Global financing worsening climate degradation crisis

In a new report released by the UN Environment Programme (UNEP) and partners at COP28 it has been shown that global financing in tune of $7 trillion per year is having a huge direct negative impact on nature and is worsening the climate degradation crisis.

While in 2022, the total investments in nature-related projects and solutions was around $200 billion, the overall financing globally for all human activities harming nature were more than 30 times larger. This exposes a gaping hole regarding finance to nature-based solutions and nature-negative finance flows, and underscores the urgency to address the interconnected crises of climate change, biodiversity loss, and land degradation.

The findings are based on an analysis of global financial flows, revealing that private nature- negative finance flows amount to US$5 trillion annually, 140 times larger than the US$35 billion of private investments in nature-based solutions. The five industries channeling most of the negative financial flows – construction, electric utilities, real estate, oil and gas, and food and tobacco – represent 16per cent of overall investment flows in the economy but 43per cent of nature-negative flows associated with the destruction of forests, wetlands, and other natural habitats.

Niki Mardas, Executive Director of Global Canopy said, “This year’s report is a stark reminder that continuing with “business as usual” poses a severe threat to our planet, reinforcing the urgent need for a transition to sustainable business practices and to stop the financing of nature destruction. The net is tightening, with increased regulatory pressure in key areas like tackling deforestation, it means that those companies and financial institutions still driving the problem now need to make best use of the excellent data, guidance and frameworks already available to urgently commit to a nature-positive future.”

Government spending on environmentally harmful subsidies in four sectors – agriculture, fossil fuels, fishery, and forestry – is estimated at US$1.7 trillion in 2022. As leaders gather in Dubai this week, reforming and repurposing environmentally harmful subsidies, particularly to fossil fuels and agriculture, will be critical. Fossil fuel subsidies to consumers alone doubled from US$563 billion in 2021 to US$1.163 billion in 2022.

Finance gap persists

The report identifies a significant financing gap for nature-based solutions, with only US$200 billion allocated in 2022, led by governments, who contributed 82 per cent (US$165 billion), while private finance remains modest at US$35 billion (18 per cent of total nature-based solutions finance flows). To meet the Rio Convention targets on limiting climate change to 1.5C, as well as the Global Biodiversity Framework target to set aside 30 per cent of land and sea by 2030 and achieve land degradation neutrality, finance flows to nature-based solutions must almost triple from current levels (US$200 billion) to reach US$542 billion per year by 2030 and quadruple to US$737 billion by 2050.

Both public funding and private investment need to increase dramatically, in conjunction with the re-alignment of finance flows that have a detrimental impact on nature. While public funding will continue to play a critical role, private finance can potentially increase its share of nature- based finance from 18 per cent currently to 33 per cent by 2050.

“The widespread degradation of nature is not only exacerbating the climate crisis but also pushing us towards exceeding planetary boundaries. Investing in nature-based solutions provides a strategic and cost-effective avenue to address the interconnected challenges of climate change, biodiversity loss, and land degradation while at the same time making tangible headway towards the sustainable development goals,” said Jochen Flasbarth, State Secretary in the German Federal Ministry for Economic Cooperation and Development, which funded the report.

Nature-based solutions provide critical investment opportunities, as they are cost-effective and provide multiple benefits. Investment opportunities in sustainable land management can increase fourfold by 2050 based on the long-term profitability of sustainable food and commodity production – critical to catalyze private investment. Protection of diverse ecosystems is highly cost-effective, representing 80 per cent of the additional land needed for nature-based solutions while absorbing just 20 per cent of additional nature-based solutions financing by 2030. Given the scale of degradation globally, restoration provides massive opportunities to strengthen ecosystem function and resilience to deliver the ecosystem services that people rely so heavily upon.

Urgent action on two fronts: Repurposing nature negative finance and scaling investment in nature

The report suggests that simply doubling or tripling investment in nature-based solutions will not be sufficient to reach the three Rio targets unless the almost $7 trillion finance flows to nature-negative practices are dramatically reduced and ideally repurposed in favor of nature.

A major turnaround for nature is needed. The financial sector and businesses must not only increase investments in nature-based solutions but also implement incentives to redirect finance from harmful activities, fostering positive outcomes for nature. Government policies play a crucial role in creating an enabling environment for nurturing investment opportunities. Notably, investment prospects in nature-based solutions are flourishing, driven by the overhaul of global sectors such as food, extractives, real estate, and infrastructure—major contributors to nature’s decline. These opportunities rival those arising from the climate crisis, presenting a pivotal moment for impactful change.

Ravi Mandalia

Ravi has a masters degree in computer science with specialisation in Network Security and Compliances. He has been at the helm of many news portals and Indian Science is his latest venture.

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