Financing Strategies to Address Marine Biodiversity Loss

“Nature loss”, defined as mass habitat destruction and the decline of global wildlife populations, poses a massive threat to all life on Earth, and is also the greatest market failure of all time. World Wildlife Foundation reports that as of 2022, global wildlife populations have declined by an average of 69% since 1970 (1); this period has been described as the “sixth mass extinction,” and fittingly dubbed the Anthropocene.

The global plight of biodiversity loss transcends terrestrial environments, and highly affects coastal and open ocean ecosystems. Various financing mechanisms can be implemented to combat biodiversity loss, specifically for ocean ecosystems, including- green/blue bonds, the development of biodiversity credit markets, and the funding blue technology startups with conservation co-benefits. This piece will elaborate on how each of these solutions have been applied in the past, and can be implemented in the future to combat nature loss and climate change related harms to the ocean.

BLUE BONDS

Green bonds are a favored choice in the modern investment landscape due to their tax benefits and heightened global interest in responsible investing. While “green bonds” envelop any project with environmental benefits, they tend to primarily focus on renewable energy, carbon mitigation and sequestration, and even sustainable agriculture reform. As of January 2023, cumulative green bond investment had reached approximately $2 trillion (2), yet as of 2022, “blue bonds” made up less than 0.5% of the sustainable debt market (3). *While there’s no official definition of “blue bonds,” they’re loosely defined as any debt instrument issued by governments, development banks, or private entities to raise capital specifically for ocean-based projects that have tangible marine conservation or climate benefits (3). Blue bond markets are still relatively nascent, but have undergone tremendous growth in recent years. The first sovereign blue bond was sold by the Republic of Seychelles (in collaboration with the World Bank) in 2018 at $15m (4, 5). Since then, 26 blue bond transactions have been recorded between 2018-2022, with the total value of blue bonds issued over $5 billion, with a CAGR of 92% during this period (3). As awareness increases of the ocean’s tremendous role in both our global climate system and economic system, hopefully trends of expanding capital market finance for ocean economies will continue.

A few frameworks exist to standardize the criteria for credible blue bond lending and issuances, including UNEP Finance Initiatives Practitioner’s Guide for Bonds to Finance the Sustainable Blue Economy (published in 2023) (6,7), and Asia Development Bank Action Plan for Healthy Oceans and Sustainable Blue Economies (published in 2019) (8). Blue bonds focused across blue economy, ecosystem management, pollution control, and sustainable infrastructure (9) are the focus of these guidances, while ecosystem management in particular is necessary to restore and maintain ocean biodiversity with the other objectives likely to enhance marine biodiversity as a side-effect.

Using blue bonds as a means to provide capital to nature based solution (NbS) project development, particularly in blue carbon ecosystems, can help create or restore coastal habitats for marine wildlife populations. All in all, blue bonds present an enormous opportunity to harness the power of capital markets for financing ocean conservation through sustainable resource usage and the implementation of ocean-climate solutions. *A future piece will elaborate more on the implementation of debt-for-nature swaps in developing nations, and skepticism surrounding their efficacy*

BIODIVERSITY CREDITS

The recent developments in the carbon credit market have elevated the discussion of establishing a voluntary biodiversity credit market to combat nature loss and negative effects of global climate change on terrestrial and marine ecosystems. Interest in an established biodiversity credit market is prompted by nature related regulatory disclosures; to date, mandatory biodiversity disclosure is required through policies in France, India, Costa Rica, and Germany (10). Recent improvements to the EU Sustainability Reporting Standards (ESRS), require EU companies to report on the impact of their operations and value chain on the environment and people. Specifically, ESRS E4 requires companies to outline effects specific biodiversity and ecosystem standards (11). The formation of an effective biodiversity credit system relies upon effective measurement and reporting of biodiversity impacts- and this, in turn, depends upon strong governance on such topics.

There has been an emergence of voluntary and compliance initiatives utilizing biodiversity offset schemes as well as biodiversity credit schemes (12) to attract capital into conservation. Of these schema, biodiversity offsetting is markedly less desirable than biodiversity crediting, given that presence of a species/habitat in one location is not equivalent to its presence elsewhere- true “offsetting” is not entirely possible. Within the world of biodiversity credits, potential strategies introducing blended carbon/biodiversity credits are emerging in Australia (13). A blended credit helps prevent the concern of “double counting” both the carbon removal of a carbon credit and the ecosystem service outlined by a biodiversity credit by collating the outcomes.

