UNEP report at COP28 reveals $7 trillion invested globally every year on activities directly harming nature

Urgent need to reduce and re-direct finance flows to keep global temperatures below 1.5°C warming

By Himanshu Nitnaware
Published: Saturday 09 December 2023
Construction, electric utilities, real estate, oil and gas, and food and tobacco influence most of the negative financial flows, the report said. Photo: iStock

Almost $7 trillion is invested by countries every year in subsidies and private investments that have a direct negative impact on nature, found a new United Nations report State of Finance for Nature. The figure is equivalent to 7 per cent of the global gross domestic product. 

The report, presented by the UN Environment Portal (UNEP) at the 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change, analyses and quantifies the private finance flows that directly affect nature negatively for the first time. 

The $7 trillion figure is likely an underestimate as it only informs the direct impacts, the report said. 

Private finance flows have direct negative impacts worth $5 trillion, 140 times higher than private investments spent on nature-based solutions (NbS), the document said. On the contrary, NbS remains dramatically underfunded, with combined public and private finance flows estimated at $200 billion per year. 

The analysis identified five industries influencing most of the negative financial flows, which are: Construction, electric utilities, real estate, oil and gas, and food and tobacco. The industries contributed about 16 per cent of overall investment flows in the economy. However, 43 per cent of financing that harmed nature were associated with the destruction of forests, wetlands, and other natural habitats. 

Further, it noted that the global fossil fuel subsidies to consumers doubled between 2021 and 2022, increasing from $563 billion to $1.16 trillion, accelerated by the subsidies issued to protect consumers from Russia’s invasion of Ukraine. 

In addition, the International Energy Agency (IEA) estimated additional spending of $500 billion to lower energy costs in 2022, of which about $350 billion was spent in Europe alone. The IEA found that gas and electricity prices doubled by introduction of policies to protect consumers from increasing fossil fuel prices.

With regards to agriculture, the report observed that environmentally harmful subsidies accounted for more than $345 billion. An examination of 54 countries estimated the total support received by the agricultural sector was $817 billion per year from 2019 to 2021, mainly from support to producers.

But on the flip side, budgets for public goods and services — the main drivers for NbS-based infrastructure and services — received 13 per cent of the entire agriculture sector.

On a brighter side, the total traceable finance flows to NbS in 2022 increased by 11 per cent, up to $20 billion relative to 2021, the report stated. 

The increase was attributed to the increase in public funding of $17 billion for NbS for sustainable agriculture, fishing and forestry. Moreover, the largest share of public NbS finance amounting to $76 billion — 46 per cent of the entire funds — has been dedicated for protection of biodiversity and landscapes. 

The report pointed out that public funds for NbS have increased by 7 per cent from $71 billion since 2022. More than half of the NbS funds to address biodiversity issues come from countries such as the United States, France, Germany and Italy. China also contributes significantly to biodiversity, which is approximately $35 billion since 2017. 

However, massive efforts on increasing funding and decreasing expenditure on nature-negative finances are required to achieve the Rio Convention targets, which are to limit global warming below 1.5 degrees Celsius and prevent biodiversity loss to ensure that 30 per cent of land and sea remain protected and achieve land degradation neutrality by 2030. 

The report calculates that the annual finance flow towards NbS should be doubled from $200 billion to $436 billion by 2025 and almost tripled to $542 billion by 2030 to help achieve climate, biodiversity and land degradation targets. 

The document classified 16 NbS into three broad categories — protection, restoration and sustainable land management. It estimated that Asia would require the highest finance by 2030 for NbS to achieve the Rio targets.

Asia would require $1,037 billion for reforestation and agroforestry, while West Asia and reforming economies are estimated to need $323 billion for agroforestry. Latin America would need $238 billion to spend on reforestation, while Africa needs $128 billion for avoided deforestation and protected areas.

Europe and Oceania are estimated to need $111 billion and $71 billion for agroforestry, respectively and North America needs $90 billion for agroforestry and protected areas.

Despite the positives, the report noted that most countries’ commitment to achieve goals and meet Paris Agreement, Global Biodiversity Fund and UN Convention to Combat Desertification targets do not align with their actions, which may lead the world to reach 2.8°C warming by the end of the century.

“Governments are very unlikely to meet their international climate, nature and land degradation targets based on current funding commitments, likely policy implementation and market trends on current funding commitments, likely policy implementation and market trends,” the report said.

Model calculations showed the finance received under NbS under the current scenario will help to protect only 20 per cent of land by 2030 and bring six per cent of global land restoration by 2050. 

“A cumulative shortfall of roughly $600 million by 2030 grows to almost $5 trillion by 2050, with serious implications for actions needed to tackle climate change, biodiversity loss and land degradation,” it stated.

In a press statement, Inger Andersen, executive director of UNEP, said, “Annual nature-negative investments are over 30 times larger than financing for NbS that promote a stable climate and healthy land and nature. To have any chance of meeting the sustainable development goals, these numbers must be flipped — with true custodians of the land, such as Indigenous Peoples, among the chief beneficiaries.”

Doubling or tripling the investments in NbS alone would not help to reach the targets unless almost the entire $7 trillion finance flows currently directed towards nature-negative practices are drastically reduced and redirected towards nature, the report recommended.

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