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Thin and Shallow: Financial
Instruments for Biodiversity
Conservation and Their Outlook
Jessica Dempsey, Audrey Irvine-Broque,
Jens Christiansen and Patrick Bigger
TWN
Third World Network
Thin and Shallow: Financial Instruments for Biodiversity
Conservation and Their Outlook
Published in 2024 by
ird World Network Berhad (198701004592 (163262-P))
131 Jalan Macalister
10400 Penang
Malaysia
twn.my
Cover design: Lim Jee Yuan
Contents
Summary 1
Key Insights 3
Key Messages for Central Bankers and Financial
Supervisory Bodies 14
Endnotes 16
Appendix A. Sample of Metrics Used in Assessing Biodiversity
Impact 23
Appendix B. Estimated Size of Private Biodiversity-Positive
Investment 26
Appendix C. Payments for Ecosystem Services and
Biodiversity Outcomes 28
References 39
Note
is paper was originally prepared in 2021 as an input paper to
inform Central Banking and Supervision in the Biosphere: An Agenda
for Action on Biodiversity Loss, Financial Risk and System Stability,
the Final Report of the NGFS-INSPIRE Study Group on Biodiversity
and Financial Stability, which was published in 2022.
e Study Group was established to develop a research-based
approach to how central banks and nancial supervisory authorities
can full their mandates in the context of biodiversity loss. e
Network for Greening the Financial System (NGFS) is a group of
central banks and nancial supervisors seeking to contribute to
environment and climate risk management in the nancial sector,
and to mobilize mainstream nance to support the transition
towards a sustainable economy. e International Network for
Sustainable Financial Policy Insights, Research, and Exchange
(INSPIRE) is an independent research network built to support the
NGFS in its work.
Please note the research has not been updated since it was rst
produced in 2021. e authors welcome insights or evidence that
could improve the analysis as they work towards updating this
dossier. Please send to jessica.dempsey@geog.ubc.ca
1
Summary
In this report we examine the track record of nancial mechanisms
across all asset classes that aim to positively impact biodiversity, and
elicit key insights for central banks and nancial supervisory bodies.
Attempts to entice private capital to fund biodiversity conservation
face a number of persistent limitations, the result of which is that
return-generating biodiversity nance remains marginal in size
with unproven impact. While there is ongoing discussion on how
to overcome these challenges, there is little evidence to suggest that
the current moment diers from the past 30 years of eorts to raise
private nance for biodiversity through these products. e market
is not responding to systemic biodiversity risks and there is little
evidence that it will or perhaps can at the pace and scale needed to
address them.
Given this, we recommend that central banks and nancial
supervisors:
l Avoid deploying resources towards promoting or expanding
these private sector nancial products and focus attention on
addressing drivers of biodiversity loss in the nancial system
l Build capacity and organizational infrastructure for enhanced
policy coordination capable of addressing biodiversity risks
l Engage with the biodiversity product space to limit
2 THIN AND SHALLOW
greenwashing and to clearly require science-based metrics
and follow-up monitoring as well as transparent, third-party
reporting on stated biodiversity-positive or avoided negative
impacts
l Advance understanding of the endogenous risks that are
posed by nancial institution behaviour – including lobbying
against binding regulations and dirty taxonomies – that limit
government responses to biodiversity risks
l Collaborate with scientists, particularly those associated with
the Intergovernmental Science-Policy Platform on Biodiversity
and Ecosystem Services (IPBES), to verify that measurements
of biodiversity-harming or positive investments/portfolios are
science-based, credible and transparent, including assessment
of the oen proprietary methods/models used by the nancial
sector.
3
Key Insights
What is the track record of nancial mechanisms meant to positively
impact biodiversity? And what is the relevance of this record for
central banks and nancial supervisors considering action on
biodiversity risk? To answer these questions, our research included
review of peer-reviewed studies and grey literature combined with
the authors’ collective 30 years of experience researching on-the-
ground projects that have aimed to make biodiversity investable.
1. Investments in ‘green’ products are not necessarily
investments in biodiverse natures
l Due to a lack of rigorous, consistent and transparent science-
based metrics and monitoring, claims of biodiversity-
positive or avoided negative impact may not necessarily lead
to reduced biodiversity risks and some may be considered
greenwashing.
l A concern for central bankers should be whether the
uncertainty of biodiversity outcomes from these projects
may fuel overcondence that biodiversity risks are being
managed through nancial mechanisms, inhibiting action.
Investments that aim to positively contribute to biodiversity
(e.g., impact investing) and avoid negative impacts (e.g., ESG
(environmental, social and governance) screens) lack rigorous,
4 THIN AND SHALLOW
consistent science-based metrics and monitoring for biodiversity
outcomes. Ever-expanding, sometimes proprietary metrics and
heterogeneous categorizations of biodiversity impact mean it is
dicult to know what is being measured and managed, as well as
the outcomes and impacts (see Appendix A). is is in part because
biodiversity is a complex, interconnected, and non-fungible quality
of particular ecosystems subject to ongoing scientic measurement
debates (Mace et al 2018),1 but more important because biodiversity
gains and losses are challenging to measure without multiple
baselines and high levels of monitoring. ese levels of monitoring
are expensive for private actors and are rarely present even in highly
regulated and well-funded government processes like environmental
impact assessment (Dibo et al 2018, Bigard et al 2017, Khera and
Kumar 2010).2
Many attempts to make biodiversity conservation investable rely on
some type of payment generated through the protection of certain
ecosystem services such as carbon sequestration or water quality.
While only a fraction of payment for ecosystem services (PES)
projects are driven by private investment or even markets (see point
2 below), there is a large body of research dedicated to understanding
their social and ecological outcomes. is research concludes that
these eorts rarely measure impacts on biodiversity as an explicit
or measurable outcome, and where they do measure, outcomes
typically refer only to habitat conservation for a single species (Calvet-
Mir et al 2015; see broader review in Appendix C). Evidence in the
literature also suggests that the carbon-driven policy frameworks
in initiatives like REDD+ fail to address drivers of biodiversity loss,
and in some cases may accelerate them or undermine local practices
that sustain biodiversity, even where co-benets are ostensibly
prioritized (Krause and Nielsen 2019, Milne et al 2019, Bayrak
and Marafa 2016).3 ere is growing awareness that approaches to
managing climate change through negative emission projects and
5
carbon osets (e.g., nature-based solutions) have led to negative
biodiversity and human rights impacts (IPBES and IPCC 2021),4
and may serve to legitimate environmentally-harmful industries
while doing little to address drivers of biodiversity loss and climate
change. Even the largest biodiversity-related PES market, habitat
mitigation banking or ‘biodiversity osets’ operating mainly in
developed countries (USD 6.3–9.2 billion per year in 2019, Deutz
et al 2020), has been found to use narrow measures of ecosystem
functions and overly simplistic metrics (Marshall et al 2020). One
recent systematic review assessing biodiversity osets concludes
that they largely ‘fail to conserve the key ecological values they seek
to protect’ (ibid p 1).5
Some asset classes and vested projects use land cover, agroforestry
practices, or forest cover as proxies for biodiversity outcomes,
a practice not accepted by ecologists as direct evidence as to
biodiversity outcomes (Chen et al 2020).6 is is particularly a
problem when forest cover metrics include measures of plantation
forestry, which can threaten biodiversity (Daniels et al 2010). is
is exemplied in the data on green bonds reporting. Some research
suggests that 0.5–5% of total capital raised via green bonds ows
directly or indirectly towards biodiversity protection measures.7 Yet,
the higher estimates (3–5%) derive from totalling up funded projects
in the ‘land use’ category, which includes agriculture, commercial
forestry, sheries and aquaculture, and supply chain management
(Almeida and Lonikar 2021), some of which may also have negative
impacts on biodiversity. Only half of the land use green bonds cite
impact in terms of area conserved or protected, itself a crude metric
for biodiversity impact (ibid).8 A crucial issue in the green bonds
market has been that although it increases transparency in the use of
bond proceeds, the typical green bond makes it dicult to sanction
the issuer if they report on or use bond proceeds inappropriately due
to lack of legal agreements and standards in relation to information
Key Insights
6 THIN AND SHALLOW
ows and the nancial value that environmental benets provide
(Jones et al 2020).
