The gap between the amount currently spent on biodiversity conservation and what is needed to sustain biodiversity and ecosystem integrity — also known as the biodiversity finance gap — amounts to $700 billion annually. Much of the current spending — $124 billion to $143 billion — is provided by public funding, while only $35 billion is provided by the private sector. While companies are pressured to reduce their negative impacts on nature and increasingly acknowledging the material impact of nature on their short- and long-term revenue and viability, the lack of incentives for companies to positively contribute to nature remains a key challenge.
The current ecosystem of voluntary initiatives for nature is highly prescriptive, time and resource intensive, and companies that are unable or unwilling to meet these standards have no simple, widely accepted or consistent way to measure and report their positive contributions to nature. Research on corporate nature practices indicates that companies are not setting clear, time-bound commitments and are not reporting their impacts quantitatively or in a standardized manner. According to the Taskforce on Nature Financial Disclosues (TNFD), companies are using more than 3,000 metrics to describe their nature-related outcomes in sustainability disclosures. The lack of straightforward comparability, and consequently peer differentiation, hinders efforts to encourage greater contributions and engagement to nature.
Ahead of the UN Biodiversity Conference (COP 16)*, government and business leaders are exploring ways to address these critical barriers to scaling nature finance. An expansive incentive structure that utilizes simpler and more widely accessible nature metrics could address key challenges and provide a pathway to significantly scale positive corporate contributions.
*Note to Kathari News readers: This article was originally published by World Resources Institute on Oct. 16. The UN Biodiversity Conference (COP16) runs from Oct. 21 to Nov. 1.
What makes nature challenging for corporate engagement?
Current systems and practices do not fully support effective corporate engagement with nature, whether through financing nature projects or directly implementing them. First, nature’s inherent diversity makes it challenging to measure and compare. Various factors used to assess nature — such as biodiversity, ecosystem services, ecosystem intactness — are context-specific and lack universally agreed-upon methodologies for measurement and comparison. Despite advancements in monitoring technologies, biodiversity and ecosystem conditions are not easily or cost-effectively monitored at scale using new tools like remote sensing and artificial intelligence, as they are not readily visible from space. Utilizing readily available, cost-effective technologies, along with metrics that serve as effective proxies for these conditions, would allow a greater share of financing to be directed toward relevant conservation and restoration efforts, including support for the people protecting nature. An expansive incentive structure that prioritizes efficiency and scalability over complexity and detail is a necessary complement to the more rigid frameworks and incentive structures within the voluntary corporate context.
Second, the existing frameworks to assess materiality and set targets are time- and resource-intensive. Frameworks like the TNFD, Natural Capital Protocol, and Science-Based Targets Network provide important guidance for companies to measure and disclose their risks, impacts and dependencies on nature, and to establish targets accordingly. These frameworks provide much-needed direction toward efforts to better standardize reporting, increase accountability of corporate impacts on nature, and clarify financial risks posed by the destruction of nature. These initiatives are designed to be comprehensive, with a broad set of process-based metrics (such as disclosures on governance, business strategy, policies addressing nature loss, management activities, and monitoring methodologies) and impact-based metrics (such as land cover, biodiversity impacts, and ecosystem functioning).
However, the transaction and operational costs of existing frameworks and incentive structures remain high, discouraging full and effective participation from most companies in conservation, and restoration. The high barriers to entry and the narrow scope of some standards do not encourage broad participation or motivate leading companies to maximize their voluntary contributions to nature. This is critical for maximizing the impact of incentive structures in a voluntary context.
Voluntary target-setting standards, in particular, don’t provide incentive for companies that are unable or unwilling to meet the target threshold to at least take some action on nature and climate. Similarly, there is little incentive for companies that meet these thresholds to exceed them and maximize their positive contributions. Therefore, there is a clear need for a more widely accessible incentive structure, coupled with more cost-effective metrics, to better encourage and reward private sector contributions to nature.
Additionally, as companies focus on incremental improvements within their own supply chains, broader collective needs and opportunities for addressing nature may be overlooked. For instance, a company acting alone to positively contribute to nature may find that its actions are insufficient to protect ecological conditions or ecosystem services without collective action from other actors in the area. In many cases, collective landscape-level action is needed to preserve the integrity of key ecological areas, such as water basins, peat domes, or forests.
Incentive structures that prioritize individual corporate supply chain activities risk resulting in small, fragmented initiatives that lack the scale necessary to drive meaningful change. As long as companies do not report comparable metrics, financial and reputational incentives to contribute to nature will remain weak. Financial institutions face challenges in assessing and integrating corporate performance on nature into their strategies and evaluations. Reputational incentives are weakened by the lack of accessible and comparable information, making it difficult for the public to recognize and differentiate companies’ actions from those of their peers.
Nature Reporting Frameworks
Here are select current initiatives designed to guide and align companies on their nature-related target-setting and disclosure nature reporting:
- Capital Coalition’s Nature Capital Protocol provides a decision-making framework that enables organizations to identify, measure, and value their direct and indirect impacts and dependencies on natural capital.
- Science-Based Target Network provides guidance for companies to set targets based on their value chain impacts, with three target categories: conversion, footprint reduction and engagement. Currently, 17 companies are piloting the guidance to set targets.
- The Taskforce on Nature-related Financial Disclosure provides guidance to companies on reporting their nature-related impacts, dependencies and risks, through a set of core or mandatory metrics to report and a wider set of recommended metrics.
