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Opinion article

Investments that support biodiversity

Australia’s natural ecosystems and abundant marine areas provide an ideal environment in which to develop new financial products – such as mangrove bonds or blue carbon funds – that could be replicated globally to mitigate climate change and generate socio-economic gains for local communities, writes Alpa Bhattacharjee, Head of Corporate Sustainability at HSBC Australia.

Nature-based solutions have a vital role to play in preventing climate change. Financial assets that serve the dual purpose of generating a return and protecting nature are a critical way forward for capital markets.

Australia’s natural ecosystems and abundant marine areas provide an ideal environment in which to develop new financial products – such as mangrove bonds or blue carbon funds – that could be replicated globally to mitigate climate change and generate socio-economic gains for local communities.

The business case for increasing the use of such nature-based solutions is now clear. More than half the world’s GDP is highly or moderately dependent on nature, according to the World Economic Forum, but economic activity has denuded our natural resources – energy, water and food – to a point that biodiversity loss is ranked as a top risk to continued growth.

The natural environment itself can provide more powerful resistance to climate change and weather events than other solutions which dominate public debate. Mangroves, for example, capture carbon up to 400 per cent faster than tropical rainforests and provide an estimated US$65 billion in storm and flood protection to coastal properties around the world every year.

The Energy Transitions Commission in a recent report found that reducing carbon emissions is insufficient to meet the goals of the Paris Agreement. In fact, residual carbon must be removed from the atmosphere too – and it will take a combination of nature and technology to do so at the required rate.

New mechanisms and markets must be developed to allow nature-based solutions to reach their optimal potential as a safeguard against biodiversity loss and climate change. Some initiatives are already in development. Most recently, the Taskforce on Nature-related Financial Disclosures released a draft framework that will allow companies to embed nature-related risk into their decision-making for the first time, with the final version scheduled for completion in September 2023.

In Australia, the Clean Energy Regulator has developed a methodology to allow coastal landholders, communities and businesses to undertake marine restoration projects that have the additional benefit of earning Australian Carbon Credit Units (ACCUs). This has the potential to increase the supply of ACCUs that can be bought by heavy emitters to offset their greenhouse gas emissions.

Despite this progress, there is still more to be done. The United Nations Environment Programme estimates that investment in worldwide nature-based solutions needs to at least triple in real terms by 2030 and increase four-fold by 2050 to meet global climate and biodiversity targets. That equates to a total investment of up to US$8.1 trillion or future annual investment of US$536 billion.

To mobilise such vast amounts, new capital market tools and other financial solutions will be required to attract private investment, in addition to public funding.

Some examples already exist. In the United States, cities are experimenting with issuing bonds to fund climate resilience. In 2017, Miami residents approved the city’s plan to issue the US$400 million Miami Forever Bond – nearly half of that amount will be used to fund projects that combat rising sea levels and flooding, including mangrove protection and restoration.

In recent years blue bonds have also gained recognition as a means of raising capital for projects that will deliver environmental outcomes in marine areas, including in the Seychelles and Belize.

The wider benefit of such tools is evident in the raft of data quantifying the importance of the ‘blue economy’. The US$190 billion global seafood industry depends on healthy fish habitats, for example, and coral reefs drive up to US$30 billion per year globally in tourism revenue, according to Mapping Ocean Wealth.

Australia’s abundant natural habitats provide it with ample scope to become an ‘incubator’ for the next iteration of financial solutions – it has the third largest area of mangroves in the world and as much as a third of the world’s blue carbon area. It also has the necessary expertise across the scientific, conservation, governance and financial sectors to bring prototype products to commercial reality.

Together, these natural and business advantages are more than sufficient for Australia to assume a leadership role in driving capital towards initiatives that will trigger the genuine shifts in behaviour required to meet world sustainability goals.

About the authors
AB

Alpa Bhattacharjee

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Alpa Bhattacharjee is Head of Corporate Sustainability at HSBC Australia.

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