As a result of the growing awareness about investment owing to
sectors harmful to biodiversity,9 there has been a urry of activity
in investment risk management, namely through the incorporation
of ESG data and through various investor coalitions and principles,
which largely remain voluntary.10 As part of this wider ESG turn
over the past 15 or so years, it is now common for asset managers
to sign on to agreements like the Equator Principles or the UN
Principles for Responsible Investment (PRI), which suggest that
banks or other nancial institutions will benet from limiting their
exposure to environmental and social risks, such as biodiversity
loss. e track record of previous and ongoing eorts are hard to
distill due to lack of consistent metrics and also poor transparency,
but they appear to be weak, subject to leakage (Garrett et al 2019),
and largely ineective in ‘materially reducing the ows of nance to
unsustainable activities’ (Kedward et al 2020; see also Suttor-Sorel
and Hercelin 2020).11 Similar issues occur with biodiversity-specic
exchange-traded funds (ETFs).12 e problem of ESG greenwashing
was recently recognized by the International Monetary Fund (IMF),
which noted that ‘proper regulatory oversight and verication
mechanisms are essential to avoid greenwashing’ (Flood 2021), a
step that the European Union (EU) has begun to take (Ainger et al
2021). While regulations like these may discourage fund managers
from actively mislabelling portfolios, they cannot cope with the
underlying structural contradictions of ESG labelling and investing,
as recently highlighted by the ex–Chief Investment Ocer for
Sustainable Investing at BlackRock; Fancy (2021) notes that
‘protecting an investment portfolio from the disastrous eects of
climate change is not the same thing as preventing those disastrous
eects in the rst place’.13 at is, even if more capital ows into
vetted ESG portfolios, it does not necessarily follow that capital will
7
ow out of securities that are doing planetary harm and is far from
addressing the underlying drivers of biodiversity loss as called for
by scientic bodies.
A key challenge with these approaches and ESG more generally
is that by and large the private sector controls the denition of
what is included as ‘green’ through a proliferation of proprietary
ratings tools and metrics that are not transparent and dicult or
impossible to evaluate. ese conditions allow asset managers to
decide what constitutes biodiversity impact, which risks a kind of
‘green regulatory arbitrage’ in which investors can shop around to
nd the highest ESG ratings for their portfolios (Gabor 2021 p 445).
In some cases the nancial sector lobbies against the creation of
strong green and dirty public taxonomies, as evidenced in the EU
most recently where the nancial sector was the largest lobby group
opposing the creation of a dirty taxonomy (Schreiber et al 2020).
ese patterns demonstrate the insights noted by Kedward et al
(2020) and also ones outlined in the NGFS-INSPIRE interim report
(2021), that biodiversity risks are in part driven endogenously from
within the nancial system itself, which continues to channel capital
into practices and sectors known to degrade biodiversity.
2. Investments remain small and dicult to scale
l Low rates of return, high risk, long timelines and high
transaction costs hinder investment and scalability.
l Mobilizing and scaling private nance towards biodiversity
protection is challenging because most biodiversity-positive
outcomes do not create revenue.
l ese nancial products do not address the drivers of
biodiversity loss as identied by the Intergovernmental
Key Insights
8 THIN AND SHALLOW
Science-Policy Platform on Biodiversity and Ecosystem
Services (IPBES).
l ere is little evidence that return-generating biodiversity
conservation will deliver large amounts of new funding to
biodiversity.
Investment in return-generating conservation projects remains tiny,
particularly in comparison to estimates of nancial ows degrading
biodiversity. We summarize some estimates of the size of biodiversity-
positive investments in Appendix B along a selection of asset classes,
although these gures should be tempered with concerns about the
lack of clear denition and measurement agged above. One report
estimates the total value of ‘green nancial products’ at between
USD 3.8–6.3 billion per annum; by comparison, it is estimated
that there is USD 78.6–87.4 billion per annum in public funding
to biodiversity conservation. Low rates of return, high risk, long
timelines and high transaction costs all hinder investment and
scalability, with few projects demonstrating that they are ‘scalable
beyond the USD 5 million threshold’ (Huwyler et al 2016 p 13;
see also Suttor-Sorel 2019, Tobin-de la Puente and Mitchell 2021),
rendering most biodiversity conservation projects too small for the
green bond market (the primary driver of ‘green’ private nance at
present) (Tobin-de la Puente and Mitchell 2021).
e forest carbon market has long been mooted as a route to channel
money into conservation. But the substantial public investments
(~EUR 17 billion from 2008–2015) into carbon oset projects and
global implementation frameworks including REDD+, integrated
forest management (IFM), and re/a-forestation have leveraged very
little private interest: the total value of all voluntary carbon osets
(not just land- or forestry-based osets, which accounted for about
37% of all voluntary carbon osets in 2019) was around USD 6.7
9
billion from the launch of the concept in the early 2000s to August
31, 2021; in 2019 (the year for which data is most recently available)
forest-based carbon osetting generated less than USD 200 million
in global transactions (Forest Trends 2021, Maguire et al 2021).
Looking at the whole scope of PES projects, one systematic review
paper found that they were oen ineective and wholly insucient
in generating the needed resources for biodiversity conservation
(Hein et al 2013; see Appendix C); some estimate that the total
nancing needed to preserve global biodiversity is estimated at USD
722–967 billion per annum until 2030 (Deutz et al 2020).
In an attempt to overcome the above challenges to securing
investment, many conservation nance projects have relied upon
blended nance, an approach to co-nancing in which public or
philanthropic nance or policies de-risk private investments. But this
has not catalyzed signicant new sources of funding for biodiversity
conservation, nor has it worked to produce any semblance of a
market in biodiversity-positive outcomes. For example, according to
Organisation for Economic Cooperation and Development (OECD)
data, private nance leveraged by the Global Environment Facility
for projects that included a biodiversity component was estimated
at only USD 41–155 million (2015–2017 average) (OECD 2020a).
