Biodiversity Funding Shortfall Could Hamper Global Economic Growth

Editor's note: This article was updated on Sept. 25, 2024, to clarify that $44 trillion is the gross domestic product from industries that rely on nature.

Nature, including our planet’s forests, oceans, wildlife, and more, plays a major role in our economy and overall societal well-being. In fact, the World Economic Forum estimates that more than half of the world’s gross domestic product—about $44 trillion in value—comes from industries that rely on nature. But humans are not doing enough to protect the natural world. Human activities have led to a rapid decline in biodiversity and ecosystem services, which are the various benefits that people derive from a healthy environment.

To address this issue, the United Nations Convention on Biological Diversity in 2022 agreed on an ambitious new global framework to halt and reverse the loss of nature, a goal that requires funding to achieve. In 2019, global biodiversity financing was estimated to be $124 billion to $143 billion—a promising start, but far below the $722 billion to $967 billion annually that experts say is needed annually to fully fund biodiversity conservation. The gap between current and needed funding is wide, but far from insurmountable.

Recognizing this, philanthropists, the private sector, and the governments of Australia, China, France, the United Kingdom, and the United States are exploring ways to address the funding problem. Several environmental nongovernmental organizations, multilateral bodies, and lending agencies are also investigating the viability of “biodiversity markets.”

Unlocking private sector funding

Nature’s $44 trillion value to global GDP comes in myriad forms, from sustainable fisheries and forestry products to clean drinking water, outdoor recreation, tourism, and much more. The many businesses and industries that reap the benefits of a healthy environment should therefore be front and center in funding nature conservation. To make this happen, governments, financial institutions, and multilateral banks need to work together to create conditions that encourage private companies to invest in protecting nature while fostering sustainable and equitable economic growth.

What are nature markets?

Nature markets are financial tools that incentivize the protection or restoration of discrete units of biodiversity. The two primary market mechanisms are credits and offsets. Biodiversity credits are measurable units representing conservation or restoration outcomes that result directly from an investment. Biodiversity offsets—which tend to be the least preferred option among environmental scientists because of concerns that they aren’t guaranteed to directly prevent biodiversity loss—are a finance mechanism that allows companies to compensate for the adverse environmental impacts of their projects by funding conservation efforts elsewhere.

Risks and opportunities

Using biodiversity markets to raise funds carries benefits and risks. One major challenge is the difficulty of defining a unit of biodiversity, as there is no universal standard. Using overly simplistic metrics could contribute to the loss of vulnerable species or habitats, as companies might offset their environmental damage by protecting or restoring less vulnerable areas instead. For example, a housing construction company could invest in trying to create forest habitat for a species displaced by its activities, but the habitat could be far from where it’s building homes and would not necessarily lead to a net increase in biodiversity.

Some risks include poorly designed markets that might lead to “greenwashing” (a phenomenon in which companies seek to appear to be environmentally friendly without making impactful changes) or misuse of funds. For example, a company could use offsets to fund a conservation project that’s already in place to justify spending less on other conservation projects.

Experts believe that biodiversity markets should be designed to fund conservation efforts that demonstrate “additionality”—that is, securing outcomes that would not be possible without those efforts. Strong national and international policies and regulations are necessary to manage these markets.

Despite these challenges, properly designed biodiversity markets can help bridge the funding gap for conservation by mobilizing new or additional sources of funding to protect nature and the people who depend on it. And it’s important that any efforts to protect biodiversity also account for social and equity concerns, such as possible displacement of local communities or unequal distribution of the financial benefits from the sale of biodiversity credits.

Biodiversity: The economic benefits and costs

Properly designed biodiversity markets can help bridge the funding gap for conservation by mobilizing new or additional financing but, because of the risks they carry, must be managed carefully. To that end, governments could consider adopting strong policies that incentivize businesses to both fund conservation and account for the damage they cause to biodiversity.

Here are some ways governments and industry can accomplish this:

1. Redirecting harmful subsidies: Governments can shift subsidies that inadvertently harm biodiversity toward nature-positive initiatives to significantly boost conservation efforts. For instance, redirecting fisheries subsidies away from ecologically damaging practices and toward sustainable land management can yield positive outcomes.
2. Making supply chains accountable: Businesses can ensure that their suppliers use sustainable practices and report their impact on ecosystems, a move that can also boost their brand reputation.
3. Encouraging compliance markets: Government compliance markets, as opposed to voluntary guidelines, can create stronger incentives for corporate action and help set quality standards for what credits must accomplish, making them a better option for conservation.

The potential of biodiversity markets should be balanced with the needs and aspirations of local communities, and with inclusion, diversity, and equity considerations. Funding for conservation in one place should not be dependent on the destruction of biodiversity elsewhere, and markets may not be an appropriate financial mechanism in some instances. For markets to succeed in biodiversity conservation, they must ensure that nature thrives. Despite these challenges, the potential benefits of nature markets are substantial. By engaging diverse stakeholders, including the private sector, these markets can help create a more resilient and biodiverse planet.

Peter Edwards, Ph.D., supports Pew’s environmental programs with a focus on conservation economics and finance, marine science, and environmental policy.