Not just the philanthropists: Why the private sector is buying into nature conservation
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A kingfisher on Lazarus island coated in oil following an oil spill in June.
PHOTO: SAMUEL PUA
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SINGAPORE - What is the value of a kingfisher?
In the wake of the June 14 oil spill that tarred Singapore’s beaches,
Business losses due to beach closures, clean-up costs and ruined infrastructure can be distilled into dollars and cents. But what of damage that eludes precise measure?
Two oil-slicked collared kingfishers
It is also not yet clear how Singapore’s coral reefs, already weakened by a marine heatwave, could be affected by the incident in the longer term.
Marine Honour could be held accountable for the consequences.
But the quandary of how to price nature – and whether that accurately reflects its value – is one that a growing number of governments and companies are grappling with as awareness grows of humanity’s reliance on nature, and the declining health of natural ecosystems.
“Free of charge, nature provides countless services and resources that we depend on, such as fresh air and water,” said Mr Vikalp Sabhlok of global environmental organisation The Nature Conservancy (TNC).
Yet, many of those resources are being recklessly depleted, with about a million plants and animals at risk of extinction, compromising the multitude of services that nature provides to humanity.
About US$44 trillion (S$57.4 trillion) of economic value generation – a bit less than half the world’s total gross domestic product in 2022 – is moderately or highly dependent on nature and its services, according to one estimate from the World Economic Forum.
“These resources are often exploited because the true value of natural capital is not accounted for or priced into the markets – this has clearly contributed to its deterioration,” added Mr Sabhlok, who is the Asia-Pacific director of NatureVest, TNC’s impact investing arm.
The United Nations has estimated that the biodiversity financing gap – referring to the difference in the amount available for nature’s protection currently and the amount needed – to be at US$700 billion a year.
How this gap can be narrowed is expected to be a major theme in discussions at the COP16 UN biodiversity conference, to be held in Cali, Colombia, from Oct 21 to Nov 1.
The good news is that a bevy of financial schemes has blossomed in recent months to address this financing gap.
In July 2024, for example, the US government said it would forgive US$35 million of Indonesia’s debt
And in August 2024, the World Bank announced a US$225 million Amazon reforestation-linked outcome bond – a new kind of bond that aims to save the Amazon rainforest by linking investors’ financial returns to the amount of carbon removed from the atmosphere
This kingfisher died on June 16, about 36 hours after it was rescued.
PHOTO: KALAI VANAN BALAKRISHNAN
There are others, too, including rhino bonds, coral reef bonds and blue bonds, which focus on financing freshwater or ocean-related sustainable projects.
Buyers of these bonds tend to be corporations.
The development of such novel financial products points to the growing involvement of the private sector in funding nature’s conservation.
The business case for nature
Corporate interest in nature is being driven by different factors, including the adoption of international agreements by countries, the growing understanding of how nature loss is affecting supply chains, as well as greater awareness about the interlinks between the climate and nature crises, say financial institutions, conservation groups and experts interviewed.
The adoption of the Paris Agreement in 2015 and Global Biodiversity Framework in 2022
For instance, England has a law that requires land developers to deliver a biodiversity net gain of 10 per cent – meaning the development should result in more natural habitats or better quality ones than there was before development.
Companies are also increasingly facing pressure from regulators and customers to disclose their nature-related risks and impacts via reporting initiatives such as the Taskforce on Nature-related Financial Disclosures
While usually voluntary, these developments have prompted the private sector to be more conscious of the impact of their business on the planet.
Nature’s value to basic economics should not be underestimated.
Think about the necessity of healthy soils to growing crops – from wheat to rice and palm oil. Or the role played by forests as sources of water for city reservoirs. Pollinators, including bees and butterflies, are also vital for crops
As Ms Jan Yoshioka, vice-president of sustainable finance at non-profit organisation Conservation International’s (CI) Asia-Pacific region, put it: “It is in the self-interest of corporations to adopt environmentally and socially sustainable business practices and to invest in the conservation of the natural resources they depend on.”
The realisation that healthy natural ecosystems are key to thriving businesses has put new wind in the sails of the nature conservation movement,
Mr Carlos Pagoaga, president of the Coca-Cola Foundation, said nature often offers the best mechanisms for restoring watershed health and reducing water stress for communities.