Some researchers raise concerns that further recongurations of
state capacity to meet the needs of private nance erode government
capacity to adequately address environmental risks.14
Mobilizing and scaling private nance towards biodiversity protection
is challenging because most biodiversity-positive outcomes do not
create a revenue source, so there is little cash ow that would make
a biodiversity project investable (Suttor-Sorel 2019, Chenet 2019,
Dempsey and Suarez 2016). Biodiversity is not easily standardizable
and does not always have clearly-dened beneciaries or existing
institutions governing its distribution. Furthermore, markets in
Key Insights
10 THIN AND SHALLOW
biodiversity-positive outcomes are hampered by the same lack
of funding that limits other, non-market-oriented strategies for
biodiversity conservation (e.g., publicly funded protected areas
establishment and management), raising questions about their
capacity for capturing signicant new resources (Salzman et al 2018,
Hein et al 2013).15 But even eorts to monetize ecosystem services
like carbon and water that have some market value face challenges,
not only due to the complexities of relationships but also because of
resistance to privatization of public ecosystem goods and services
(e.g., Dempsey 2016, Hache 2019; also recall from above that positive
ecosystem service gains are not necessarily proxies for biodiversity
gains). Several high-prole reports conclude that there are limits
to the role private nance and markets can play in mitigating the
biodiversity crisis, pointing to the need for government action
for transformative change (e.g., Dasgupta 2021, Convention on
Biological Diversity 2021).
Even projects that seek to overcome these challenges present a
range of incongruencies with traditional investment expectations,
the result being that the eld of return-generating conservation
projects remains dominated by boutique mechanisms which have
not made a material impact on the pace of ecological degradation
nor shied the underlying and direct drivers of biodiversity loss
identied by IPBES. A key nding of this research is that the
projects that have demonstrated positive social and biodiversity
outcomes are those in which community participation in design and
implementation is high, existing values and knowledge systems are
prioritized, and governance institutions are aligned (see Appendix
C). ese factors make such projects dicult to replicate and scale
due to high transaction costs, low returns and liquidity, lengthy
community consultation processes, and long time frames for
investors, highlighting the challenges of creating a private market
for sustainable, high-quality projects. Such ndings also point to the
11
limitations of assessing indicators for biodiversity-positive projects
apart from the alignment and participation of the communities in
which these projects exist.
3. Geographical distribution of investment does not always
match areas with high biodiversity
l For-prot biodiversity nance is oen geographically
constrained, with the majority of investment occurring in
the Global North.
l e geographical distribution of investment does not
correspond with areas of high biodiversity.
While it varies by mechanism, much of this private investment is
owing to the North, and certainly not to least developed countries
(LDCs), a problem recognized by sector participants and advocates
(Deutz et al 2020).16 A recent (2020) BIOFIN report notes that impact
investing in conservation is concentrated in the US and Europe, only
recently reaching developing countries (BIOFIN 2020). is point is
echoed by several other researchers who point out that the risk and
return expectations of investors for certain regions, especially in the
Global South and in LDCs with much of ‘the greatest biodiversity
value’, are barriers to garnering investment in these places (Deutz
et al 2020 p 154; see also Hamrick 2016, Suttor-Sorel 2019). Similar
patterns are found in green bonds, where about 80% of all issuances
originated in developed markets in 2020, with little labelled debt
issued by highly biodiverse countries in the Global South, according
to the Climate Bonds Initiative (Harrison and Muething 2021).17
Findings from the OECD’s 2020 assessment of private nance for
sustainable development demonstrate these trends more broadly: it
found that only 5.3% of this private nance went to least developed
countries and other low-income countries between 2017–2018
Key Insights
12 THIN AND SHALLOW
(OECD 2020b). Similarly, a survey by the Global Impact Investor
Network (GIIN) found that not only is a very small share of impact
investments targeting Sustainable Development Goal (SDG)14 (Life
Below Water) and SDG15 (Life on Land), but these investments
tended to go to developed markets (Mudaliar et al 2017). e take-
home is that only slivers of these already small slivers of private
nance ow to areas with the largest biodiversity risks.
One slight exception to this is the forest carbon market. With all the
caveats about the small size and the questionable impact of forest
carbon osets on biodiversity (outlined above), in 2019, 86% of
forest carbon credits came from Indonesia, Peru, Kenya, Brazil, the
US, Guatemala, Zimbabwe, and Ethiopia (Maguire et al 2021). e
latter do represent some of the world’s most biodiverse countries,
but certainly not proportional to biodiversity risk globally and tilted
towards middle- and high-income countries.18
4. Eorts to make biodiversity investable are not new
l Decades of attempts to make biodiversity conservation a
return-generating endeavour have not succeeded at any
signicant scale; continuing to treat this approach as tenable
inhibits action.
Eorts to turn biodiversity into an asset go back at least 30 years. At
the Rio Earth Summit in 1992 it was thought that genetic resources
found in intact tropical forests (through ‘bioprospecting’) would
become an investable asset because of their uses for agribusiness,
pharmaceuticals and other biotechnology-based industries. e 1987
Brundtland report Our Common Future (which laid the groundwork
for Rio) optimistically predicted that the economic value in genetic
resources alone would be ‘enough to justify species preservation’
(WCED 1987 p 155); yet one recent review article concludes that
13
very little royalty payments from bioprospecting ‘owed back to
biodiversity-rich nations’, because ‘very few marketable discoveries
were made’ (Miller 2015).19
As the carbon market ramped up in the mid-2000s, it was thought
that climate action would fund biodiversity conservation. e 2008
UK-sponsored Eliasch report concluded that including REDD in a
carbon trading system could provide billions in nance to reduce
deforestation rates up to 75% by 2030, while in 2010 Richard Sandor,
founder of the Chicago Climate Exchange, proclaimed that carbon
would soon be the most traded commodity in the world; instead,
the Exchange folded seven months aer he made that statement and
oset volumes have only recently returned to 2008 levels (Forest
Trends 2021, Erlich 2010).20 As researchers of these eorts, we ask:
is this time dierent, and if so why?
Our provisional answer based on the insights above is that it seems
highly improbable that private nance will crowd into biodiversity
like it has for investments to address climate change (as inadequate
as those are compared with the transitional need). Moreover,
eorts to merge climate and biodiversity objectives through these
mechanisms (such as the rebranding of ‘nature-based solutions’)
should be understood within this longer history, and within the
scope of funding deemed necessary for meeting biodiversity
objectives. is evidence, in accordance with IPBES ndings on the
unprecedented pace of nature loss, points to the necessity of treating
biodiversity and associated ecosystem services as a public good, one
that has not been shown to benet from integration into nancial
mechanisms. From this research, we conclude that the irreducible
complexity of biological systems presents the impetus to take
precautionary action, especially in comparison with waiting to see
if a market for biodiversity-positive investments will develop.
Key Insights
14 THIN AND SHALLOW
Given that these biodiversity-positive investments are marginal and
unproven, particularly when one compares the scale and impact
with what is called for by IPBES, our primary recommendation is
that central banks avoid deploying resources towards promoting
or expanding these private sector nancial products. e market
is not responding to systemic biodiversity risks and there is little
evidence that it will or can at the pace and scale needed to address
them. Further, the use of public funds or central bank levers to
entice private capital into this unproven space could not only lead
to economic ineciencies but also perversely increase systemic
biodiversity risks.
