Official launch of Biodiversity Finance Initiative (BIOFIN) in China

In attendance :

• Dr. Ma Chaode Program Director of the Sustainable Development Team of UNDP Biofin China ;
• Mr. Onno van den Heuvel, Leader of UNDP BIOFIN – Biodiversity Finance Initiative ;
• Professor Yao Wang, Director General of the IIGF, Chief Technical Advisor for UNDP BIOFIN China ;
• Dr. Alexander Fisher, Director of Biodiversity, Climate and Environment at Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH ;
• Dr. Dongwen Hu from Shanghai Academy of Environmental Sciences ;
• Professor Zhiqing Li, Executive Director of the Green Finance Research Center of Fudan University ;
• Dr. Qing Xu Program Specialist of Sustainable Development Financing at UNDP ;
• Dr. Christoph NEDOPIL WANG Director of the Green BRI Center at the IIGF ;

The UN Development Programme (UNDP) is running the Global Biodiversity Finance Initiative (BIOFIN) to help governments identify positive and negative impacts of their public finance.

Following the introductory words from Dr. Ma Chaode encouraging to accelerate the progress for biodiversity through finance for sustainable development, Ms. Midori Paxton reminded the current gap in biodiversity finance for conservation : although there is currently around 120 billion dollars per year allocated to nature-positive investments, estimations show a need for investment up to 600 billion dollars annually. She stressed the need to eliminate nature-negative investments, representing 500 billion dollars per year, and advocated for more leadership of the financial sector, starting by the measurement of the impact of their portfolio on nature. Ms. Paxton encouraged China to keep pursuing its effort in green finance development through the newly launch Taskforce on Nature-related Financial Disclosure (TNFD) and its work with UNDP BIOFIN.

Biodiversity Finance Initiative Project (UNDP BIOFIN) and Biodiversity Finance advancement in China

Mr. Onno van den Heuvel proceeded to present the concept, work and results from the Biodiversity Finance Initiative. Started in 2013, the initiative is currently in its second phase, which include working with the financial sector. So far, 36 countries are using its approach, with China joining the initiative in 2021. After explaining the 3 steps that constitute the Biodiversity Finance Plan, including Policy and institutional review, Biodiversity expenditure review and the financial needs assessment, Mr. Onno van den Heuvel presented the examples of countries successful implantation of the plan, like in Guatemala, where they leverage 1 million dollars budget increase through their positive results, and successfully attracted the private sector, interested in engaging into biodiversity best practices in their activities.

Professor Yao Wang, recently appointed Chief Technical Advisor for BIOFIN China, talked about how green finance can support biodiversity conservation. She emphasized how important it is for the financial sector to recognize the risk and opportunities link to biodiversity. Biodiversity loss is currently recognized as one of the three biggest global risks, threatening the provision of services on which 50% of the world GDP relies upon. She highlighted how the sustainable development goals could not be achieved without biodiversity conservation measures, as biodiversity contributed to many more SDGs other than its nominal SDG 14 and 15. Prof. Wang Yao stressed that the financial system have at the very least an indirect impact on biodiversity system, through their investments, that are eventually at risk because of biodiversity loss – financial institutions therefore need to strengthen the management of biodiversity risks. While China already developed an extensive system for biodiversity protection – the conservations projects, afforestation, the organization of the COP15 and the environmental redlines system-  more systematic plan to assess the impact of investment on biodiversity would be needed to fill the biodiversity finance gap. In fact, the concept of GEP (Gross Ecosystem Product) has been widely applied in over 100 counties over China. GEP goes beyond conventional economic measures like GDP and measures the value of the contributions of nature to economic activity.“Eco-systems need to be calculated – GEP could have more value than GDP in the future”.

Prof. Wang Yao highlighted two main objectives to support biofinance :

• Greening the finance, meaning reducing the negative impact of investment on biodiversity, knowing and assessing the risk.
• Financing green, or investing more into activities that benefit biodiversity, like green bond, trust, offset that will finance conservation, or more flexible mechanism to improve capital investment into nature, like nature-based solution (NBS) or Debt-for-nature-swap (DFNS).

