Target 19 is to substantially and progressively increase the level of financial resources from all sources to implement national biodiversity strategies and action plans. This notably includes leveraging private finance and encouraging the private sector to invest in biodiversity, including through impact funds and other instruments (2).
At least US$200 billion per year by 2030 are required to implement national biodiversity strategies and action plans according to the Global Biodiversity Framework (GBF). Whereas household financial assets in the EU were valued at EUR 34 982 billion in total in 2021 (3).
Hence, there is an opportunity to reallocate retail investment to the financing of the protection of biodiversity.
Our studies have revealed a specific interest by retail investors in topics linked to biodiversity (4), however can retail investors transform this interest into investment decisions and potential real world impacts? In reality, considering the current EU regulatory framework, knowledge of advisors and the product offer, it would be highly difficult.
Indeed, a retail investor wishing to finance biodiversity protection and restoration would currently face several obstacles:
In relation to the advisory process:
- Financial advisors must assess sustainability preferences of clients, but 2DII research (5) raises concerns over whether they currently have sufficient knowledge and training to do this effectively.
- Moreover, it is questionable to what extent a focus on biodiversity can be isolated. A financial product must sometimes disclose information on which environmental objective it focuses on. (6) On the other hand, the requirements to assess sustainability preferences (7) do not push financial advisors to specifically identify clients interested in the protection and restoration of biodiversity.
- In addition, the requirements to assess sustainability preferences do not encourage financial advisors to identify clients wishing to have an impact on the real world and notably on biodiversity (8).
Furthermore, in relation to the product offer:
- The availability of financial products using biodiversity as a topic for portfolio alignment or as a target for portfolio impact is so far very limited, especially when compared to thematic funds targeting climate change mitigation or adaptation. It also seems much insufficient when compared to retail clients’ preferences.
- Finally, there can be difficulties related to the access to data on biodiversity characteristics of financial products (we can notably mention needs for development of adapted metrics, integration of data on biodiversity by data providers, reliability of data on biodiversity).
Those issues are to be connected to the recency of the topic in the (retail) sustainable finance realm. If reallocating retail savings to the restoration and protection of biodiversity is necessary to reach Goals of the Kunming-Montreal Global Biodiversity Framework, then this can only happen with improvements to the advisory process and the development of the product offer.
As a final word, it is important to stress that retail investment does not cover all private finance sources for biodiversity. Multiple private and public actors must be mobilized to achieve the objectives of the Kunming-Montreal Framework and develop appropriate tools similar to those that already exist for other environmental or social topics (blended finance, “pay-for-success” instruments, etc.) and/or innovate. Tax incentives granted for specific financial products (in relation with their impact potential or their active participation to a collective action) can also be a pathway to explore in order to encourage reallocation of financial flows.
[1] Convention on Biological Diversity of December 2022 [2] Target 19 of the Convention on Biological Diversity of December 2022 point c. [3] Eurostat Households – statistics on financial assets and liabilities, November 2023 [4] Among client’s main sustainable topics of interest we can find clean water, pollution, natural resources, sustainable forestry and biodiversity itself. See page 15 of 2DII report dated May 2022: What do your client actually want ? [5] 2DII, 2023, Assessing client sustainability preferences…lost in the maze? [6] Article 5 Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment [7] See the definition of sustainability preferences in article 2 Delegated Regulation (EU) 2017/565 [8] See the definition of sustainability preferences in article 2 Delegated Regulation (EU) 2017/565