Given that the market has limited capability to attenuate biodiversity
risks, policy action will be necessary. In particular, disincentivizing
biodiversity-negative investment appears to be a more eective way
to address biodiversity risks than attempts to make biodiversity
conservation investable. For example, through the creation of
a ‘dirty’ taxonomy, central banks could delimit a minimum
performance threshold regarding biodiversity and exclude
securities that do not make the cut from future asset purchase
programmes. But while this type of measure could send useful
market signals, it is no substitute for legislative and regulatory action.
erefore, we recommend central banks consider opportunities
to step up policy coordination to address biodiversity decline.
Central banks – with their awareness of the potential risks to the
Key Messages for Central Bankers
and Financial Supervisory Bodies
15
nancial system stemming from biodiversity loss and impacts
of the nancial sector upon biodiversity loss – should work with
governments to enhance their responses to biodiversity loss.
Central banks can provide assessments of the challenges to inform
real economy and nancial system reforms. We also recommend
that nancial supervisors with consumer protection authorities
regulate the biodiversity nancial product space to reduce
greenwashing and clearly require science-based metrics, follow-up
monitoring and transparent, third-party reporting.
Finally, we recommend two spaces of further research or collaboration
for central banks. First, central banks should work to understand
the endogenous risks that are posed by nancial institution
behaviour – including but not only lobbying against regulations and
dirty taxonomies – that limit state responses to risks. e scale and
power of the nancial sector to inuence regulation may, in this case,
be partially responsible for stalled state responses to biodiversity risk.
Second, central banks should further research measurements of
biodiversity-harming investments or portfolios (e.g., the Global
Biodiversity Score), working closely with ecologists to verify that
the projections of these tools are science-based and transparent.
Collaboration with scientists, including those involved with IPBES,
will help ensure that projections are credible, which will both
improve central bank monitoring of biodiversity risks, and provide
tools to combat issues of greenwashing in the nancial sector.
Key Messages
16 THIN AND SHALLOW
Endnotes
1 While many projects aim to quantify their biodiversity impacts
through proxy measurements, these proxies are limited in what
they can communicate about biodiversity or ecological integrity;
for example, see Brown and Williams’s (2016) argument that ‘proxy
variables used to represent biological diversity, such as habitat
(vegetation) metrics and vascular plant species diversity, are not
empirically correlated with diversity of a range of taxa or of other
components of the biota’. Consider also the Intergovernmental
Science-Policy Platform on Biodiversity and Ecosystem Services
(IPBES) Global Assessment Appendix on Knowledge Gaps which
includes, for example, ‘Basic data on many taxa (86 percent of
existing species on Earth and 91 percent of species in the ocean
still await description)’ (IPBES 2019 p 55). See also Hanford et al
(2017).
2 However, the lack of agreed-upon metrics and monitoring for
biodiversity should not be conated with a lack of condence in
the drivers of biodiversity loss, as outlined by IPBES. IPBES has
identied the major direct drivers of biodiversity decline that must
be reversed – land use change, climate change, pollution, natural
resource use and exploitation, and invasive species (IPBES 2019)
– but the combined pace, scope and intensity of these drivers
means that conservation science is oen racing to catch up with
direct explanatory factors for species decline, such as those that are
factored into ‘biodiversity metrics’ for investors. To take just one
example, a long-term (27-year) study of insect biomass in protected
areas in Germany found dramatic declines (>75%, far above global
vertebrate decline estimates) that could not easily be explained by
habitat composition, land use, or climate change, with researchers
only able to guess at explanatory large-scale factors, such as drought,
17
pesticide use, or year-round tillage (Hallmann et al 2017). ese
ndings are concerning given the ‘cascading eects across trophic
levels and numerous other ecosystem eects’ of insect decline, and
the explicit focus on areas established for biodiversity conservation
(ibid). While these declines likely threaten overall species richness,
insect biomass is itself not a direct proxy for insect biodiversity
(Vereecken et al 2021, Hallmann et al 2021). A precautionary
approach to biodiversity loss thus understands that waiting for
models that can directly quantify which behaviours drive what kind
of decline may mean delaying action far past the point of extinction,
at which point we must ask what use they serve.
3 REDD+ is an initiative under the United Nations Framework
Convention on Climate Change (UNFCCC) and the United Nations
which aims to reduce climate-change-causing emissions through
improved forest management in developing countries.
4 Human rights impacts include land dispossession, weakening
land rights or land tenure, and increased inequality or tension within
communities (e.g., Clark, Reed and Sunderland 2018, Suttor-Sorel
2019). See also the review in Appendix C.
5 e study of 255 peer-reviewed publications indicates a notable
disconnect in how biodiversity is measured when osets are planned
compared with when their outcomes are evaluated (Marshall et al
2020).
6 For instance, while Costa Rica’s PES programme includes
biodiversity conservation as a goal, it relies solely on forest cover as a
proxy measure for ecosystem services, a metric which indicates little
about biodiversity outcomes in a context where PES also includes
payments for plantation forestry (Daniels et al 2010, Lansing 2013).
Endnotes
18 THIN AND SHALLOW
7 Low range of 0.5–1% from Tobin-de la Puente and Mitchell
(2021), Deutz et al (2020). 3% from Chahine and Liagre (2020), 5%
from Harrison and Muething (2021). e latter two numbers are the
share of ‘land use’ green bonds as part of the green bonds market.
8 Analysis by the Luxembourg Green Exchange (LGX) and the
Global Landscapes Forum (GLF) also calls into question these
categorizations (Chahine and Liagre 2020).
9 e studies of the impacts of the Dutch and French nancial
systems are instructive in this regard. e former study (van Toor
et al 2020) found the biodiversity footprint of the Dutch nancial
system to be comparable to a loss of 58,000 km2 of pristine nature,
the latter (Svartzman et al 2021) to a loss of at least 130,000 km²
of ‘pristine’ nature. Neither of these states a quantitative portion of
the nancial system that funds biodiversity loss, but several other
research reports do calculate estimates. For example, one study
implicates 150 nancial institutions in providing USD 5.5 trillion to
what it denes as forest-risk companies (omson 2020); another
found that the world’s largest banks invested USD 2.6 trillion in
sectors known to degrade biodiversity (Portfolio Earth 2021); and
another recently estimated that nancial institutions made USD
1.74 billion in deforestation-adjusted proceeds from deals with some
of the world’s most harmful deforesters since the Paris Agreement
adoption in 2015 – it estimated the total value of these deals at USD
157 billion (Global Witness 2021).
10 ere are some exceptions, such as a recent French law that
requires disclosure of biodiversity-related nancial risks.
11 For example, banks that subscribe to the Equator Principles, such
as Barclays and JPMorgan Chase, have repeatedly come under re
for approving environmentally-harmful projects such as oil, gas,
19
and mining (Hennig and Wörsdörfer 2015). A similar situation
exists with PRI, which is a cohort of institutional investors who have
agreed to invest with ESG principles at the fore. While signatories
report on their achievements in line with the principles, they remain
entirely voluntary with no internal enforcement. As Rowe et al
(2019) note, ‘PRI has no requirement that investors implement [their
principles], and research suggests that it fails to hold signatories to
any minimum standard of practice in their investment activities’.