Finally, in order to attract the private sector and accelerate the biodiversity finance, dis-incentives policies (increase the costs of non-aligned projects) and incentives policies (increase returns of aligned projects) need to be developed, along innovative financial mechanisms.

Dr. Alexander Fisher presented the areas of cooperation in sustainable finance between Europe and China, highlighting German financial innovations for climate transition. He stressed that in order to scale up resources for biodiversity finance, international cooperation between countries will be essential. He recommended that as for the carbon legislation, biodiversity conservation development should be aiming to set a common legislation, on which further more specific legislations and regulations can be build upon for industries.

Biodiversity Finance best practices and mechanisms : What to look forward

In a second time, experts were invited to presents their research : Dr. Li Jin from Jiatong of the Shanghai Environment and Energy Exchange talked about the progress made on national carbon market, that will launch online trading at the end of June. Started in 2017, the national carbon emissions trading system have been designed to meet the requirement of the Ministry of Ecology and Environment on carbon emissions rights of 2021. The pricing mechanism will be fully marketized, relying on demand and supply as per trading rule. She highlighted that while there have been engagement at an early stage from institutions, we might need to wait for a more mature market to attract further engagements.

Prof Hu Dongwen talked about the new mode of green finance of supply chain. Since 2014, there have been multiple document and guidelines from ministries to support the development of green supply chain. She underline that a strong policy support is needed, as “many companies have their supply chain spread across the world, but nature might not be taken into account in it.”

Prof. Li Zhiqing from Fudan University then reported on Chinese Corporate environmental disclosure. Following the data of the heavy polluters (as defined by ministries of environment), the study determines that those companies have better disclosure system than others. The study also determines a strong relationship between the level of disclosure and the revenue and profit of a company. Leading companies that rank in the top have better score in the environmental information disclosure. Better supervision means that the companies are also doing a better job at disclosing their environmental information, yet, only 10% of them have biodiversity data disclosure. At the present, there is still a lack of complete environmental information disclosure system. Prof. Li Zhiqing  therefor count on the combination of machine learning with human analysis in the future.

Prof Qing Xu discussed about the ways to improve the effectiveness of financial resources allocation for biodiversity conservation. She underlined that since the pandemic, a lot of countries have not been showing optimistic situation in term of biodiversity conservation. There is an important need to leverage private funding. China could further develop its good practices in the future – applying SDG framework, pursuing SDG finance standards pilots projects – especially as the  14^th five year plan is taking place, biodiversity can be privileged  in decision making at the central and local level.

Lastly, Dr. Christoph Nedopil Wang from the IIGF Green BRI Center shared his research on Debt-For-Nature-Swap, as a solution to tackle the biodiversity conservation issue and the debt crisis after the pandemic. “Nature is on the decline but debt is one the rise” : after the pandemic, many debtors countries have been having troubles to pay their principles and interests back, while biodiversity have been decreasing continuously. Even with the DSSI (Debt service suspension initiative) mechanism that helps defer debt repayment, the problem of the debt crisis is not being resolved, but merely pushed down the road. Analysing several instruments that reduce the debt burden, and focusing on their benefits, DFNS appears to have the most complete positive effects, even outside the green benefits of its use, for example on the absence of moral hazard. After explaining the mechanism of DFNS, and its historical application, Dr. Nedopil Wang presented a number of possible application for DFNS in 2021, with a study to be released on priority areas to be protected under a debt-for-nature-swap, coupled with the analysis of specific countries debt. Dr. Nedopil Wang highlighted that China has a very unique standing in potential use of DFNS, as the biggest lender of 26 BRI countries with high ratio of debt exposure, and that while there are challenges to the application of the tool, China and other countries could greatly benefit from it.

Summary

Professor Wang and Dr. Ma closed the workshop, stressing the importance of engaging the financial sector into biodiversity finance, and the necessity of developing strong future policies and market related-practices for closing the biofin gap. They are looking forward to further collaborate with productive research team on biofin in China, to protect biodiversity and reach 2030 conservation goals.