“The Coca-Cola Foundation, the Coca-Cola Company and its bottling partners invest in nature-based solutions, such as forest protection and floodplain management, which build on natural processes to manage water systems,” he told The Straits Times.
“Through this work, we recognise that nature-based solutions often have multiple co-benefits, such as better water quality, carbon sequestration, increased climate resilience, and enhanced richness and variety of life of natural habitats,” Mr Pagoaga added.
ST ILLUSTRATION: MANNY FRANCISCO
Do more with nature-based solutions
While the intention to contribute to nature’s restoration is there, the question is how companies can do so in a more sustained manner than a one-time donation in the name of corporate social responsibility.
Mr Dave Sivaprasad, managing director and partner at consulting firm Boston Consulting Group (BCG) Singapore, said: “In our current market environment, in order to ensure better conservation, we either have to put a price on nature or make it a rule – or both.”
Mr Sivaprasad, who is BCG’s South-east Asia lead for climate and sustainability, added: “This means defining the economic value of things like clean water, air, food security, carbon storage that are enabled by nature and/or creating government regulations that make conservation a requirement.”
The close links between the climate and biodiversity crises mean that some financial instruments developed to help companies address climate change are also having positive effects on nature.
This is most clearly seen in the carbon markets.
Habitats such as forests and mangroves have the ability to sequester carbon – or capture and store planet-warming carbon dioxide from the atmosphere through photosynthesis. This locks the carbon away from the atmosphere, contributing to climate mitigation.
One carbon credit represents 1 tonne of planet-warming greenhouse gases that is either prevented from being released, such as when a forest is saved from the axe, or removed from the atmosphere, such as through a forest restoration project.
Mr Law Heng Dean, managing director of the Singapore office of the Pollination Group, a global climate change investment and advisory firm, said that nature-based solutions to sequester carbon or prevent it from being emitted in the first place could contribute to around 30 per cent of global mitigation needed to achieve the goals of the Paris climate agreement.
Companies buy carbon credits to offset their carbon footprint so that they can meet their commitments of reaching net-zero emissions by 2050 – the timeline that could help the world avoid the harshest impacts of climate change, according to the UN’s climate science body.
CI’s Ms Yoshioka said a key driver of the increased interest shown by the private sector in nature is its demand for nature-based carbon credits.
And when companies buy carbon credits to meet their climate targets, nature reaps the dividends: In one area, a forest is saved from the axe. In another, a mangrove is restored.
Amid the growing consensus that the world cannot achieve net-zero emissions without nature-based solutions, private and public sectors are becoming increasingly involved in nature conservation, said Ms Hoon Ling Min, investment director at investment firm GenZero.
But between 2010 and 2022, voluntary carbon markets managed to unlock only a fraction of the potential of nature-based solutions, said Pollination’s Mr Law.
Figures from Ecosystem Marketplace, a global environmental finance news and markets analysis site, show that the global voluntary carbon market was worth about US$2 billion in 2022.
This is nowhere near the US$700 billion the UN says is required every year for nature’s protection.
For the nature funding gap to be narrowed, the private sector needs to be motivated to loosen their purse strings further.
“Today, more than 80 per cent of finance to nature comes from public sources; private financing, whether by corporates or financial institutions, remains an under-tapped source,” Mr Law noted.
Can companies be convinced that investing in nature is not just about meeting regulatory requirements or avoiding potential losses, but that it could actually help to turn a profit too?
People, profit and planet
As nature’s true value – to lives, livelihoods and bottom lines – starts to come into focus, attempts are now being made to put a price on nature.
This ability to capture value in instruments that can be invested in and traded is what the financial sector excels in, said GenZero’s Ms Hoon.
Take, for example, the World Bank’s rhino bond, which was issued in 2022 to increase the population of the critically endangered black rhinoceros, native to Africa.
The five-year US$150 million bond – the first wildlife conservation bond of its kind – will pay investors returns based on the rate of growth of black rhino populations at South Africa’s Addo Elephant National Park and the Great Fish River Nature Reserve.
The bond was sold to institutional investors, such as investment firm Nuveen and Mackenzie Investments, and high-net-worth clients from Credit Suisse International and Citi private banking arms.
Similarly, a newly proposed Indonesia Coral Bond – another initiative of the World Bank – will see investors receiving a “success payment” at maturity.
Mr Helge Muenkel, chief sustainability officer at DBS Bank, said: “Beyond providing essential funding, financial expertise is instrumental in developing innovative financial products that can support nature-based solutions.”