Another researcher summarizes that the only aspect of the nancial
sector that responsible investment programmes are likely to shi is
discourse; thus far they’ve proven to lack the teeth to support any
material change beyond this (Clapp 2017).
12 For example, F4DU’s largest holdings include Nestle and
McDonald’s, while VEGN’s holdings more closely resemble a large
cap tech fund, with Microso and Nvidia being the two largest
components of the fund. We are unable to assess the criteria and
metrics used for impact on biodiversity in these funds (see Appendix
A). As with biodiversity investing in general, capital ows targeted
at biodiversity impacts through ETFs are dwarfed by climate
counterparts, and a substantial proportion of climate-themed
ETFs have signicant holdings in companies that contribute to
deforestation in the agri-food, pulp and paper, and mining sectors,
among others.
13 Fancy notes, ‘Immediately aer leaving BlackRock, I had reached
the conclusion that our work in sustainable investing was like selling
wheatgrass to a cancer patient. ere’s no evidence that wheatgrass
will do anything to stop the spread of cancer, but it’s tempting to
believe it, especially when the doctor is advising chemotherapy’
(Fancy 2021). is quote is illustrative of the broader shortcomings
of ESG labelling, a ‘dangerous placebo’ at best, even if labelling
regulations remove outright fraud.
Endnotes
20 THIN AND SHALLOW
14 Recent reports suggest that lling the biodiversity nancing gap
requires governments to further catalyze private sector investment
into the area, akin to what has been called for in the development
banks’ Billions to Trillions development agenda or what Gabor
(2021) describes as the Wall St Consensus. e hope is that blended
nance, by mitigating risk for capital, can facilitate increases in
‘biodiversity-positive’ investments and the growth of projects, but
there are concerns over this approach, as it guarantees the incomes
of investors and investment bankers while the risks of failed projects
fall to the public (Mawdsley 2018). It is also important to note that
blended nance or de-risking schemes re-make and re-congure
the role and capacities of governments, many of whom are already
denuded due to decades of austerity, to suit these ventures (Bigger
and Webber 2021). Some suggest that a ‘de-risking state’ reduces
state capacity to address growing climate and biodiversity challenges,
protects nancial capital more than it does the planet, and increases
the dependence of the state on private nance, subjecting what
are crucial public goods and services to new vulnerabilities due to
exposure to ‘volatile portfolio ows’ (Gabor 2021 p 432).
15 Based on their systematic review of PES projects, Hein et al
(2013) conclude that ‘[c]ontrary to existing PES schemes, [a new]
funding mechanism should nance the long-term conservation
of biodiversity in low-income and middle-income developing
countries per se, that is, regardless of any other ecosystem services
provided by an ecosystem’.
16 Deutz et al (2020) note that ‘Geographic areas of greatest
biodiversity value are oen located in less developed countries
where upfront costs are higher and capital markets are harder to
access’.
17 Nigeria, Egypt and Seychelles were the only African sovereign
21
green bond issuers in 2020, according to the Climate Bonds Initiative.
ey issued USD 0.92 bn in sovereign bonds in total (Harrison and
Muething 2021 p. 15). Poorer countries have less capacity to issue
labelled debt and debt is more expensive to access, if it is accessible
at all, due to their credit ratings (Jones et al 2020). is tendency has
only been exacerbated during the pandemic, with very few African
countries being considered investment-grade by rating agencies
aer the pandemic (Patel et al 2021). In order to access green bond
markets, Global South countries have had to go through the World
Bank or other multilateral development banks that have better credit
ratings and can pool multiple smaller projects (Banga 2019).
18 It is worth noting that virtually all forest-based carbon osets
produced in the US and Australia (which command, by far, the
highest market value) are transacted domestically, meaning that
the majority of US and Australian demand is fullled domestically,
while most Global South forest carbon osets emissions in Europe
(Maguire et al 2021). Of osets produced in the Global South, 38%
come from Latin America, with Peru, Brazil, and Guatemala as the
three largest producers (in that order), while the 27% of global forest-
based carbon osets created in Africa are almost entirely sourced
from East Africa. e remainder of Global South osets come almost
entirely from Indonesia, the largest producer of land-based osets
in the world. e US is an interesting outlier in the Global North,
as its supply and demand are almost perfectly balanced at around 3
million tCO2, but command prices 2.5x greater than REDD+ credits
in the Global South. So even as funding needs are greater in the
Global South, higher prices go to richer countries (ibid).
19 Perhaps most telling is that bioprospecting is not listed as a
source of nance for biodiversity in any of the recent biodiversity
nance assessment reports (Deutz et al 2020, Tobin-de la Puente
and Mitchell 2021).
Endnotes
22 THIN AND SHALLOW
20 While markets picked up in 2021 as spot prices on the voluntary
carbon market grew as much as 50% year-on-year, the market
remains far below long-running promises from the industry, in part
driven by failures to adopt strong policy that incorporates forest
carbon osetting from the Global South in Global North countries.
23
Appendix A
Sample of Metrics Used in Assessing
Biodiversity Impact
is is not a comprehensive table, but shows the variety of metrics
used.
Type of Standard
Climate,
Community &
Biodiversity
Standard (used to
certify nature-based
carbon osetting
projects)
Metrics
Largely undened, accepted on a project-by-
project basis using ‘appropriate methodologies’.
Focus on ‘High Conservation Value’, Protected
Areas, reatened Species, Endemic Species,
and areas of ‘signicant concentration’ for single
species. For ‘exceptional’ areas of biodiversity,
relies on single endangered or threatened
species census.1
Deforestation Free
Funds (metric for
ETFs)
Identies companies with signicant product
lines in activities that entail biodiversity risk,
then identies funds that hold those companies.2
Iceberg Data
Lab Corporate
Biodiversity
Footprint (used by
Ossiam Food for
Biodiversity ETF)
‘is metric reects the extent to which
ecosystems aected by a company’s business
have been degraded from their pristine natural
state. e score factors in a company’s land use,
nitrogen deposition, GHG [greenhouse gas]
emissions and release of toxic compounds.’3
Global Impact
Investor Network
(GIIN) Standards:
IRIS
IRIS+ provides a catalogue of standardized
metrics. Impact measures can be both negative
and positive. Impact measurement ranges from
binary to continuous variables. Impact investors
themselves choose which variables to include
in their own 'key indicator'. According to GIIN,
24 THIN AND SHALLOW
'half of all impact investors and the majority of
fund managers, banks, and DFIs [development
nance institutions] use IRIS metrics and over
15,000 stakeholders around the world have
registered to use the IRIS+ materials'.4
For natural habitats:
— km² of protected area and % increase
— ‘Absolute number of predened target
organisms and species per km² (bigger
fauna) or m² (smaller fauna and ora) before
and aer the project’
— ‘Absolute number of protected and/or
priority species that are deemed sensitive in
protected/conserved area before and aer the
project’
— ‘Changes in the CO₂, nutrient and/or pH
levels for coastal vegetation, and coral reefs
in %’
— ‘Absolute number of invading species and/or
area occupied by invading species in m² or
km² before and aer the project’
Landscape:
— ‘Maintenance/safeguarding/increase of
natural landscape area (including forest) in
km² and in % for increase’
— ‘Maintenance/safeguarding/increase of
natural landscape area in urban areas in km²
and in % for increase’
— ‘Increase of area under certied land
management in km² or m² and in % (in
buer zones of protected areas)’
— ‘Absolute number of indigenous species,
ora or fauna (trees, shrubs and grasses…)
Green Bond
Principles5 (Note
that these are
suggested metrics,
remain voluntary
and that GBP focus
on processual
issues related to the
use of proceeds;
process for
project evaluation
and selection;
management of
proceeds and
reporting)
25
1 https://verra.org/wp-content/uploads/2017/12/CCB-Standards-v3.1_ENG.pdf
2 https://deforestationfreefunds.org/companies
3 https://www.icebergdatalab.com/solutions.php
4 https://iris.thegiin.org/metrics/?search=&category%5B%5D=cat-biodiversity-
and-ecosystems&sortby=alphabetical
5 https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/
Standalone-Biodiversity-Impact-Metrics-April-2020-200420.pdf
6 https://www.climatebonds.net/les/reports/cbi_post_issuance_2021_02f.pdf
restored through the project’
— ‘Annual GHG emissions reduced in tCO2-e
p.a.'
