Government expenditure on environmentally harmful subsidies is three to seven times greater than public and private investments in nature-based solutions, finds the report
Finance for nature-based solutions (Nbs) is currently less than half of the investment needed by 2025 and only a third of the investment needed by 2030 to limit climate change to below 1.5°C, halt biodiversity loss and achieve land degradation neutrality.
UNEP’s report ‘The State of Finance for Nature (SFN) 2022’ quantified public and private finance flows to nature-based solutions (NbS). According to the report, US $154 billion per year is currently invested where US $384 billion per year investment per year is needed in NbS by 2025 and US $484 billion per year by 2030.
The report compares current investments to the investment needed to meet targets of the Rio Conventions under the United Nations Convention on Biological Diversity (UNCBD), United Nations Framework Convention on Climate Change (UNFCCC) and the United Nations Convention to Combat Desertification (UNCCD).
Lack of finance and harmful subsidies
Currently, NbS receives US$154 billion annually in financing. According to the report, cumulative NbS investment needed from 2022 to 2050 to attain the 1.5°C objective under the Paris Agreement is at least US$11 trillion. It is more than the US$9.5 trillion estimated cumulative investment requirement under the 2°C scenario.
The report reveals that nature-negative expenditures far outweigh investments in nature-based solutions. Government expenditure on environmentally harmful subsidies to fisheries, agriculture and fossil fuels is estimated at US $500 billion to 1 trillion per year, which is three to seven times greater than public and private investments in NbS. These flows severely undermine efforts to achieve critical environmental targets. The report clarifies that while robust evidence is lacking, it is widely recognised that private finance flows are predominantly negative for nature and almost certainly exacerbate the situation.
Neglecting oceans and lagging private investment
Given the role of oceans in climate mitigation and supporting adaptation, food security and biodiversity conservation, the report noted, investment in marine NbS is very low, constituting only 9 % of total investment in NbS. While the terrestrial protected areas receive almost US $23 billion, annual investment in marine protected areas stands at US $980 million only. The annual finance gap to increase marine protected areas to 30% by 2030 is US$8-11 billion.
The report also finds that the private sector investment in NbS currently stands at US $26 billion per year, which represents only 17% of total NbS investment. While philanthropic capital and carbon markets have grown significantly since the last year, impact investment and investment in sustainable supply chains have increased very little. This is in stark contrast, noted the report, to the myriad of net-zero and deforestation-free commitments made by agri-food companies, banks and investors, which have seen too little action and too little capital deployed.
However, on a brighter note, the report estimates that if finance flows to NbS are rapidly doubled, biodiversity loss can be halted, a significant contribution to reducing emissions (5 GtCO2 /year by 2025 further rising to 15 GtCO2 /year by 2050 in the 1.5°C scenario) and restore close to 1 billion ha of degraded land.
The report recommends increasing direct finance flows to NbS through public domestic expenditure, nature-focused Official Development Assistance (ODA) and ensuring that multilateral development banks (MDBs) and development finance institutions (DFIs) prioritise green finance. Providing regulation and incentives for private sector investment, particularly in nature markets and sustainable supply chains can accelerate the process.
The report also recommends aligning public and private financial flows with the goals and targets of the Global Biodiversity Framework, the Paris Agreement and restoration commitments. Integrating nature and climate-related risks and opportunities into business and financial decision-making, risk management and disclosure frameworks will reduce nature damaging private investment flows.
National and international development finance institutions and multilateral development banks should be required to remove climate and nature negative lending and investment from their portfolios, the report adds.