Fixed income

Green Bonds to preserve biodiversity

August 08, 2024 - 3 min read

Green bonds and the issues of biodiversity and nature conservation are both a challenge and an opportunity to add credibility and sustainability to the green bonds market.

Our planet’s biodiversity is threatened by human activity, with the IPBES claiming that 75% of terrestrial ecosystems and 66% of marine ecosystems have been significantly altered by the impact of human activity¹.What is more, close to a million animal and plant species are under the threat of extinction. Some 188 governments met up at the COP 15 in 2022 to set biodiversity conservation targets, including the aim to protect 30% of the planet by 2030, restore 30% of ecosystems and reduce the impact of pesticides. The Institut Paulson estimates the annual amount of investment spending needed to reverse biodiversity loss between now and 2030 at 711 billion dollars at the very least, whereas current spending lies somewhere between 124 and 143 billion dollars; this points to a sizeable financing gap that needs to be filled².

Green bonds can be used to raise funds for environmental projects and are therefore an attractive financing tool for public and private institutions alike. In 2023, nearly $600 billion of green bonds were issued out of a total of around 1 trillion labelled securities, according to S&P³. However, most of the proceeds raised from green bond issues are currently allocated to climate-related projects and few are geared towards financing biodiversity-related issues. The share of green bonds featuring biodiversity conservation as a use of proceeds has risen considerably in recent years, from 5% of instruments issued in 2020 to 16% in 2023⁴, but the pace is still slow. That said, the growth trend seems to be a steady one and there are lots of market participants pushing in this direction.

In this respect, the development of blue bonds (a variation of green bonds tailored specifically to marine activities) is a prime example of innovation geared towards biodiversity. The Nordic Investment Bank successfully issued close to 2 million Swedish krona worth of bonds for projects that limit the amount of pollution discharged into the Baltic Sea⁵. It is quite possible that the market does not require any further labelling to steer capital towards biodiversity, but this example shows that investors are taking an interest in this type of investment theme. Unfortunately, blue bonds appear to have hit a ceiling: although there is a great deal of demand on the market, the latest blue bond issued by the NIB dates back to 2019 as there is a shortage of assets to finance, preventing new issuances.

One of the major factors preventing labelled debt financing from expanding is that it is so difficult to identify opportunities and income-generating, assets in the biodiversity arena. And in contrast to climate-related issues, there are few metrics out there for assessing the impacts of biodiversity- related projects.

The reporting standards applied to the impacts of an issuer’s activities on biodiversity are far less stringent and advanced than those applied to climate targets. The European Union has made progress here, but it is essential to continue working to improve transparency. Policy alignment in the field of biodiversity is less widespread, and initiatives like the SBTN (Science Based Targets for Nature) are still only marginal; all this means that there is no incentive for companies to issue bonds aimed at helping them achieve their biodiversity impact reduction targets. And yet this is an issue that needs to be fully embraced if we are to achieve a truly sustainable transition.

To conclude, if the labelled debt market is to continue growing while at the same time gaining credibility, it needs to find new assets financing real environmental progress. And notwithstanding the difficulties currently being faced, the market’s horizons could broaden thanks to changes to the regulatory framework combined with the introduction of a new biodiversity taxonomy. Greater transparency will make it easier to steer capital towards the theme of biodiversity, which is so essential to securing the sustainability of our economic activity and especially our future.

Written in June 2024

Mirova is an affiliate of Natixis Investment Managers.

¹ Source: IPBES-Depliant-rapport-2019, French Foundation for Biodiversity Research. To find out more, click here.

² Source: Financing Nature: closing the global biodiversity financing gap, 2021, Paulson Institute. Find out more: Financing Nature: Closing the Global Biodiversity Financing Gap - Paulson Institute.

³ Source: Sustainable Bond Market Outlook for 2024, S&P global rating

⁴ Source: Biodiversity in ESG, State of the Sustainable Finance Market, Sustainable Fitch. To find out more, click here.

⁵ Source: NIB issues first Nordic–Baltic Blue Bond, NIB. To find out more, click here.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. The views and opinions are as of December 6, 2023 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

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