- CDP Forests Questionnaire, which will be merged with the water security and climate change questionnaires, serves as a disclosure system for companies to report on their processes and impacts of their land-based activities, including conservation, restoration, management.
- Global Reporting Initiative’s Biodiversity Standard provides guidance on nature-related indicators companies are to report on to be aligned with the Global Reporting Initiative. It introduced this as a topic standard which companies only must report on if biodiversity is a material topic.
- Nature Positive Initiative is developing a limited set of metrics for companies to report on nature-positive outcomes, which should help reduce the total number of metrics companies are currently reporting on.
Efficient metrics and expansive incentives for nature
Given the need to scale private sector contributions to nature, there is a need to complement the existing suite of incentives structures and detailed metrics with more cost-effective and widely accessible options. Current frameworks demand a high standard that is resource- and time-intensive, creating a barrier for companies to engage and make credible contributions to nature conservation and restoration. Tracking and publishing corporate contributions to nature conservation and restoration using a simplified metric would create a broad incentive for companies to initiate and expand their positive impacts on nature. For example, a framework based on hectares, a metric that can be easily and transparently independently verified through current satellite imagery, could serve as a foundational metric to create incentives and evaluate progress at a high level, while more comprehensive impact assessments are gradually implemented or as an ongoing incentive for parties lacking the significant capacity and resources required by existing incentive structures.
This approach could provide a transparent and reliable way for companies to monitor and claim positive contributions toward their own nature goals as well as local, regional and global nature goals. While more detailed and specific claims related to carbon and biodiversity may sometimes necessitate further monitoring and assessments, a focus on efficiently monitored metrics could allow companies to assert their contributions to conservation and restoration while minimizing or avoiding many issues associated with forest carbon credits, such as additionality and permanence. As companies strive to align more with complex disclosure standards, they can be recognized and incentivized to contribute to nature now, by utilizing metrics that many already disclose and can easily monitor today.
How efficient metrics can enable more expansive incentives
Approximations of metrics in complex sectors are commonly used to gauge overall performance and inform market decisions. For instance, carbon dioxide equivalents are typically calculated through indirect measurements and industry averages to indicate the total warming impact of different greenhouse gases, rather than through direct monitoring and comprehensive analyses of all contributing factors. Similarly, financial indices often rely on year-over-year growth to assess a company’s performance at a high level, rather than conducting in-depth evaluations of qualitative or quantitative metrics, such as socioeconomic trends and leadership quality, which also significantly influence a company’s overall performance.
The metrics in both examples are recognized as imperfect and not fully comprehensive. However, their simplicity and standardization allow stakeholders to easily understand and compare company performance across sectors. For instance, consumers can make informed choices by selecting companies or sectors with lower emissions (e.g., choosing plant-based proteins over animal sources), and investors can use this information for assessing ESG performances and making investment decisions. Additionally, these metrics support the creation of financial incentives, such as using greenhouse gas emissions in financial instruments like green bonds or preferential lending policies, while year-over-year growth is often applied to benchmark corporate performance and guide investment decisions.
Hectare-based metrics in practice
Hectare-based metrics, while not new as a key performance indicator in nature-related market initiatives, remain underexplored in their application. There are some of the examples that do use hectare-based metrics:
- The Nature Conservancy’s green bond framework and the Consumer Goods Forum Landscape Reporting Framework (used for companies to report forest positive outcomes) use hectares as the primary metric to measure the impact, action or practice of conservation/restoration activities.
- Innovative financing mechanisms using a hectares-based approach are also being introduced to compensate stakeholders for conserving and restoring land, such as the UK government’s Sustainable Farming Incentives, in which farmers will be paid 20 pounds ($27) per hectare to implement sustainable farming practices on their land.
- Brazil’s Tropical Forest Forever Fund (TFFF) announced at last year’s UN climate change summit (COP28) aims to implement this on a global scale, by raising $250 billion to make payments to tropical forest countries based on hectares conserved.
- The Tropical Forest Mechanism, an initiative of Amazon 2030 that complements the TFFF, recently released a concept note proposing annual payments of $30 per hectare.
There is significant potential for these kinds of initiatives to be scaled and for individual companies to contribute to and benefit from them. Currently, some companies report their conservation or restoration areas through sustainability disclosures or voluntary standards, but this information is difficult to access, validate, and compare (while upcoming disclosure guidance from TNFD will require companies to disclose specific locations, this is not yet standard practice, and the lack of public availability makes third-party validation challenging). Providing easily accessible hectare-based metrics could enable companies to tap into financing mechanisms tied to these metrics, while helping investors quickly identify more promising and sustainable investment opportunities, in a manner that can be transparently (and inexpensively) monitored by the public and other stakeholders.
A pathway to scaling nature finance
Nature is gaining renewed attention from both the public and private sectors as the next critical frontier to meet the global targets set by the Global Biodiversity Framework at the 2022 UN Biodiversity Summit (COP15), the Paris Agreement and the Sustainable Development Goals. To capitalize on this growing momentum — and accelerate the private sector’s progress on nature — we need to transform how we collect, disclose, and compare data on nature and its impact. Simple, verifiable metrics that facilitate comparisons, when aligned with expansive incentive structures and market signals, can play a significant role in scaling finance for nature.
This article first appeared on World Resources Institute on Oct. 16, 2024. It is republished here under a Creative Commons license.
