In an interview for MORFO’s white paper on The Future of Reforestation Carbon Credits, leader of the United Nations Environment Programme Finance Initiative's Nature program Jessica Smith shares her expertise and vision for mobilizing private and blended finance to support Sustainable Development Goals (SDGs) 14 and 15. Offering a detailed perspective on what defines a "nature-positive" investment for banks and companies, she emphasizes the importance of measuring such investments accurately while avoiding greenwashing. Furthermore, Smith delves into the development of a "biodiversity credit market," highlighting its role as a complement to the carbon market with the significance of biodiversity in these credits and the vital role of Indigenous Peoples and Local Communities in shaping biodiversity credit initiatives.
Could you please introduce yourself?
Since 2020, I've been leading the Nature program at the United Nations Environment Programme Finance Initiative (UNEP FI). Before that, I spent seven years directing a consultancy firm, where I worked on environmental finance projects and led key initiatives like the Equator Principles Association and the Cross-Sector Biodiversity Initiative. My focus is on mobilizing private and blended finance for SDGs 14 and 15, while also managing biodiversity-related risks in banking and investment, both globally and in Africa.
Could you give a brief overview of UNEP and its projects?
UNEP FI works with members and partners to embed sustainable decision-making into mainstream finance. We provide technical research and guidance, working with the financial community on cutting-edge innovations and frameworks, and developing industry-wide tools linking science, policy, economics and finance, bringing nature to the heart of financial decision-making. You can learn more about our work by visiting our website. Additionally, we annually publish the State of Nature Finance Report, tracking NbS (Nature-based Solutions) finance, highlighting our dedication to combatting biodiversity loss and land degradation.
What defines a "nature-positive" investment for a bank or company today?
In draft, we define these as “financial transactions that make a net-positive contribution to nature and nature’s stewards via lending or investing to, or insuring / credit de-risking, activities that make a positive contribution to conservation, restoration, sustainable use and/or access and benefit sharing as defined urgent priorities outlined in the Global Biodiversity Framework goals and targets.”
"Nature-positive" is broadly a term used to describe a world where nature – especially biodiversity comprising species, genes, and ecosystems - is being restored and is regenerating rather than declining.
How can banks and companies measure "nature-positive" investments and avoid greenwashing?
A key feature of any credible measurement includes a baseline, and a threshold over which nature is restored. Therefore "nature-positive" at the level of a bank is much more challenging to measure, whereas at the level of an individual financial transaction, we can consider a transaction "nature-positive" where it makes a defined positive contribution to nature and ecosystem services, particularly to groups who are being rewarded for their role in stewarding nature.
Sustainable finance taxonomies, such as the EU taxonomy, provide clear guidance on what can be considered nature positive, particularly where use of proceeds is known, and key taxonomy categories are outlined. These include:
Most relevant taxonomy categories :
- Sustainable use and protection of water and marine resources
- Protecting and restoring biodiversity and ecosystems
Potentially relevant taxonomy categories :
- The transition to a circular economy
- Pollution prevention and reduction
In the absence of clear applicable criteria, banks can review sustainable finance taxonomies and other guidance to evaluate nature-positive investments.
Each bank should monitor developments in this space to avoid greenwashing and align its finance effectively towards nature-positive ambitions and actions. Tracking may begin with activities where the use of proceeds is known, and banks should progressively increase the volume of investment activities covered by the targets over time in line with priority sectors and methodological developments.
You are involved in the development of a "biodiversity credit market." Is it a replacement or an alternative to the carbon market?
The development of a “biodiversity credit market” is a complement to carbon finance.
In the future, there should be credits for water and other natural assets as well.<br>
Are these credits similar to positive impact certificates, based on positive externalities in terms of biodiversity and socio-economic benefits, or are they different?
Biodiversity credits are certificates representing measured biodiversity gains obtained through restoration, conservation, or threat reduction. They are quantified and tradable units of biodiversity gain. Biodiversity offsets are typically used by economic entities to obtain permits for land development with residual adverse impacts, involving ecological equivalence checks and compliance with conservation mitigation hierarchy. They are generally traded within the home country.
In contrast, non-offset biodiversity credits are expected to be traded internationally, involving domestic laws and international integrity principles. Equivalence checks may not be relevant for non-offset credits. Companies are encouraged to align non-offset biodiversity credit purchases with corporate nature targets and participate in transformative landscape-wide nature restoration or conservation projects.
Why place biodiversity at the core of these credits?
Placing biodiversity center stage will create a new revenue stream for nature’s stewards including Indigenous Peoples and Local Communities. In addition, it will help close the nature finance gap mentioned in the Global Biodiversity Framework.
What is the role of PIACs in this context?
We have written a discussion paper on Communities and Nature Markets: Building Partnerships in Biodiversity Credits.
In this paper, we explain that Indigenous Peoples (IPs) and Local Communities (LCs) are crucial custodians of around 32% of global land and waters. IPs have unique cultural, economic, and environmental relationships, with specific rights recognized under international law, like the UN Declaration on the Rights of Indigenous Peoples. LCs also have distinct ties to their environments but may lack the same legal recognition.
In the context of biodiversity credits, it's essential to understand these differences. IPs often hold specific legal rights over their territories, while LCs may not. Recognizing these distinctions is vital when involving IPs and LCs in biodiversity credit initiatives, as they play a key role as environmental defenders, protecting human rights related to the environment. Respecting their roles ensures that biodiversity credits align with their needs and rights.
