Biodiversity: The next frontier in sustainable finance

Biodiversity is rapidly climbing investor agendas. One case in point is the World Bank’s recent issuance of a NOK 5 billion sustainable development bond raising awareness for biodiversity and ecosystem services.

The International Bank for Reconstruction and Development (IBRD) bond drew strong investor interest after its launch on 15 November, becoming the largest non-sovereign NOK SSA (sovereign, supranational and agency) deal of 2022. Nordea acted as sole lead manager on the issuance.

Kamal Grossard-Amin, head of SSA Debt Capital Markets at Nordea, says the “extremely successful” outcome “demonstrates the commitment of both the issuer and the Norwegian investor base to transition to a sustainable society and raise awareness for biodiversity – a topic central to sustainability.”

Heike Reichelt, Head of Investor Relations and Sustainable Finance at the World Bank Treasury, adds: “It’s great to see investors’ growing interest in this topic. They’re looking for ways to show support for biodiversity.” She noted, however, that there’s still a way to go to “mainstream biodiversity into regular decision-making.”

Making the economic case for nature

The World Bank is one of the largest international financiers of nature, working with partners to mobilise private capital and deploy concrete solutions around the world.

One of the organisation’s focus areas is called “natural capital accounting” – ensuring that countries view nature as an asset to be included on their balance sheets. While programs such as WAVES (Wealth Accounting and the Valuation of Ecosystem Services) have been successful in getting natural capital onto balance sheets, the next step is to get it into the decision-making process, says the World Bank’s Christian Peter. The value of nature is not sufficiently taken into account in political and economic policy, he says, adding:

“We need economists to factor nature into their economic models. If you don’t take care of it, you won’t be able to reap the benefits you’re expecting in terms of jobs and growth.”

The World Economic Forum estimates that over half of the world’s GDP, $44 trillion of economic value creation, depends on nature and its services. Ecological collapse would have far-reaching consequences for countries, businesses, investors and humanity.

The World Bank has developed its Economic Case for Nature, an ecosystem-economy model that highlights development risks from nature loss and effective policy responses. The model is part of the organisation’s contribution to COP15, the UN Biodiversity Conference under way in Montreal, Canada. There, representatives from countries around the world have gathered to agree on a new set of goals for nature and biodiversity over the next decade.

Nature-related financial disclosures on the horizon

Awareness is growing among investors and companies that biodiversity, like climate change, poses significant risks and opportunities. The Taskforce for Nature-related Financial Disclosures (TNFD) has gained momentum this year, developing a disclosure framework for organisations to report and act on evolving nature-related risks. Modelled after the Taskforce for Climate-related Financial Disclosures (TCFD), the TNFD aims to enable companies and financial institutions to integrate nature into their decision-making and to direct capital towards nature-positive outcomes.

Colleen Keenan, Senior Financial Officer at the World Bank Treasury, notes that bond issuance and reporting regimes like the TNFD help connect the dots.

“What investors in the private sector care about helps elevate and build momentum on these important issues, which is critical,” she says.

An estimated $700 billion a year in extra funding is needed to reverse the loss in biodiversity and ecosystem services by 2030.