Mainstreaming Biodiversity Concerns in Financing Institutions

The different players in the financial services industry —banks, insurance companies, and pension funds— have a tremendous potential impact on biodiversity conservation. The link between economic development and environmental management is becoming better understood and recognized among these players. Thus the industry is starting to mainstream environmental and biodiversity concerns into its day-to-day decision-making. This in turn may be triggering more sustainable production and consumption patterns (NC-IUCN and TransGlobal, 1998). It is for this reason that attention is being paid to this subject by more and more organizations throughout the world. For example, UNEP’s Bank Initiative on the Environment was established in 1992 to engage a broad range of financial institutions in a constructive dialogue about the nexus between economic development, environmental protection, and sustainable development (Bartel and Voorhees, 1998). A recent survey by UNEP indicated that 88 per cent of the banking institutions had invested already in environment-related firms or were expecting to do so within the next 15 years.

Brazil’s Green Protocol is a promising instrument for raising environmental awareness in the financial sector and leveraging investments, as it promotes the availability of special credit facilities for businesses pursuing environmentally sustainable goals. It was established in 1995 to strengthen the environmental policies of the publicly financed banks in the country (Dourojeanni, 1997). Since then, it has stimulated more widespread inclusion of environmental variables in project appraisal by financial institutions and their intermediaries. Importantly, it has also resulted in the availability of lines of credit offering more attractive interest rates and/or loan conditionalities. For example, the Constitutional Financing Fund for the North (FNO), operated by the Bank of the Amazon, has established credit lines to nonwood forest products, sustainable agriculture, and environmental conservation. FNO is funded by a tax on imported products and by the income tax.

The Green Protocol appears to be readily applicable to many other countries in the region, with appropriate modifications to reflect local circumstances. An obvious way of stimulating proliferation would be to make selected IDB and World Bank loans to the sector conditional on the adoption of a protocol and by coupling such operations to a technical assistance program that provides necessary training for banks. Annex 3 describes the financial instruments of the IDB when mainstreaming is applied.

Since biodiversity investments tend to be innovative and considered to be of high risk, any mechanisms to reduce risk will further the propensity to invest in this area. Guarantees can be given by entities like the IDB. The Netherlands is in an advanced stage of establishing a mechanism to provide guarantees to Dutch companies that are willing to invest in developing countries. Environment is among the priorities of the system (NC-IUCN and TransGlobal, 1998).

McNeely (1997) has analyzed the advantages and disadvantages of various funding mechanisms. Table 2 summarizes the results of his evaluation.