Another instrument gaining traction is biodiversity credits.
These credits come from projects that seek to provide measurable improvements in biodiversity, be they focused on a specific species or across an entire ecosystem.
The credit is a certificate that a corporate buys representing a specific outcome, such as a measurable improvement to a hectare of forest over 10 years.
For example, Colombian project developer Terrasos has issued credits that each represents the protection of 10 sq m of conserved or restored ecosystems in a high-conservation area of Colombia for 30 years.
“Governments are interested in leveraging biodiversity credits as a mechanism to help drive private sector investment into positive outcomes for nature,” said Ms Laura Waterford, executive director at the Pollination Group in Australia.
Corporates and financial institutions were also starting to think about buying biodiversity credits on a voluntary basis as part of their broader nature strategies, she added.
Ultimately, the goal is to have a global market in tradeable biodiversity credits, though this will take some more time, given the complexity of measuring the benefits. Ms Waterford said the foundations for effective voluntary biodiversity credit markets could be in place by 2030.
The pricing complex
The emergence of innovative financial instruments like rhino bonds can help to unlock new sources of funding from the private sector for nature’s conservation, since firms now have a financial – not just regulatory – incentive to do so.
But these tend to be project-specific, and are challenging to implement on a wider scale.
Observers point to a few obstacles to scaling them up: the difficulty in measuring impact; the uniqueness and complexities of each and every ecosystem, which makes it difficult to develop replicable models that can be implemented quickly across different regions; and the difference in timelines for nature’s recovery against investor expectations.
“Where there is a globally agreed upon unit for measuring emissions, reductions and removals, there is currently no common unit of measurement for nature and biodiversity,” said CI’s Ms Yoshioka.
For carbon credit projects, the unit of measure appears to be straightforward.
Closing down a coal plant in favour of a solar farm prevents the release of a quantifiable amount of carbon dioxide.
But developments over the past two years have shown that even the suggestion that a carbon project will not truly deliver climate benefits – such as carbon credits sold for protecting a forest that was at low risk of being cut down in the first place – can send carbon markets into turmoil, as buyers fear accusations of greenwashing and reputational backlash.
This has triggered a major shift towards stronger standards and methodologies that back only high-quality carbon projects – a much-needed reset for the market, experts say.
Measuring the impacts of a conservation initiative is much more complicated.
For example, should the focus be across an entire ecosystem or habitat or specific species? Or should protecting what is left be prioritised, over restoring the degraded parts of the land?
DBS’ Mr Muenkel pointed to how nature conservation projects are influenced by unique cultural, societal and environmental factors.
Restoring a mangrove in Indonesia, for example, would be vastly different from doing the same in India or Colombia, owing to different species compositions, different drivers of deforestation, different environmental conditions and so on.
Yet, being able to measure outcomes of conservation interventions will be critical to get investor buy-in.
“Scientific robustness, impact measurement and risk management are some of the key factors considered by private entities and financial institutions before making a decision on biodiversity-linked financial products,” Mr Muenkel said.
Monitoring mechanisms are also needed to measure the impact of conservation efforts, and independent third-party verification processes help to prevent greenwashing and manage any related reputational risks, he added.
The Coca-Cola Company, for example, said it is partnering with other organisations to develop a methodology to help it quantify and test the co-benefits of nature-based projects, which can help to provide a means to value social return on investment. This, said a spokesperson, can help to build the business case for nature-based solutions.
This is all part of efforts by academic institutions, companies and standards bodies to develop common frameworks to govern biodiversity investments to ensure they boost nature, can bring social benefits and that this can be measured and verified.
Further complicating the situation is that nature’s progress is oblivious to investor timelines.
Mr Mike Ng, group chief sustainability officer at OCBC Bank, said: “Some nature-related projects also come with long timelines and uncertainty, which may require longer financing timelines than traditional loan tenures. These factors contribute to the lack of bankability for nature conservation projects globally.”
A coral reef, for example, can take up to 10,000 years to develop. As the reef accretes, habitat complexity deepens – providing creatures like shrimp, baby fish and flatworms – with nooks and crannies to hide and rest in.
But if that reef is destroyed by trawling or bomb fishing, and reef restoration efforts are needed to help it recover, how long would it take to restore the life that it once held?
