Financing a greener future

We have built an economy that does not reliably value or conserve the natural capital on which it depends, writes Leape.

A billion people - mostly in developing countries - rely on fish as their primary source of animal protein [EPA]

World governments will gather soon in Hyderabad, India, for the biennial Convention on Biological Diversity conference to find ways of valuing and safeguarding life on Earth – perhaps one of the most pressing priorities the global community now faces. With the rush to satisfy humanity’s burgeoning energy, food and water needs, we can easily lose sight of the basic fact that true prosperity cannot be achieved without taking care of the living systems – forests, rivers, oceans – that are the foundation of our economy.

Like other multilateral forums, the CBD has struggled to find ways to finance the transition from status quo to sustainability in a way that is socially, economically and politically viable. In 2010, member countries agreed to develop “innovative finance” solutions. To some, that call has seemed a smokescreen – designed to divert attention away from the failure of industrialised countries to put real resources on the table. But real and lasting solutions do exist.

Part of the answer lies in harnessing markets for sustainability. Ecolabels and environmental certification schemes have become increasingly familiar in the marketplace. They look basic enough but are in fact an important and sophisticated way to channel funding into solutions that are both market-viable and in the interests of people, businesses and nature alike.


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Markets for sustainability

One example is the Forest Stewardship Council – known by its green tree logo that can be seen on products ranging from tissues to timber across the world, the FSC rewards better management by creating market advantage. A growing number of buyers demand FSC-certified products, rewarding communities, companies and governments that support sustainable natural resource use. Similar schemes are in place for other commodities that are major drivers of biodiversity loss, including seafood, palm oil, soy, sugar, cotton and biofuels, among others. 

A second piece of the puzzle is creative financing for protected areas, the cornerstone of biodiversity conservation. An exciting approach to that challenge is now being pursued in Brazil. A decade ago, Brazil made a landmark commitment to protect 10 per cent (40 million hectares), of the Brazilian Amazon. That effort is well underway – nearly 30 million hectares of protected areas have been established. As Brazil’s economy continues to grow, ultimately it can be expected to bear the full cost of managing those areas. How do we bridge the gap and secure permanent protection for these lands?

Current estimates suggest that reaching that goal will require about $250 million from 2012 to 2020 and about $35 million per year afterwards. The target is to raise $100-200 million from bilaterals and multilaterals, private donors and the Amazon Fund, established by the Brazilian government to assist in reducing deforestation. The remainder would come from government budgets, innovative finance mechanisms like environmental compensation and water funds, and Brazil’s existing Protected Areas Fund (FAP). Together, these sources can assure lasting protection for Brazil’s Amazon parks, and help secure the future of the world’s most important forest. 

Finally, we are seeing the emergence of innovative approaches to financing the transition to sustainability. One example lies in the field of fisheries. A billion people – mostly in developing countries – rely on fish as their primary source of animal protein, yet in one region after another we see relentless overfishing driving fisheries and ocean ecosystems to collapse. It is in almost everybody’s interest to manage fishing to levels that can be sustained for the generations to come. Often, however, fishermen simply cannot afford to take the actions required to let the fishery recover – reducing catches, for example, or changing gear.

Private financing

Now WWF scientists have developed a new Financial Institution for the Recovery of Marine Ecosystems (FIRME) that provides a bridge to a sustainable future in fisheries. The FIRME, soon to be piloted in Canada’s Grand Banks ecosystem, enables a fishery and ecosystem to recover by providing financial security to fishermen and businesses that depend on it. Operating through loans to be repaid when a fishery returns to profitability, the FIRME constantly recycles its capital, allowing fishermen to be full partners in the regeneration of marine resources. 

“Today’s overfishing is largely driven by massive government subsidies, globally totalling $25bn or even more.”

Private financing is one high-potential way of funding the transition from harmful practices to sustainability – joining a growing class of impact investing instruments that combine environmental and social benefit with various levels of financial return.

There is also an obvious public source of capital. Today’s overfishing is largely driven by massive government subsidies, globally totalling $25bn or even more. Redirecting some of these resources to the FIRME will allow governments to continue supporting their fishing industries, but in a way that promises much greater social, economic and environmental returns far into the future.

The core idea here has relevance far beyond fisheries. WWF is also working to facilitate a transition in agriculture – in one example, from forest-clearing to use of degraded lands. A mechanism is now in development to mobilise investment in the restoration of degraded lands and help redirect agricultural expansion on to those lands. With literally hundreds of millions of hectares of degraded lands around the world, such a mechanism could dramatically reduce the pressure on forests which are still being cut down at an alarming rate to make way for agricultural development.

We have built an economy that does not reliably value or conserve the natural capital on which it depends. As we chart a transition to sustainability, we must find diverse, creative mechanisms for getting the economics right. These innovations – in harnessing markets, funding protected areas and redirecting subsidies into the regeneration of natural resources – offer parts of the solution. 

Jim Leape is the Director General of WWF, the global conservation organisation, with a network of some 5,000 staff and millions of supporters worldwide. 

Follow him on Twitter: @jimleape