Climate Bonds
Initiative6
(In contrast to
the processual
focus of GBP, CBI
actively provides
denitions of
green projects,
which inform CBI
certication)
CBI provides dierent categories for its bond
issuance. e category that covers biodiversity
is 'land use'. e most used reporting metric for
this category is 'Area/length protected/
conserved/managed/built'.
Appendix A
26 THIN AND SHALLOW
One recent report (Deutz et al 2020) estimates the 2019 total value
of 'green nancial products' to be between USD 3.8–6.3 billion per
annum, although these gures should be tempered with concerns
about the lack of clear denition and measurement of 'biodiversity-
positive' or 'green' impacts. By comparison, it is estimated that
there is USD 78.6–87.4 billion per annum in public funding to
biodiversity conservation; the total nancing needed to preserve
global biodiversity is estimated at USD 722–967 billion per annum
until 2030 (Deutz et al 2020). With the caveats about impact and also
questionable measuring of the scale of nancial ows, we summarize
some more specic estimates of size below, drawing from a range of
reports. is is not a comprehensive table.
Appendix B
Estimated Size of Private Biodiversity-Positive
Investment
Mechanism Size
Green private
equity
USD 2.3–3.0 billion per year (2019, Deutz et al
2020)
Represents less than 0.5% of the total private
equity impact investments market.
Green bonds Estimates range from 0.5–5% of total capital
raised via green bonds directly or indirectly
allocated towards biodiversity protection
measures.7 With the green bonds market
reaching a size of USD 290 billion in 2020, a
27
7 Low range of 0.5–1% from Tobin-de la Puente and Mitchell (2021), Deutz et
al (2020). 3% from Chahine and Liagre (2020), 5% from Harrison and Muething
(2021 p 9).
8 is is based on the assumption that the 5% of the green bonds market
targeting 'land use' were all targeting biodiversity specically (Harrison and
Muething 2021 pp 5, 9). See point 1 under ‘Key Insights’.
9 See Beck et al (2019) and Christiansen (2021) for a review of cases.
Out of the plethora of insurance techniques
trying to support biodiversity, the parametric
insurance for a Mexican coral reef is the only
nalized deal. is has an insurance cover of
USD 3.8 million. Besides the USD 4 million
Forest Resilience Bond — which is not an
insurance product per se but is supported by an
insurance company — we do not know of any
more examples that have been implemented
yet.9
very optimistic assessment would be that USD
14.5 billion was for biodiversity.8
Habitat banking/
biodiversity osets
USD 6.3–9.2 billion per year (2019, Deutz et al
2020)
Nature-based
solutions and
carbon markets
USD 0.8–1.4 billion (2019, Deutz et al 2020)
Biodiversity ESG
ETFs
We are only aware of two ETFs that explicitly
target biodiversity impacts: the Ossiam Food for
Biodiversity ETF (F4DU) with USD 9.4 million
under management, and Beyond Investing’s
VEGN US Large Cap Vegan fund with total
assets of USD 64 million.
Insurance
Green loans,
sustainability-
linked loans
Minimal use for biodiversity so far.
Appendix B
28 THIN AND SHALLOW
Appendix C
Payments for Ecosystem Services and
Biodiversity Outcomes
Review of PES programmes conducted by Sara Nelson
(University of British Columbia) and Elizabeth Shapiro-Garza
(Duke University)
According to the theoretical model, PES focuses on a specic
ecosystem service or set of services that can be voluntarily
purchased or subsidized by downstream users who compensate
service ‘providers’ for ecosystem management activities upstream
thought to increase the production of ecosystem services. Based on
this model, creating market, or market-like, arrangements between
users and providers of ecosystem services will provide access to new
funding for conservation and increase its eciency as those paying
will be highly motivated to ensure that targets are achieved.
A review by Hein et al (2013) addressed the eectiveness of PES as a
resource mobilization strategy under the Convention on Biological
Diversity (CBD). at review concluded that, while PES sometimes
served as a useful tool for advancing implementation, it was not
sucient to address biodiversity funding needs. is review also
found that employing PES to achieve biodiversity conservation
goals posed a number of problems concerning the specic focus of
programmes and the metrics used to monitor them, the sustainability
and reliability of nance, and the diculty of valuing multiple
ecosystem services produced by a single landscape. While such
29
programmes have become ubiquitous for ecosystem services such as
water quantity and quality, carbon, erosion control, and even 'scenic
beauty', PES for biodiversity 'has been slowest to take o, due largely
to the typically low availability of nancial support for biodiversity
conservation' (Ingram et al 2014 p 10; see also Salzman et al 2018,
Wunder and Wertz-Kanounniko 2009).
Although theorized as being funded by markets for ecosystem
services, most PES initiatives are government-funded or, similar
to REDD+, nanced through 'blended' or hybrid approaches.
According to a 2018 review, there are 120 habitat and biodiversity
PES programmes globally, 86% (104) of which are compliance-
driven rather than buyer-driven (Salzman et al 2018 p 138). Belying
the goals and focus of the PES model, this indicates that such
programmes rely on strong regulatory frameworks for protection
of biodiversity, and are not demand-driven. Biodiversity outcomes
are more dicult to ‘sell’ and to measure in PES than ecosystem
services such as water or carbon. Unlike other ES, such as water or
carbon, biodiversity is not easily standardizable and does not always
have clearly-dened beneciaries or existing institutions governing
its distribution (in comparison to, e.g., water utilities). In a review of
the viability of PES as a strategy for global biodiversity nance that
responds to the 2008 CBD Resource Mobilization Strategy, Hein et
al note that:
'the complexity of ecosystem functioning is not easily
transferred to market prices. Ecosystem changes are subject
to complex dynamics including thresholds and irreversible
changes... Consequently, there may be major variations in
the societal costs and benets of preserving one additional
unit of an ecosystem, depending on the changes in ecological
processes as a function of that change' (Hein et al 2013 p
90).
