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IS NATURE-BASED INVESTING READY FOR TAKE-OFF IN AFRICA?

Conserving Africa’s biodiversity is vital for the continent’s long-term economic
development, and the private sector may be poised to assume a bigger role.

January 24th, 2023

Ben Payton

Thousands of delegates gathered for the 2022 United Nations biodiversity
conference (Cop15) in Montreal in December, tasked with finding a pathway to
halt the alarming decline in global biodiversity. The negotiations eventually
produced a landmark agreement to protect 30% of the Earth’s land and oceans by
2030, along with a host of other targets to reduce the loss of biodiversity.

While the agreement was signed by national governments, private sector
representatives were conspicuous by their presence at the conference. But
financial institutions have increasingly been making commitments to protect and
enhance biodiversity in recent years, giving rise to a plethora of new jargon.

“Nature-based investing” – where investors provide benefits to nature and
ecosystems, alongside achieving a financial return – is the latest buzzword. At
the heart of this approach is the acknowledgement that “natural capital” – in
other words, the Earth’s biodiversity and natural resources – provides benefits,
often defined as “ecosystem services”, to the human population.

Nature is clearly indispensable to many economic activities. In Kenya, for
example, tourism is making rapid progress in recovering to pre-pandemic levels,
when it generated over 8% of GDP, and the tourist trade depends heavily on the
lure of the country’s wildlife. Threats to biodiversity and ecosystems in Africa
and around the world are therefore an issue of profound importance for
investors, as well as governments.

“We have been losing natural capital at such an incredible rate over the last 60
or so years, and the pressure from consumption and demographics is so huge, we
are now at that point in time where there’s just not enough resources to go
around,” warns Alejandro Litovsky, CEO of consulting firm Earth Security.
“There’s a real question around the operating conditions for companies and
assets that depend on the services that have been free for a very long time.”

Related article


BIOENERGY OFFERS AFRICA A SUSTAINABLE FUTURE

Ben Payton  •  


THE SIXTH EXTINCTION?

The gravity of the crisis facing nature has sometimes been overshadowed by the
climate crisis (which is itself one of the main drivers of biodiversity loss).
But the data on nature makes for grim reading. Over 6,400 species of animals and
3,100 species of plants in Africa are at risk of extinction, according to the
International Union for the Conservation of Nature.

Globally, the scale of the disaster is such that many scientists argue that the
Earth is entering its sixth period of mass extinction. This puts the current
biodiversity crisis on a par with the asteroid strike that wiped out the
dinosaurs 65m years ago.

The destruction of vital ecosystems across many parts of the world is the
consequence of prevailing economic models prioritising short-term gain at the
expense of long-term sustainability. “I spend a lot of time with African
leaders,” says Kaddu Sebunya, CEO of the African Wildlife Foundation, “and
they’ll tell you frankly that ‘the global economy doesn’t pay or reward me if I
secure forests. But they reward me if I cut down the forest and export sugar.’”

But when habitats are lost or damaged, it is often humans who pay the ultimate
price. The devastating mudslides that hit Freetown, Sierra Leone, in August
2017, killing over 1,000 people, were partly caused by deforestation on
hillsides around the city. As the city grew, its surrounding hills lost much of
the tree cover that had held soils together and provided a natural drainage
mechanism.




In the aftermath of the tragedy, Freetown has become one of the pioneers of
nature-based investing in urban areas in Africa, according to John-Rob Pool,
senior manager at the World Resources Institute. Among other initiatives, the
city is establishing a ‘water fund’ as a public-private partnership to protect
nearby areas of forest that provide Freetown with its water supply.

Other African cities can benefit from following Freetown’s example, says Pool.
“Nature-based solutions, when implemented and deployed properly, can be really
useful in improving air quality, in reducing extreme urban heat, improving the
quality and the supply of water, in reducing the risk of landslides and
flooding, and so on.”

The Chinese minister of ecology and environment, Huang Runqiu (L), shakes hands
with the DRC’s environment minister, Ève Bazaiba Masudi at the 2022 UN
biodiversity conference in Montreal, Quebec. (Photo: Lars Hagberg / AFP)


FINANCING DILEMMAS

The 2022 UN biodiversity conference produced a historic agreement on
biodiversity – but the conference concluded in controversial circumstances. In
declaring the text of the agreement to be final, the Chinese president of the
conference ignored the objection of the Democratic Republic of the Congo, which
was continuing to seek additional financial commitments from wealthy nations.

