Biodiversity Finance, Green Transition, and the Climate Jobs of Tomorrow: In Conversation with IFC's Biodiversity Finance Expert Irina Likhachova

Recent?research by the World Economic Forum ?indicates that half of global GDP relies on nature for critical inputs. Yet natural capital, the key resource fueling the global economy, is being degraded and facing the risk of eventual depletion, with almost?70% of the world’s biodiversity lost in the last 50 years , and a million species facing the threat of extinction.

Ironically, the sectors that?depend on nature the most ?– such as agriculture, infrastructure or extractive industries – also exert some of the heaviest impacts on biodiversity.?This means that without switching to more sustainable methods of production which protect nature, entire industries, jobs and national economies could be at risk. This stark reality lies behind the current growth of biodiversity finance, which helps channel capital toward more sustainable use of nature. For more insights on the topic and to mark the?International Day of Forests , we sat down with Irina Likhachova , IFC’s Biodiversity Finance Lead.

What is biodiversity finance?

Biodiversity – all plant and animal life on earth from microorganisms to iconic species -- underpins healthy ecosystems that provide us services such as food, freshwater, timber, and climate regulation. To ensure continued economic prosperity for all people, we must protect, repair, and properly value biodiversity and ecosystem services that are being damaged by our economic activity.??Biodiversity finance supports the transition to new production and consumption patterns that allow nature to heal and regenerate.

What role can private investors play in biodiversity finance?

This year’s?Global Risk Report ?by the World Economic Forum ranked nature 4th?among the top ten long-term business risks.?Private companies and investors realize that their businesses depend on nature and healthy ecosystems, and that the current biodiversity loss crisis translates into financial, reputational, transition and business risks. Furthermore, the interaction between climate change and biodiversity loss can create a vicious cycle of escalating effects and both crises must be tackled together.

On the flip side, companies are beginning to see the benefits of investing in biodiversity. Research shows that switching to more sustainable ways of doing business in three major sectors of land use, built environment and extractives can generate?395 million jobs and $10.1 trillion in annual business opportunities by 2030 .

For example, adopting agroforestry practices such as reforesting coffee plantations with native tree species provides shade for coffee crops, resulting in better quality coffee sold for a higher price. It also improves the quality of soil, which translates to less need for fertilizer. This is how shifting to nature-smart production practices can help improve quality, boost farmers’ income, and protect biodiversity. Financing transactions like these is good business for investors.

How would you describe the market for biodiversity finance today?

It’s growing very fast, in large part, building on the key lessons and market infrastructure developed to address climate change. We have seen rapid growth across three major areas needed to build a sustainable market for biodiversity finance:

• Political will: The crisis of biodiversity loss climbed to the top of global political agenda, having become a regular theme of discussions at?G7 , G20, and climate COPs. Last December?nearly 200 countries have adopted the?Global Biodiversity Framework , which sets global targets to halt and reverse biodiversity loss by 2030. This framework, dubbed as “Paris Agreement for nature”, sets up a global architecture to transition to sustainable and nature-smart economies. One of the key targets set forth by the framework is to scale biodiversity finance, requiring countries to develop biodiversity finance action plans. This can jump start the growth of domestic biodiversity finance markets.
• Transparent rules: In parallel, to help shape the biodiversity finance market, standard setters like the?Carbon Disclosure Project , ,?International Sustainability Standards B oard and the?Network for Greening the Financial Systems are working to create approaches and a set of standards.
• Private sector participation: Over 125 financial institutions and investors with nearly 19 trillion euros in assets under management have signed the??Finance for Biodiversity Pledge , which aims to reverse nature loss by 2030. Financial institutions and corporates are driving the Taskforce for Nature-related Financial Disclosures (TNFD) to develop a risk management and disclosure framework for companies and financial institutions to report and act on nature-related risks and opportunities.?Finally, in a sign of a fast-growing biodiversity finance market, last year assets in biodiversity related funds tripped in one year to reach $1 bn.

I see clear signs that, building on the progress made to date in addressing climate change, the market for biodiversity finance will grow much faster. The ultimate goal is to stop financing economic activities that hurt nature and start moving capital toward activities that allow nature to regenerate so that we can use it sustainably.

