With USD 2.3 trillion to spend, this is how public development banks can help biodiversity

Public development banks (PBDs) have a vital role to play in promoting greater investment in biodiversity and nature-based solutions in the countries where they lend, according to a new report on biodiversity finance produced ahead of the 15th Conference of Parties (COP15) of the U.N. Convention on Biodiversity (CBD).

Its findings and recommendations are based on research carried out by a team headed by Leon Bennun, chief scientist at The Biodiversity Consultancy and Renaud Lapeyre, an independent expert with World Wildlife Fund (WWF) for Nature France, and funded by the WWF.

The main aim, says Lapeyre, is to support and accompany these banks and their partners in transforming their models toward contributing to nature-positive finance and reducing investments that harm biodiversity.

Currently, 552 public development banks, which have mandates to provide loans and grants for social and economic objectives, are responsible for an annual USD 2.3 trillion of financing, usually to sectors that private investors consider unprofitable.

While that money adds up to just 10 percent of all private and public financing, their outsize influence in setting policy can, as the report points out, “significantly contribute to reorienting global finance towards climate and Sustainable Development Goals.”

Crushed between competing demands

According to the report, the world’s seven largest development banks, most of them multilaterals, own about half of the PBD sector’s entire global assets. The most prominent of these financial institutions have also made sustainability commitments. But on the flip side, hundreds of smaller, mostly national development banks have little money to invest and weak or completely non-existent commitments to biodiversity.

PDBs are “crushed,” as Lapeyre puts it, between competing demands. “On one end, their shareholders decide where to invest taxpayers’ and borrowed money based on donor countries’ diplomatic priorities,” he says, “and on the other, their clients – governments and private institutions – that request loans based on their pressing needs.”

Nonetheless, Lapeyre sees this situation as an opportunity. PDBs have the finance for both lending and grants, which recipient countries will need along with experience and know-how.

 “Aside from lending money,” he says, “the larger banks can go to their client countries and engage in public policy dialogue. They can really discuss with governments and tell them, ‘you should really do upstream planning for biodiversity and do much better on national environmental regulations.’”

Financing green – and greening finance

The report lays out two ways that PDBs can accomplish this: financing green, which means investing in projects that enhance or restore biodiversity, and greening finance, which incorporates nature-based solutions in their portfolios and strategic decision-making. Such upstream planning can be a powerful approach toward thinking about nature-positive impacts from the start.

“When [governments] don’t take the time and effort to engage in upstream planning, PBDs can say that if you are forward-looking, and you take more time now, you are actually saving money later,” says Lapeyre,

The CBD, meanwhile, can also promote nature-based solutions among decision-makers at development banks and governments.

One example, says Lapeyre, would be to call for the restoration of mangrove forests along climate-threatened coastal areas, rather than loans going to build seawalls or dykes. “Nature-based solutions are key to the synergy between climate and biodiversity,” he says, “and for tapping into climate money for biodiversity financing.” 

Natural Capital Lab units, which help match investors with environmental entrepreneurs running nature-positive projects, are a relatively new trend more development banks can also leverage.

“When we talk with a private investor, what they are looking for is bankable projects,” says Lapeyre. “These labs are nurturing innovative, bankable biodiversity projects which you can bring to investors after they are proven to work.”

Some PDBs, such as the Inter-American Development Bank, the Asian Development Bank, and the European Investment Bank’s Natural Capital Financing Facility, have already set up these units, which are, the report states, “a promising development that could have large leverage potential.”

New safeguards for biodiversity

Most PDBs do not apply biodiversity safeguards when it comes to investment decisions, relying instead on national environmental impact assessments that often fall short of international best practice in biodiversity risk management, according to the report.

PDBs should strengthen their disclosure mechanisms and set up communication channels for communities harmed by biodiversity loss. Here, says the report, civil society organizations (CSOs) can play both an important and constructive role in not only monitoring projects but also advocating to shareholders and supervisory authorities to ensure environmental safeguards are implemented.

The banks “need to do more reporting and disclosures,” says Lapeyre, “for NGOs to get the information. And then they need to put an ombudsman in place for NGOs to go to and say, ‘there is a problem.’”

He cites one recent example in Kenya, where a highway project, financed in part by the European Investment Bank, resulted in forced evictions that left hundreds of families homeless. While one Eastern Europe-based network that monitors international finance, Bank Watch, brought a human rights complaint to the EIB, similar complaint processes for biodiversity issues should also exist.

“There should be more of those mechanisms,” says Lapeyre. “And that means we need big international NGOs and donor countries also strengthening the capacity of NGOs in the countries to do this job.”

Lapeyre would like to see the world’s public development banks come together at COP15 and make a public commitment. “That would be a good signal,” he says, “for parties to understand that they can be ambitious because they know that the financial partners are there to implement what they going to do.”