The Nature-Climate nexus at COP29
In recent years, nature finance has emerged as a critical focus in global policy discussions, underscoring the urgent need to protect and sustain ecosystems while addressing climate change. At COP16, the establishment of the "Cali Fund" marked a significant step by requiring companies to pay for the benefits they derive from nature. This conversation is continued at COP29, where discussions on the nature-climate nexus explored strategic initiatives to finance the conservation and restoration of natural ecosystems while mitigating climate change.
In particular, Brazil has become a frontrunner in forest finance through initiatives such as the Tropical Forest Finance Facility (TFFF) which aims to conserve 1 billion hectares of forests globally. With significant strides in reducing deforestation in Amazon by 40% in 2023 compared to the year before, Brazil’s commitment to halting deforestation by 2030 exemplifies the impact of large-scale, nature-positive financial initiatives. TFFF’s aim is also to provide compensation to countries that manage significant forest areas, supporting their conservation efforts to protect regions vital for global environmental stability while helping local communities sustain biodiversity.
However, a fundamental challenge facing nature finance lies in overcoming risk-related bottlenecks that deter investment. For instance, enhancing credit access for environmental projects is vital to scaling up finance. Institutions such as the Inter-American Development Bank (IDB) have pioneered debt-for-nature swaps in Latin America, exemplified by initiatives in the Bahamas, Ecuador, and El Salvador. In Ecuador, a debt conversion with IDB has enabled the country to dedicate resources to long-term marine conservation in the Galápagos Islands, supporting greater sustainability and enhancing the quality of life for Ecuadorians. These mechanisms not only reduce public debt but also ensure funds are allocated to environmental resilience efforts, particularly in biodiversity-rich regions like the Amazon or the Galápagos.
Moving Beyond GDP: New Metrics for Nature and Climate
The conversations also focused on the limitations of GDP as an economic measure. There was a focus on the need for new metrics that better reflect ecological and social health are essential. The inclusion of nature and biodiversity in economic assessments can reshape priorities, guiding investments that account for long-term impacts on ecosystems and communities. Regional initiatives, such as Canada's commitment to protecting one million square kilometres of land in collaboration with indigenous communities, demonstrate how local and traditional knowledge can complement innovative financial solutions to deliver both social and environmental benefits.
Financing Local and Regional Initiatives
Local communities play a pivotal role in advancing nature-positive solutions. This was underscored by regional commitments from countries like Uganda and Finland, which emphasize agroforestry, subsidy reforms, and fiscal policy adjustments to align economic goals with ecological stability. De-risking tools provided by multilateral development banks (MDBs) further enable local projects to secure the funding necessary for lasting impact. These interventions aim to bridge the finance gap, supporting projects that protect biodiversity, combat desertification, and enhance food security.
Central Banks and the Financial Sector
We cannot emphasize the importance of central banks when it comes to channelling finance for nature. The European Central Bank (ECB) is one of many financial institutions now integrating nature-related risks into their assessments, acknowledging that economic resilience is inseparable from environmental health. As 70% of companies in EU depend on nature services, central banks are exploring systemic approaches to guide funding toward sustainable projects. This paradigm shift within the financial sector aligns with frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD), encouraging companies to transparently report their nature-related risks and impacts.
Climate change and Nature-based solutions (NbS) emerged as a priority. Initiatives like the Blue Halo S project in Indonesia, which combines marine conservation with sustainable ocean economy objectives, highlight the potential of NbS to deliver dual climate and biodiversity benefits. Nature-based solutions, from coastal biodiversity protection to reforestation projects, are not only essential for achieving climate targets but also for enhancing economic resilience in vulnerable regions.
Achieving a nature-positive economy requires a multi-stakeholder approach, as emphasized by partnerships between public institutions, private investors, and NGOs. For example, the Global Fund for Coral Reefs (an innovative blended finance instrument) and various green bond initiatives provide critical support for high-risk projects that hold the potential to protect biodiversity at scale. By fostering collaborative platforms, these partnerships create opportunities for private capital to complement public funds, driving investments in sustainable, bankable projects across regions.
The system's complexity highlights the need for a cohesive approach that integrates nature and climate finance, revises economic metrics, and incentivizes regional solutions. Despite the entangled nature of climate and biodiversity issues, COP16 on biodiversity and COP29 on climate are held just a week apart, missing an opportunity to address these critical issues on a unified platform.
