Recent discussions surrounding the impact of financial investments on biodiversity have gained urgent attention, particularly during a recent press conference attended by significant groups such as the Forests and Finance Coalition and the Articulation of Indigenous Peoples of Brazil (APIB).
The main focus of this gathering was on the Global Biodiversity Framework (GBF) and two critical reports: Banking on Biodiversity Collapse and Regulating Finance for Biodiversity.
These reports investigate how global financial practices contribute to the decline of tropical forests and stress the pressing need for stronger regulations and commitments.
The press conference highlighted a concerning trend in financial investments, revealing that the funds directed towards environmentally harmful activities reached a staggering total of $7 trillion in 2023. In contrast, only $200 billion was allocated to the conservation and restoration of biodiversity.
This vast disparity underlines the urgent necessity for accountability within the finance sector.
The reports analysed the activities of major financial institutions in key regions such as Indonesia, Brazil, China, the European Union and the United States. The findings indicated that existing regulations do not adequately prevent investments that further contribute to deforestation.
The Banking on Biodiversity Collapse report noted that since the signing of the Paris Agreement, banks and financial entities have channelled nearly $400 billion into companies that pose risks to tropical forests.
Alarmingly, very few banks have implemented robust policies to prevent funding that leads to deforestation or infringes upon human rights. This indicates that the voluntary practices adopted by many banks are insufficient to halt detrimental investments.
On the other hand, the Regulating Finance for Biodiversity report assessed financial regulations across five essential areas, finding that Brazil and Indonesia are significant sources of credit for forestry companies, while China plays a crucial role in issuing bonds and shares.
The European Union and the United States also stand out as major investors in these sectors.
The reports provided an assessment of how various regions integrate biodiversity considerations into their financial regulations:
United States: The lowest score, exhibiting minimal regard for biodiversity in its financial rules.
Brazil: Some progress has been made, with new restrictions on financing companies that harm biodiversity.
Indonesia and China: Both countries showed limited incorporation of biodiversity considerations in their regulations.
European Union: Performed well by adopting a principle of double materiality, which improves transparency in investment disclosures.
The concept of 'Double Materiality' is significant as it requires financial regulators to ensure that banks and investors consider not only how their operations impact the environment and society but also how environmental and social factors can affect their financial outcomes. This dual approach promotes a more comprehensive risk management strategy and enhances accountability in financial activities.
Based on their findings, the reports outlined some measures to be adopted. Financial regulators should mandate that banks and investors take biodiversity and human rights risks into serious consideration, they shared.
They added that financial institutions must create plans to tackle risks to biodiversity, accompanied by clear objectives and timelines.
Moreover, biodiversity risks ought to be woven into the overall risk management frameworks of banks and investment firms, the authors of the reports suggested.
Finally, financial institutions should transparently disclose the effects of their investments on biodiversity.
The meeting highlighted an urgent need for significant reforms in financial practices to align with the goals of the GBF. It emphasised the necessity of strong financial regulations to prevent harmful investments and ensure a sustainable future for biodiversity.