Last month,
BBVA Colombia announced it will be issuing the financial sector’s first biodiversity bond of $50 million, in association with IFC. So, what are biodiversity bonds, and what do they mean for sustainable finance?
The BBVA investment marks progress in financing green projects; focusing on allocating capital for natural resources and initiatives that prioritise reforestation, environmental conservation, wildlife restoration, and more.
While green bonds have been sprouting from the sustainable finance sector for a while, biodiversity bonds in particular have been gaining more traction. The answer as to why biodiversity is so important is rather simple. The world around us is falling apart
thanks to humanity’s destructive and toxic lifestyle.
In 2023, the
European Investment Bank issued its first digital green bond, designed to lend to climate-related projects and aimed at reducing the bank’s carbon footprint.
Earlier this year,
CUSIP Global Services partnered with the Climate Bonds Initiative to issue corporate and municipal bonds for climate action, establishing green finance standards through the introduction of green bond tags.
Biodiversity bonds are slowly taking over the ESG investment space, with more and more companies committing to nature bonds to balance out ESG debt.
The Business Times reported that biodiversity bonds could add up to $300 billion in ESG debt this year, but warned that more action will be required to fill the biodiversity finance gap of $700 billion a year.
The issuance of biodiversity bonds comes with the requirement for companies to reach ESG targets. More and more banks are issuing biodiversity bonds, with the most growth from
Asian markets; comprising almost 20% of new tickets.
Nature-related solutions
There is also a shift towards financing further nature-based solutions as the climate crisis becomes increasingly prominent. The need for companies to take action and ensure that countries are preparing for the effects of global warming is critical. Biodiversity
bonds mark a commitment to tackling those challenges.
Unfortunately, biodiversity loss prevention is difficult to record.
Sustainable Fitch’s survey revealed that 37% of respondents feel the biggest challenge in boosting biodiversity-related investments is the inconsistency of data.
Biodiversity was previously a niche in the industry, but blue bonds and nature-related bonds are seeing more issuance as regulatory frameworks are rolled out to provide guidelines for the market.
In February 2023, the UK released the biodiversity net gain (BNG) policy, which details how land managers, developers, and local planning authorities, need to be mindful of biodiversity loss during land development and construction. BNG can now be supported
with initiatives powered by biodiversity bonds that aim to restore wildlife.
Green bonds operate in a similar fashion to the carbon market, in that they seek to balance out the damage done by companies which consume fossil fuels and tear down precious forests. However, the regulatory frameworks that are being rolled out enable governments
to limit the collateral damage that companies wreak on the environment, and provide further oversight and monitoring of biodiversity.
As companies continue to expand and exert greater environmental impacts, it is imperative that natural resources are protected, funds are regulated to focus on biodiversity preservation, and all financing initiatives serve to safeguard nature.