Overcoming roadblocks
Despite – or perhaps because of – these challenges, new schemes that attempt to put a price on nature continue to bloom.
One area being explored is to leverage the success of the carbon market and tie biodiversity benefits more closely to carbon financing.
Carbon credit projects have benefited nature and developing nations for decades, said Mr Duncan van Bergen, co-founder of Calyx Global, which rates carbon credit projects.
He added that recent innovations focusing on shoring up the climate integrity of credits will help the market scale up, “maximising its impact and enabling companies to participate with greater assurance”.
In other words, buyers want to be certain that credits – representing 1 tonne of avoided emissions (or removal) and have a long-term impact – can hold up to scrutiny. Add in nature and social benefits, such as health and education support for local communities, and it is a winning combination.
For any land-based carbon project, it is now mandatory to include biodiversity and community components, said Mr Pablo Fernandez, chief executive of ecosecurities, a global carbon project developer and advisory firm.
TNC and its Indonesian partner, Yayasan Konservasi Alam Nusantara, are studying a project concept in East Kalimantan on Borneo island that would conserve a large area of forest but also generate money to compensate several land concession owners.
Revenue would come from sustainable timber production, carbon credits and payments for biodiversity conservation.
“It is hard to change the behaviours in the landscape, whether that is corporate behaviour or a small holder or a government if you are not bringing a viable financial alternative to the table,” said Mr Will McGoldrick, TNC’s managing director for the Asia-Pacific.
Also in Indonesia, a new effort between CI and its local partner, Yayasan Konservasi Indonesia, aims to combine marine conservation with sustainable fishery practices under its Blue Halo S initiative.
A grant funding mechanism under the initiative, to be implemented from 2025 to 2031, has received interest from private sector groups, including fisheries and aquaculture technology start-ups, business incubators and impact investors.
CI’s Ms Yoshioka said: “The (grant facility) aims to improve the climate resilience of around 162,000 Indonesian coastal communities while contributing to the sequestration of more than half a million tonnes of... emissions through restoration of blue carbon ecosystems, such as mangrove and seagrass, and improved management of marine protected areas.”
Another idea to bridge commercial returns with societal benefits is that of ecotourism, said BCG’s Ms Alia Kaz, a knowledge expert in sustainability.
Scientists, ecologists and organisations involved in nature conservation usually focus on improving a public good. “They are often funded on the basis of grants with no or limited expectation of economic return. Their work results in societal returns, not commercial returns,” she said.
“But individuals in the private sector and financial sector are measured on commercial returns,” Ms Kaz added. “Nature conservation can generate ecotourism and ecotourism-related revenues.”
Reining in destruction
Increasing funding for nature conservation, however, is just one part of the picture.
Figures show that the world is spending much more on activities that damage nature. For one thing, subsidies that drive the destruction of nature – such as tax breaks and cheap diesel that fail to account for the cost of environmental damage from the fossil fuel, agriculture, water and forestry sectors – amount to an estimated US$1.8 trillion, a study in 2022 found.
Activities that cause harm to nature and the subsidies they receive must also be re-evaluated, said Dr Francesco Ricciardi, an environmental specialist working at a developmental organisation.
Speaking in his personal capacity, Dr Ricciardi said he is doubtful the market can solve environmental issues, since much of nature’s degradation is the result of the pursuit for economic growth.
“Mining, building roads in pristine rainforests to push mining and logging interests, constructing large dams that bring fish to extinction, these are all still happening now in a bid for more economic growth,” he said.
The global reckoning of the value of nature must also consider that the cost of destroying nature – whether it be clearing a forest for a plantation, discharging pollution into a freshwater stream or spilling oil into the ocean – is no longer free.
To move the nature needle, said TNC’s Mr McGoldrick, the right regulatory environment is critical.
“You have to get the government policy settings right to both incentivise the right type of investment, but also limit or prevent the wrong type of investment,” he added.
Where the private sector can come in is in the realm of innovation.
Dr Alfredo Giron Nava, head of the Ocean Action Agenda at the World Economic Forum, said: “We cannot achieve the scale needed to increase financing for nature without the private sector. There simply isn’t enough development or philanthropic money.”
What is needed is a common language between the profit-driven motives of the private sector and conservationists, he added.
“Our job is to come up with realistic models, and collaborate with one another to create them, to show that there can be models that are good for nature, are good for business too,” said Dr Nava.
