Target 19 of the GBF – on scaling up financial resources – has become a central focus of COP16, accompanied by a cascade of proposals to tackle the biodiversity “finance gap”.

Many countries - including “megadiverse” nations that host most of the world’s biodiversity - do face significant budget constraints to achieving GBF targets, but these also arise from structural inequalities and economic barriers rather than just a simple lack of mobilised financial capital. The current push to mobilise private finance for biodiversity should also not overlook evidence that the private sector is not always well-suited to funding long-term conservation goals.

Since 2020, IIPP researchers have been exploring interconnections between the financial system and biodiversity loss. We emphasise that the role of finance in reversing nature loss needs re-contextualising beyond the current narrow focus on closing the biodiversity finance gap. This blog summarises IIPP’s research on the topic of green finance and biodiversity. 

Aligning financial flows

Mobilising more finance for biodiversity must be accompanied by also urgently halting financial flows that are harmful to nature. Target 14 of the GBF calls for a mainstreaming of biodiversity into decision-making at every level including “progressively aligning all…fiscal and financial flows with the goals and targets of this framework”. 

Yet we still have some ways to go. IIPP researchers recently traced significant financial flows enabling ongoing land use change and degradation in the Brazilian Amazon and Indonesian peatlands, two tropical ecosystems that are globally important stores of biodiversity. Finance was typically sourced from regions distant from these ecosystems, an overlooked aspect of the global teleconnections influencing land use dynamics. Strategies to tackle harmful financing activities by domestic financial centres must therefore be incorporated into NBSAPs to fully account for countries’ international biodiversity impacts. 

Understanding nature-related financial risks

To implement the NBSAPs in a socially just way, we also need to understand the potential economic and financial risks of both nature loss (“physical risks”) and implementing the GBF targets (“transition risks”).  

IIPP research has highlighted how large-scale nature degradation – ecosystem collapse through “tipping points” - could create extreme economic and financial disruptions and cause irrecoverable losses, due to the critical role that biomes such as rainforests play in climate regulation, weather patterns, and hazard protection.

We have also articulated how GBF Targets 2 and 3 – to protect and restore 30% of land, waters, and seas by 2030 (known as the ‘30x30 targets’) - may result in the increased scarcity of land available for economic uses in some countries, implying potential trade-offs between conservation and economic development in some countries, particularly small island states and Central/South American countries. 

Our joint research with the Banque de France has found that the economic and financial effects of these changes are highly uncertain and likely to be vastly underestimated by integrated assessment models typically used for scenario-based risk modelling. Given this, we call for financial actors to use multiple types of models and qualitative approaches to assess nature-related risks. 

Role of financial policymakers

The potential for adverse macro-financial risks from nature loss, and transformative actions taken to reverse it, warrants a clear role for financial policymakers such as central banks, financial supervisors, and Ministries of Finance in implementing the GBF.  

Central banks and financial supervisors have so far limited their focus to understanding the risks posed by nature and nature-related policies to the financial system alone. As our research has shown the importance of financial flows in enabling ongoing drivers of nature loss, we call for these financial policymakers to use their policy levers to direct financial flows in support of government policy on the nature transition. 

Importantly, nature risks are also endogenous to (i.e., caused by) our economic and financial systems. Green financial policies are therefore also a “precautionary” means to preventing systemic risks and preserving macro-financial stability in the long term. 

Mission-oriented public policy to reverse nature loss 

Finally, IIPP research has argued that the GBF targets might be more quickly and effectively realized through pursuing the right balance of public and private financing solutions. As well as reorienting harmful public subsidies, public banks are also well-placed to support nature-based projects, given they often have mandates to maximise social rather than financial returns. 

Green finance can support bold government action to achieve the GBF, but it cannot lead it. IIPP Director Mariana Mazzucato is chair of the Global Commission on the Economics of Water, whose recently published report identifies 5 bold missions to tackle the underlying causes of the water crisis and ecosystem degradation, including transforming our food systems, and conserving and restoring natural habitats. Forthcoming research at IIPP is applying the Missions framework to the Amazon region, in the design of a 'Just Amazonian Transition' (JAT).   

Overall, transforming finance is integral to halting and reversing nature loss. More than just mobilising additional funds, finance needs to be reoriented away from enabling activities that continue to destroy nature. Financial policies are potentially powerful levers to accelerate this rapid reorientation. Financial policymakers should consider how their actions can be integrated within a broader whole-of-government approach to deliver the GBF’s ambitions of transformative change on nature. 

For more information, read IIPP's research below and contact Lydia Marsden, IIPP Research Fellow in Sustainable Finance and, Katie Kedward, IIPP Senior Research Fellow in Green Finance.

IIPP's research in green financial policy and financing biodiversity

• Gonon, M., Svartzman R,. and Althouse, J. (2024). Bridging the Gap in Biodiversity Financing: A review of assessments of existing and needed financial flows for biodiversity, and some considerations regarding their limitations and potential ways forward. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2024-14). - Research in collaboration with the C3A Program. 
• Global Commission on the Economics of Water (2024). THE ECONOMICS OF WATER: Valuing the Hydrological Cycle as a Global Common Good. Available at: https://economicsofwater.watercommission.org/report/economics-of-water.pdf  
• Kedward, K., Poupard, A. (2024). The economic and financial risks of implementing the ‘30x30’ Global Biodiversity Framework targets. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2024-13). Research in collaboration with the C3A Program. 
• Marsden, L., Ryan-Collins, J., Abrams, J., and Lenton, T. (2024). Financial interactions with ecosystem tipping points: evidence from the Brazilian Amazon and Indonesian peatlands. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2024-11).  
• Salin, M., Kedward, K., and Dunz, N., 2024. Assessing Integrated Assessment Models for Building Global Nature-Economy Scenarios, Working papers 959, Banque de France.  
• Kedward, K., Gabor, D., & Ryan-Collins, J. (2024). Carrots with (out) sticks: credit policy and the limits of green central banking. Review of International Political Economy, 1-25. 
• Marsden, L., Ryan-Collins, J., Abrams, J., and Lenton, T. (2024). Ecosystem tipping points: Understanding risks to the economy and financial system. UCL Institute for Innovation and Public Purpose, Policy Report 2024/03.  
• Mazzucato, M. and Zaqout, M. (2024). Rethinking the global water challenge through a common good lens. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2024-06).  
• Kedward, K., Zu Ermgassen, S., Ryan-Collins, J., & Wunder, S. (2023). Heavy reliance on private finance alone will not deliver conservation goals. Nature Ecology and Evolution; 1-3 
• Ryan-Collins, J., Kedward, K., & Chenet, H. (2023). Monetary-fiscal policy coordination: Lessons from Covid-19 for the climate and biodiversity emergencies. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2023-04).  
• Kedward, K., Ryan-Collins, J., & Chenet, H. (2022). Biodiversity loss and climate change interactions: financial stability implications for central banks and financial supervisors. Climate Policy, 1-19. 
• Kedward, K., and Ryan-Collins, J. (2022). From financial risk to financial harm: exploring the agri-finance nexus and drivers of biodiversity loss. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2022-05).  
• Kedward, K., Buller, A. and Ryan-Collins, J. (2021). Quantitative easing and nature loss: exploring nature-related financial risks and impacts in the European Central Bank’s corporate bond portfolio. UCL Institute for Innovation and Public Purpose, IIPP Policy Report (IIPP 2021/02).  
• Kedward, K., Ryan-Collins, J. and Chenet, H. (2020). Managing nature-related financial risks: a precautionary policy approach for central banks and financial supervisors. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2020-09).