Appendix C
30 THIN AND SHALLOW
e few existing biodiversity-focused PES initiatives tend to focus
only on specic protected species or those of interest to users
(buyers). e largest biodiversity-related PES market – habitat
mitigation banking mainly in developed countries – has been
criticized for prioritizing narrow measures of 'unbundled' ecosystem
functions that do not necessarily add up to holistic or sustainable
habitat preservation (Robertson 2006). Salzman et al also note that
data for the compliance mitigation market for streams and wetlands
is the 'least transparent', making global transactions dicult to track
(Salzman et al 2018). ese are estimated to be USD 2.5–8.4 billion
annually (ibid).
PES for biodiversity has been hampered by the same lack of funding
that limits other strategies for biodiversity conservation, raising
questions about its capacity for capturing signicant new resources
(ibid). Many studies have described the gap between the market-
based theoretical model of PES, which emphasizes private user
demand, and PES in practice (Muradian et al 2010, Shapiro-Garza
et al 2020). e track record of PES highlights the important role
that governments play in programme design, implementation,
monitoring, and nancing (Ola et al 2019). If these solutions are to
be pursued, they will need to be accompanied by long-term, reliable
public nance for conservation. Hein et al write that '[c]ontrary to
existing PES schemes, [a new] funding mechanism should nance
the long-term conservation of biodiversity in low-income and
middle-income developing countries per se, that is, regardless of
any other ecosystem services provided by an ecosystem' (Hein et
al 2013 p 91). A recent UN Conference on Trade and Development
(UNCTAD) report makes a related point, emphasizing that eective
market mechanisms rely on robust state policy and regulation that
dene them, drive demand, and ensure enforcement:
‘“market-like” solutions to the environmental breakdown,
31
such as carbon pricing or tax incentives, are only as good
as the state policies that dene them. e market does not
achieve remedies on its own accord. e use of pricing
disciplines has a place in a comprehensive global strategy
to arrest and reverse climate catastrophe, but they are, by
themselves, not a solution' (Gallagher and Kozul-Wright
2019 pp 22, 23).
In part because 'biodiversity conservation' is dicult to
standardize and measure, monitoring tends to be inconsistent
and/or insucient.
In part because there are few biodiversity-focused PES, evidence on
outcomes for biodiversity is limited. As noted above, biodiversity –
relying on complex relations among multiple ecosystem variables
– is more dicult to standardize and measure than some other
ecosystem services. A review by Calvet-Mir et al of biodiversity-
focused PES uses 'biodiversity' as a general term to refer to all
conservation outcomes, but only 17 of the 30 programmes reviewed
had biodiversity as an explicit focus, with 'biodiversity' in many of
these cases referring to habitat conservation for a single species
(Calvet-Mir et al 2015). Most of these programmes do not directly
monitor biodiversity outcomes, but use proxies such as land cover
or agroforestry practices to demonstrate biodiversity outcomes.
is is an important gap in research because such proxies do not
provide direct evidence as to biodiversity outcomes: for instance,
while Costa Rica’s PES includes biodiversity conservation as a goal,
it relies solely on forest cover as a proxy measure for ecosystem
services (Daniels et al 2010) – a metric which indicates little about
biodiversity outcomes in a context where PES also includes payments
for plantation forestry. As Hein et al point out, 'safeguarding the
supply of a specic ecosystem service does not necessarily involve
protecting the species or genetic diversity in the ecosystem', and
Appendix C
32 THIN AND SHALLOW
where biodiversity is not the explicit goal of PES, these programmes
may negatively impact biodiversity (Hein et al 2013 p 91).
Literature assessing outcomes specically for biodiversity in PES
is limited, and there is little consistency in methods for assessing
outcomes. Evidence in the review literature suggests that the
carbon-driven policy frameworks in REDD+ fail to address drivers
of biodiversity loss, and in some cases may accelerate them or
undermine local practices that sustain biodiversity, even where co-
benets are ostensibly prioritized (Krause and Nielsen 2019, Bayrak
and Marafa 2016). Even in those programmes that are explicitly
focused on biodiversity – such as the four programmes reviewed
by Ingram et al (2014) – these are oen not oriented towards
biodiversity as such but towards specic charismatic species of
interest to downstream users, such as sport hunters of wild turkeys
in Guatemala or ecotourism for birdwatching in Cambodia. In such
instances, '[l]and owners may not be interested in maintaining the
overall ecosystem, but may instead intervene to shape the ecosystem
to heighten specic attributes or the presence and visibility of species
attractive to tourists' (Hein et al 2013 p 91). e indirect and osite
outcomes of PES interventions, which may impact biodiversity
elsewhere, are also not well understood. David Lansing has shown
how Costa Rica’s PES has subsidized commercial forestry, resulting
in more homogenous 'plantation forests' planted with a majority of
a single non-native tree species used in the production of wooden
shipping pallets for export agriculture (Lansing 2013). Lansing thus
argues that 'PES payments for reforestation have become an indirect
subsidy for plantation agriculture' (ibid p 107), raising questions
about the broader impact of PES on drivers of biodiversity loss.
When driven by user demand (the market), PES initiatives are
vulnerable to market uctuations and tend to have an overly
33
narrow focus on species and solutions of direct interest to
buyers.
In contrast to government-driven PES programmes, user- or market-
driven programmes can expose both biodiversity outcomes and
participants’ livelihoods to new market risks. Ingram et al's review
of four PES programmes for biodiversity notes that 'because the PES
initiatives are highly demand-driven, the nancial sustainability
and long-term revenues for these projects are dependent on the
markets that exist for sport hunting, ecotourism, and certied rice'
(Ingram et al 2014 p 10). Because most PES require signicant
and oen irreversible changes in participants’ livelihood strategies
(such as abandoning farming activities), this means that both
biodiversity outcomes and participants’ livelihoods are subject to
risks of programme failure due to market changes or other variables.
Although PES are oen heralded as a more sustainable nancing
mechanism, this is only the case so long as biodiversity outcomes
remain economically valuable for downstream users, or if demand
is high for those services, and only insofar as programme costs can
remain competitive with regard to other sources of substitutable
ecosystem services.
e lack of funding for biodiversity-focused PES and the focus on
charismatic species highlight a key limitation of PES, insofar as
these programmes are only viable for ecosystem services that have
economic value for downstream users, or consumers. is means
that ecologically signicant but non-charismatic or geographically-
remote species are unlikely to benet from PES nance or ecotourism
revenues (Hein et al 2013). Green certication has similar limits,
insofar as 'the impact of such management in plantations is limited
to species whose presence can be reconciled with agricultural
production, which excludes a range of threatened species, such as
large mammals' (ibid p 89).
