Elizabeth Mrema, Executive Secretary of the United Nations Convention on Biological Diversity (CBD UN), stated that more than 50 percent of the global economy depends directly on nature and ecosystems. Yet, these economic activities have resulted in the loss of incomprehensibly large areas of rainforests. As such, the business sector should prepare for greater supervision of nature-related risks.
This supervision is carried out as a consequence of the natural damage caused by the business and financial sector’s activities Mrema emphasized the business sector needs to implement a framework to assess and disclose nature-related risks, dependencies, and opportunities related to nature through collaboration with the Task Force on Nature-related Financial Disclosure (TNFD) (The Banker, 22 September 2022).
Alarming Biodiversity State
The current state of global biodiversity state is very alarming. According to the “Global Biodiversity Outlook 5” report published by CBD UN, the world has failed in efforts to save biodiversity, indicated by none of the targets in Aichi Biodiversity Targets were fully achieved. Aichi Biodiversity Targets were multiple targets previously set by CBD UN in efforts to save biodiversity in the 2011-2020 period.
The “Nature Loss and Sovereign Credit Ratings” report by Bennet Institute for Public Policy, Cambridge University, about 26 countries ranking in the “partial collapse of ecosystem services” scenario, Indonesia and China are the two countries that are predicted to experience a decline in their ability to pay credits due to the loss of plant and animal species. Twelve of 26 countries studied experience an increased risk of bankruptcy by more than 10 percent. This “partial collapse of ecosystem services” includes a 90 percent decline in ecosystem services in marine fisheries, illegal pollination, and tropical timber production.
This “partial collapse of ecosystem services” scenario will reduce economic performance, causing countries studied will have difficulty paying debts, burdened government budgets, and be forced to increase taxes, cut spending, or increase inflation. Indonesia, Malaysia, China, India, and Bangladesh are the five countries most vulnerable to bankruptcy due to the “partial collapse of ecosystem services” scenario.
the linkage between the finance sector and biodiversity
A number of global countries that ratified the Convention on Biodiversity are preparing for the Post-2020 Global Biodiversity Framework at COP15 which will be held in Montreal, Canada in December 2022. The framework will be used as a stepping stone toward the UN CBD’s vision in 2050, “Living Harmony with Nature”. One important thing that must be considered in achieving post-2020 global biodiversity protection targets is the linkage between the finance sector and biodiversity.
Currently, a “No Go” policy needs to be implemented for banks and financial institutions. The policy is carried out by prohibiting direct or indirect financing to every activity that fails to fulfill sustainability aspects which potentially causes negative impacts in areas prioritized for biodiversity. This policy’s goal is to prevent biodiversity loss, overcome climate change, and prevent zoonosis infection in humans.
Developing and developed countries need to increase financing to sustainability sectors. In Indonesia, Financial Services Authority (OJK) published “Green Taxonomy 1.0” in 2022 as a guideline for identifying economic activities that are harmful and not harmful to the environment. Green Taxonomy is expected to be able to accelerate energy transition financing which supports environment protection efforts, climate change mitigation and adaptation, and in line with Indonesia’s commitment to fulfilling net zero emission.
One obstacle that still often occurs is the lack of financing or investment that meets the sustainability aspect.
Improvements in Green Taxonomy also need to be carried out by removing the coal sector from the yellow category (not significantly damaging) even though in reality coal mining activities cause high disturbance to biodiversity Fossil fuel data investment in Indonesia Energy Transition Outlook (IETO) 2022 published by Institute for Essential Services Reform (IESR) in September 2021, shows that the electricity sector received a new investment of 3.61 billion USD or around Rp 51.4 trillion.
From those amounts, around 2.5 billion USD or Rp 35.6 trillion is the investment in fossil fuel-based power plants. In the same period, investment in renewable energy is only around 1.1 billion USD or around Rp 15.6 trillion from total investment and has never exceeded 2 billion USD or Rp 28.4 trillion over the past six years. Financing for mining is still very high. This mining supplies fossil energy raw materials massively.
According to the Ministry of Investment (BKPM), the Domestic Direct Investment (DDI) in Q1 2022 for the mining sector reaches 1.18 billion USD (around Rp 18.3 trillion) and was second only to the transportation sector. The Direct Foreign Investment (FDI) in Q1 2022 for the mining sector reaches 1.17 billion USD (around Rp 16.8 trillion) and was second only to the metal, metal goods, except machinery, and equipment Industry sector.
Indonesia needs to urgently decrease its dependency on fossil energy that negatively impacts biodiversity and nature, and accelerate the increasement of environment-friendly renewable energy uses. Nature-based Solutions (NbS) is important to be implemented to answer this problem.
According to International Union for Conservation of Nature (IUCN), Nature-based Solutions is described as “actions to protect, sustainably manage, and restore natural or modified ecosystems… simultaneously providing human well-being and biodiversity benefits”. It’s crucial to implement Nature-based Solutions in business activities that are potentially cause negative impact on biodiversity and nature.
The implementation of Nature-based Solutions needs support from financial institutions to achieve the Post-2020 Global Biodiversity Framework’s 15th: target “All businesses (public and private, large, medium and small) assess and report on their dependencies and impacts on biodiversity, from local to global, and reduce negative impacts and increase positive impacts to biodiversity”. Indonesia needs to accelerate the transition to renewable energy to encourage environmental improvements and prevent bankruptcy in the “partial collapse of ecosystem services”
This article is first published by Kompas.com: https://www.kompas.com/tren/read/2022/08/30/090711965/penyelamatan-keanekaragaman-hayati-terkait-dengan-pensiun-dini-pltu?page=all#page2
Ilham Setiawan Noer (AEER Biodiversity and Climate Program Coordinator)
Wulan Ramadani (AEER Climate and Finance Researcher)