“We didn’t sign the agreement,” Ève Bazaiba, the DRC’s environment minister,
said. “It is not possible for us to implement it. We cannot accept the level of
ambition without more finance.”

The UN Environment Programme states that the private sector currently provides
only 17% of total investments into nature-based solutions. It estimates that
total financing will need to more than double, to $384bn a year by 2025, in
order to meet biodiversity goals.

The fact that financial institutions are lining up to express their enthusiasm
for nature-based investing may be seen as an encouraging sign. Gautier Quéru,
head of the Land Degradation Neutrality Fund, which provides long-term financing
to projects that meet strict environmental and social standard, says Cop15 has
brought “momentum” to nature-based investing.

“Public money will not be enough to meet the objectives,” he says. “We need the
mobilisation of private sector actors, including finance and industry. And the
good news is that at Cop15, the positive mobilisation of the business and
finance sector was really striking.”


A NATURAL FIT?

While the availability of finance is one part of the challenge, investors also
need to determine what, in practice, they can actually invest in when it comes
to nature.

Devang Vussonji, a partner at consulting firm Dalberg, says that the difficulty
of measuring and assigning value to different types of biodiversity is a major
factor holding back investment in nature-based solutions in Africa.

“There’s a lot the market needs to figure out,” he says. “What do we value and
not value?

“How do we set a price around it? How do you compare mangrove populations
declining to elephant populations declining? How do you compare tropical areas
to temperate areas and so forth?”

For many investors, a possible starting point is carbon credit schemes, which
are designed to conserve or enhance forests that act as carbon sinks –
theoretically enabling companies to offset emissions from other activities. Such
schemes are mainly intended to contribute towards net zero targets, but nature
is a possible added beneficiary.

“There’s now a recognition that if the carbon markets have proven themselves,
are beginning to take off, there’s good demand for products as well as good
supply of products, then the same can be replicated for broader nature-based
investing as well,” says Vussonji. “The first of those opportunities we’re
seeing is piggybacking on carbon credits, so as carbon credits are being created
or being sold, other ‘biodiversity credits’ can be added on to them.”

Read more about carbon credits


HAS COP27 RESURRECTED GLOBAL CARBON TRADING?

Dr Desné Masie and Angus Chapman  •  

While private sector finance has an indispensable role in conserving
biodiversity in Africa and elsewhere, another essential element is coordination
between the public and private sectors.

Sebunya emphasises that governments and NGOs must help provide a pipeline of
projects that investors can adopt. Even where funds may be available from
impact-focused investors, he says, “finding the bankable pipelines that are
shovel-ready for investors is a huge, huge challenge”.

The African Wildlife Foundation, in an effort to meet this challenge, has been
working with the Rwandan government on ways to support the mountain gorilla
population in the country’s Volcanoes National Park. With the gorilla population
expanding thanks to the success of recent conservation efforts, Sebunya says
that thoughts are turning on how to expand their habitat.

One solution, he suggests, is encouraging local communities to grow bamboo – the
gorillas’ favourite food – as a cash crop. This would potentially provide a
win-win solution, allowing locals to generate income from selling bamboo to
companies that could process the crop into various products, while providing a
food source for the gorillas.


WILL LIFE FIND A WAY?

Conservation will have to compete with many other priorities in Africa,
including the need to ensure a food supply for a human population that is set to
almost double by 2050. “You do have that trade-off between protecting virgin
nature and cultivating food for a growing population,” Litovsky acknowledges.
Developing agricultural techniques that regenerate natural ecosystems will be
“really quite fundamental” to Africa’s future, he adds.

Yet it is worth bearing in mind that Africa has in fact been more successful
than most of the world in retaining its biodiversity up to now. The continent
hosts around one-quarter of the Earth’s biodiversity. It contains the mighty
Congo Rainforest, one of the “green lungs” of the planet. Its megafauna have
remained relatively intact, thousands of years after early humans slaughtered
the largest animals they encountered on other continents.

“Africa today has abundant nature in many places and abundant natural
resources,” says Litovsky. “If you think about those as an asset that can be
monetised in a variety of different ways, as part of a long-term economic
development model, then that can really create a very exciting prospect for how
Africa can develop into the future.”


BEN PAYTON

10 Articles written.






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