What’s the difference between biodiversity finance and conservation?

While conservation – like protecting endangered species or setting up protected areas– is very important, biodiversity finance goes broader to address the key drivers of biodiversity loss: land and sea use change, climate change, pollution, overexploitation of resources, and spread of invasive species. These key drivers of biodiversity loss stem from economic activity and, thus, the solutions must focus on economic activity. This is very much in line with the Global Biodiversity Framework which sets targets for conserving 30% of land and oceans by 2030 AND aims to transform the way we produce and consume. One example of addressing chemical pollution and restoring pollination through biodiversity finance would be helping farmers switch to organic pest control practices.

Does biodiversity finance require new financial instruments?

While there is definitely growing interest in financial innovation like?debt for nature swaps , conservation focused bonds like the?World Bank’s Rhino Bond ?or?biodiversity credits , much of this market can grow through conventional instruments for project finance.?For example, last year,?IFC provided a $150 million loan to SABESP , a water utility company in Brazil, to connect low income neighborhoods along the Pinheiros River in S?o Paulo to a central sewage collection and treatment system. This project addresses pollution, a key driver of biodiversity loss, and will result in biodiversity co-benefits in the river ecosystem and improve sanitation services for citizens.

What else is IFC doing in this space?

From our experience with green finance, we know that a set of clear, transparent guidelines is key to mobilizing investors.?And a major gap was the absence of clear guidance on project eligibility criteria for biodiversity finance within the Green Bond and Green Loan Principles.?Last year, we published the first-ever?Biodiversity Finance Reference Guide? ?to provide an indicative list of investment activities and project components that help protect, maintain or enhance biodiversity and promote sustainable management of natural resources. The guide focuses on three major investment categories:

• Investments activities that generate biodiversity co-benefits through addressing key drivers of biodiversity loss, such as regenerative agriculture practices, sustainable forestry management or improved wastewater treatment;
• Investments focused on conservation and restoration of nature as the primary objective, such as?IFC Forest Bond ;
• Investment activities that integrate nature-based solutions into large infrastructure projects to provide core services, such as water purification or coast stabilization, and to displace or complement traditional gray infrastructure.

The Global Biodiversity Framework estimates the biodiversity finance?gap as?$700 billion a year between now and 2030 .?To close the gap, the framework calls for repurposing of $500 billion per year in harmful subsidies. The remaining $200 billion a year will have to be mobilized from all sources – public, private, domestic, and international; and private sector will have to play a substantial role.?Our goal with the Biodiversity Finance Refence Guide is to help investors, financiers, companies, and governments identify investments that protect and rehabilitate biodiversity and ecosystems and close the biodiversity finance gap.

How did you get into biodiversity finance?

I became engaged in this topic in 2019, when it became increasingly clear that we won’t reach our global climate goals without focusing on nature restoration and a more sustainable use of natural resources.?Like many others, I saw a number of challenges in attracting private capital at scale for traditional conservation projects due to small project size and small or absent revenue stream. That is when I started looking at established economic sectors and how to bring biodiversity protection and enhancement angle into existing business models and how to change them to more sustainable practices, leveraging finance.?

What does your typical day look like in this job?

Lots of reading, research, analysis and conversations to stay abreast of the market developments and translate those into concrete opportunities for IFC. Biodiversity finance space is moving unbelievably fast and keeping up with evolving standards, political commitments and market transactions takes a chunk of my time.?But it is also what gives me energy --?sharing ideas and learning from other colleagues, investors, partners, ?organizations, and IFC investment teams and clients. This is an incredibly open and collaborative space because biodiversity finance is new and we are all growing and learning with the market.?

Which skills and experiences do you see as vital for the climate jobs of tomorrow?

Solutions to climate change cut across disciplines, sectors, and stakeholders. While most of us are likely to specialize in certain areas, it is important to develop skills to work across disciplines and collaborate effectively across people and teams with different expertise and focus. I think climate jobs require strong analytical skills and a knack for connecting the dots and ability to translate vision into practical solutions your organization, your team, you can deliver.?Finally, you have to bring relentless optimism and relentless focus on solutions!?