Creating a market around biodiversity credits is much more difficult than creating markets around carbon offsets; fundamentally, biodiversity is

1. more difficult to quantify

who is monitoring? how consistently? and what are they monitoring?

species richness, species density, both, different monitoring techniques

2. biodiversity is non-uniform

with carbon removals, where X tCO2 (atmospheric) in Australia is essentially equal to X tCO2 (atmospheric) in Canada,

standardized units of “biodiversity” are not interchangeable- even within similar ecosystems, due to habitat differences

3. the impacts of nature loss are site dependent

effect on ecosystem services as a result of degradation/destruction and wildlife loss are widely variable

Compared to carbon removal markets with a goal of remaining under 1.5C of warming (with progress towards that goal indicated by atmospheric CO2 levels), there is no net equilibrium of ecosystem health to return to (14). Additionally there is concern that biodiversity credits create an “illusion of substitutability” (15) by failing to recognize the reliance of ecosystem service valuations on the health of the underpinning habitat. Measuring ecosystem restoration requires site specific KPIs and engaged management practices for terrestrial and ocean landscapes around the globe. There is additional difficulty when creating biodiversity credits around ocean ecosystems, as populations aren’t stationary and likely won’t remain within the issuing entities EEZ, thus inciting ownership questions. Frameworks put forth to responsibly develop biodiversity credit markets through governance and hands-on management practices seek to address some of these issues. Biodiversity credit markets have potential to help bring necessary financing into this space, but are no panacea for the biodiversity crisis.

BLUE TECH AND NATURE TECH STARTUPS

Finally, scaling successful businesses with operational co-benefits that enhance ecosystem health provides another mechanism to drive investment towards biodiversity protection. To address ocean ecosystems specifically, several startups have recently emerged with business models focused on reversing biodiversity loss and addressing immense harms of invasive species’ population growth within the ocean.

Startups leveraging the potential for carbon credit sales to create a business case for marine ecosystem restoration include: ReefGen (seagrass replanting), Seaweed Generation (sargassum sinking), and SOS Carbon (sargassum management).

Some other blue tech/nature tech startups addressing the threat of invasive species presence to marine ecosystem health are

Urchinomics, removing overgrazing sea urchins to restore kelp forests and selling the ranched urchins to restaurants,
Inversa Leathers, creating alternative leathers from invasive lion fish (which takeover and destroy coral reef ecosystems) and dragonfin (disrupts US lake and river ecosystems)
Thalasso Biotech, which is building micro bio refineries to extract valuable chemical compounds from invasive sargassum

Other companies are addressing marine habitat destruction head on like Kind Designs, which is creating 3D printed seawalls to increase coastal protection while encouraging settlement of marine species by mimicking coral structures. Also, startups AzulBio and CoralVita utilize innovative technologies to restore coral reefs and enhance overall marine ecosystem health.

Building startups focused on addressing biodiversity loss is an effective way to amplify impact and draw capital investment towards combatting ecosystem degradation. As carbon credit markets mature, ocean and terrestrial MRV schema improve, and demand for invasive species removal increases, the power of entrepreneurship to address biodiversity loss will only continue to grow.

CONCLUSION

Each of the above solutions- green/blue bonds, biodiversity credit markets, and funding of nature/blue technology startups- have notable potential to address global biodiversity loss. The stage is set for billions of dollars of capital to flow into these solutions in upcoming decades as the need for ecosystem conservation and restoration is fully realized.

Bibliography:

1. WWF. (2022). Living Planet Report 2022 – Building a nature-positive society. Almond, R.E.A., Grooten, M., Juffe Bignoli, D. & Petersen, T. (Eds). WWF, Gland, Switzerland. https://wwflpr.awsassets.panda.org/downloads/lpr_2022_full_report.pdf

2. Mahmood, K., Tiftik, E., & Gibbs, S. (Ed.). (2023). Sustainable Debt Monitor: Poised for a Rebound. The Institute of International Finance. https://www.iif.com/portals/0/Files/content/SDM_January2023_vf.pdf

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13. South Pole. “EcoAustraliaTM Credits. Reduce Global Emissions, Restore Native Vegetation and Protect Australian Biodiversity.” Accessed October 3, 2023. https://www.southpole.com/sustainability-solutions/ecoaustralia.

14. Calitz, A. (2022). High-Level Governance and Integrity Principles for Emerging Voluntary Biodiversity Credit Markets: Consultation Paper. World Economic Forum. https://www3.weforum.org/docs/WEF_Biodiversity_Credits_Markets_Integrity_and_Governance_Principles_Consultation.pdf

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