Ley, D., Vause, J., Pengue, W. A., Cavanagh, C. J., Eriksen, S. H., Kharrazi, A., Pacheco, A., Ahmed, I., Cisneros-Montemayor, A., De Palma, A., Glavovic, B. C., Iiyama, M., King-Okumu. C., Platais, G. H., Reda, F., Sangha, K. K., Schumacher, K., Tormáné Kovács, E., and Wong, G. Y. (2024). Chapter 6. Options for delivering sustainable approaches to public and private finance for biodiversity-related elements of the nexus. In: Thematic Assessment Report on the Interlinkages among Biodiversity, Water, Food and Health of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. Harrison, P. A., McElwee, P. D., and van Huysen, T. L. (eds.). IPBES secretariat, Bonn, Germany. DOI: https://doi.org/10.5281/zenodo.13850349
Chapter Introduction:
The global economy is not currently structured to support decision-making or allocating financial resources in a way that consistently accounts for the interrelationships between biodiversity, water, food, health and climate change or their connections to human well-being and the economy. The financial system – including public, private, domestic and international institutions like banks, insurance companies and stock exchanges – plays an important role in
helping to direct financial resources towards their most productive uses, channelling funds from where surpluses are generated to where there are shortfalls in ways which reduce transactions costs and manage risks (Schoenmaker et al., 2012). Critically, however, what appears as productive uses of financial resources within the financial system in fact depends on the information that is considered in allocating resources and the enabling environment in
which an investment is taking place; thus, responding to signals provided only by markets can lead to a significant misallocation of resources (Dasgupta, 2021b). Likewise, the hypothesis that financial markets can efficiently allocate resources assumes that financial markets are equally developed around the world, which is not the case, and means that access to affordable finance for investments can be a significant problem in lower income countries
(Schoenmaker & Volz, 2022).
In this context, how the wider economic system is governed and economic activity regulated, particularly with respect to their interlinkages with nature and biodiversity, will influence the kinds of investment that are likely to appeal, especially to private financial investors (Dasgupta, 2021b). Crucially, not all financial resources are allocated through financial institutions; for example, central government expenditure was estimated to represent 32% of GDP in 2022 (Our World in Data, 2024), which may be allocated based on different appraisal criteria and will influence how this wider set of financial resources are allocated. It is also important to consider the economic system more broadly to capture a wider range of financial flows, and to assess why and how they relate differently to biodiversity as well as across other nexus elements of water, food, health and climate change. Moreover, not all financial resources and investments are allocated through formal or legal structures, and illegal flows of finance can be significant, with their impact on biodiversity highlighted in this chapter.
The chapter can be seen, broadly, as an hourglass – opening with an assessment of the broad relationship between the economy and biodiversity, then narrowing focus to assess biodiversity finance in this context and explore how economic and financial response options could catalyze greater interest in the allocation of resources to biodiversity and the nexus, and then finally broadening back out to discuss the case for wider transformation of economic and
financial systems.