A report by Sustainable Fitch has found increased emphasis on biodiversity conservation in green, social, and sustainability (GSS) bond issuance this year.
According to the report, about 16% of GSS bonds issued in 2023 included terrestrial and aquatic biodiversity conservation as a use of proceeds, compared to 5% in 2020. The report describes growing demand for financing from issuers with nature-related strategies and targets along with rising interest in nature-positive portfolios from sustainability-focused investors.
Data within the report showed that around a third of GSS bonds with biodiversity conservation as a UoP were issued as sustainability bonds, while most featured a green label, meaning bond proceeds were earmarked for projects aimed at generating positive environmental impact. Meanwhile, sustainability-linked bonds focus more on a combination of green and social projects.
Because monitoring and reporting on relevant biodiversity-related key performance indicators is currently challenging, the issuance of sustainability-linked bonds remains limited. Debt-for-nature swaps are also expected to remain fairly limited in scale.
As another way to channel financing towards biodiversity, many entities have looked to carbon credits linked to nature-based solutions. The demand for these types of credits is expected to increase as they offer co-benefits; for example, financing forest conservation supports biodiversity and helps lower emissions due to trees’ carbon sequestration abilities.
While concepts for a voluntary bio-credit market have gained attention, they are still in the early stages. Since bio credits encompass such a wide variety of projects and geographies, they are currently more difficult to quantify with a universal metric. Carbon credits universally represent a 1-ton carbon dioxide equivalent, making them attractive to finance and easy to measure when working towards organizational emissions reduction goals.
Government funding and other public-sector sources currently dominate financing for nature, making up 83% of $154 billion directed to nature-based spending in 2022, according to the UN.
A $600 billion to $800 billion nature funding gap has been identified by the Paulson Institute, which will need to be filled by 2030 to adequately address the biodiversity crisis. The report suggests that private sector financing should be a main driver towards this goal. Financial risks associated with biodiversity loss impact nearly every industry, which Sustainable Fitch expects will prompt further regulatory attention and investment in nature conservation.