Appendix C
34 THIN AND SHALLOW
is raises a broader issue for understanding PES outcomes in general:
assessments of PES eectiveness (the degree to which programmes
achieve environmental goals) are narrowly dened according to the
market demand. is has led some scholars to conclude that user-
nanced PES programmes are more ecient than government-
nanced programmes because there is a strong incentive to impose
conditionality (payments are not made unless the ecosystem service
is produced) (Wunder et al 2008). is indicates the limited ability
of user-driven PES to address broader social and ecological issues,
especially if these programmes are made to conform to models of
market exchange between ecosystem service ‘buyers’ and ‘sellers'.
While they may succeed in enhancing ecosystem service ows to
specic users – which may range from urban water consumers to
agro-industrial interests (Nelson et al 2020) – this says little about
their implications for environmental health or sustainability in
general. In these instances such initiatives may primarily serve
to legitimate environmentally-harmful industries by partially
mitigating their impacts, while doing little to address fundamental
drivers of biodiversity loss.
e links between PES and export agriculture in Costa Rica,
mentioned above, reect broader concerns about 'leakage' in PES
and related programmes, i.e., that conservation interventions in
one area may simply displace destructive activities to other areas.
Leakage and other osite outcomes of PES programmes have not
been suciently addressed in the literature, and constitute an
important research gap: for instance, given that the majority of PES
programmes focus on changing or curtailing farming by small-scale
landholders, how might PES contribute to agricultural consolidation
and intensication, and with what social and environmental
eects?
35
A key lesson from the literature is the need to align programme
goals with drivers of biodiversity loss, interventions, and monitoring
(Panl and Harvey 2016). Inconsistent monitoring and metrics
make comparison of PES outcomes dicult in general (Calvet-
Mir et al 2015), but particularly so for biodiversity. If biodiversity
is to be a PES goal, robust monitoring for biodiversity outcomes
– beyond proxies such as forest cover or even single-species
surveys – is necessary. is presents a challenge to existing PES,
as monitoring increases transaction costs in PES and payments in
most programmes are currently determined through negotiation
between programme managers and providers or by at (for
instance, in government programmes) (Ola et al 2019). Establishing
eective monitoring and sucient payments requires signicant
contextual knowledge and interaction with prospective participants
as a necessary part of programme design (ibid, Leimona et al 2015).
Another key challenge lies in designing PES to address the drivers
of biodiversity loss or land conversion. Evidence from REDD+
programmes suggests that strong inuence of international donors
and monetary valuation of ecosystem services (carbon) can divert
attention from the drivers of forest loss (Milne et al 2019). is
means that, similar to other biodiversity conservation strategies, it
is vitally important to design PES in a context-specic manner – a
point that has been repeatedly stressed in the literature (Reed et al
2017, Barton et al 2017). is means that this approach is not easily
standardized across contexts, raising costs and limiting the potential
to ‘scale up’ PES programmes.
To support just and sustainable outcomes, PES programmes
should harmonize with existing values, knowledge systems, and
institutions, and be based on recognition of indigenous peoples’
and local communities’ rights.
Despite the challenges described above, there are some positive
Appendix C
36 THIN AND SHALLOW
examples of the potential for PES to support benecial biodiversity
outcomes. Although we have limited direct evidence on biodiversity
outcomes, we do have evidence of various factors that aect outcomes
in PES, positively and negatively, that provide lessons for biodiversity
conservation goals. In the case literature, holistic landscape
management of the type associated with biodiversity tends to be most
evident in programmes that substantively incorporate community
participation, and harmonize with existing values, knowledge
systems, and governance institutions that inuence extant land uses.
For instance, Dorligsuren and Uilst document participatory wildlife
monitoring and protection in a community-designed Mongolian
PES that centred traditional land use practices, arguing that this
participatory approach oers 'important benets for conservation
of key wildlife species, as do herders’ activities to protect wildlife
from illegal hunting and poaching' (Dorligsuren and Uilst 2019 p
21; see also Upton 2020). A review of community participation in
community-based PES (e.g., PES that enrols organized community
groups rather than individual landholders) found that 'community
participation had universally positive impacts on... compliance,
consensus-building, community assets, social capital, legitimacy and
environmental impacts', with communal contracts being the most
inuential type of participation positively aecting environmental
outcomes, alongside participatory governance and consultation
(Brownson et al 2019 p 9).
Case literature suggests that participation in programme design
and governance is important for supporting participant buy-in
and perceptions of legitimacy, incorporating traditional ecological
knowledge, and aligning participant values with programme
goals – all of which have implications for outcomes (Betrisey
et al 2018, Bayrak and Marafa 2016, Brownson et al 2019). For
instance, when their values are not represented in programme
design, participants may express them in ways that undermine
37
programme goals, including protest, non-participation, sabotage
and modifying conservation activities to prioritize other values
(Kauman and Martin 2014, Nelson et al 2020, Harrell et al 2016).
Failure to incorporate local ecological knowledge can also lead
to the elimination of land use activities that support biodiversity
(Bayrak and Marafa 2016 p 11). Recognition of land rights is also
an important motivator of participation: in Aboriginal-led carbon
farming programmes in Australia, Aboriginal ownership of land has
been critical to programme success (Jackson et al 2017), while in
community-based PES, formalization of community land rights has
enhanced participation (Brownson et al 2019). In contrast, where
PES programmes have conicted with traditional use or curtailed
land rights, land conicts have enhanced inequities, complicated
benet distribution, and undermined programme eectiveness
(Bayrak and Marafa 2016, Brownson et al 2019, Milne et al 2019,
Boerner et al 2017).
ese ndings suggest the importance of incorporating social goals
alongside environmental ones. A recent systematic review by Ola
et al of 56 programmes in Asia, Africa, and Latin America found
that 54% of these programmes attained ‘win-win’ outcomes' for
environmental and poverty-alleviation goals, with three decisive
factors: 1) high levels of payments that cover transaction and
opportunity cost of participants (found in only 41% of programmes);
2) monitoring of ecosystem services; and 3) equity (Ola et al 2019 pp
58, 62). In addition, adequate, reliable, and equitable benet-sharing
of biodiversity use is key to sustaining enrolment (Milne et al 2019,
Pascual et al 2014). Ola et al nd that 'establishing participatory,
distributive and contextual equity is essential' in the initial
assessment and design stage, and that '[t]he presence (absence) of
equity enhances (diminish) the impact of PES programs' (Ola et al
2019 p 62). Equity enhances trust among buyers and sellers of ES,
decreases transaction costs, and enhances safeguards for vulnerable
Appendix C
38 THIN AND SHALLOW
populations (ibid). Equity not only supports environmental
outcomes but is important in ensuring sustainable outcomes in PES
that are consistent with the Convention on Biological Diversity and
other intergovernmental agreements.
As discussed above, the majority of PES initiatives stray from the
original theory of user-driven, market transactions, and instead
are initiated, managed, and nanced by governments (Ola et al
2019). As user-nanced PES are less likely to integrate social goals
(Ingram et al 2014), this suggests a strong role for governments in
prioritizing equity objectives and aligning PES with other policy
frameworks. PES programmes have been shown to be more eective
when integrated with other poverty-reduction or environmental
policies. Locally-appropriate and robust safeguards against market
risks, and governance arrangements that empower local participants
in decision-making and integrate local ecological knowledge,
are necessary to support biodiversity outcomes and participant
livelihoods (ibid).
39
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