Development Finance Forum 2022

When it comes to climate change mitigation, there is already a strong awareness of how serious the situation is; now this awareness must be converted into action. The Paris Agreement and the further continuation of its decisions in the following COPs will provide the framework for the upcoming transformation. In order not to miss the agreed 1.5-degree target, net zero must be achieved by the middle of the century, i.e. the bottom line is that greenhouse gas emissions must be reduced to zero.

While this requires decarbonisation of the global economy, it also demands more nature and natural conservation areas so that carbon sinks such as forests, bogs and oceans can store as much CO2 as possible in a natural way. According to the Intergovernmental Panel on Climate Change (IPCC) and the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), these carbon sinks absorb around half of all man-made CO2 today and therefore constitute a key buffer against climate change. However, if the current level of natural destruction is maintained, this will weaken a key element in the fight against rising temperatures on Earth.

This makes it all the more important to invest further in nature-based solutions, i.e. preserving the natural environment or alternatively rehabilitating natural habitats – even if the latter is somewhat less favourable from the perspective of the carbon balance. Conversely, climate change has a negative impact on biodiversity. According to IPBES, it is one of the three key causes of the current decline, after changing land use and the exploitation of species.

It is undisputed that there are interactions here but, in practice, both topics are still largely dealt with separately. Climate change also receives much more attention than biodiversity loss, even though both crises pose enormous risks to the survival of humanity.

Biodiversity conservation lags behind climate change mitigation. There is no similar awareness of the dangers associated with it, nor are there protective measures that have been firmly anchored across the breadth of the economy. Also, it is yet unclear as to how the loss, respective the protection of biodiversity are going to be measured. And, ultimately, the world still lacks a policy framework for the coming years.

The 20 Aichi Biodiversity Targets from 2020 have expired and require follow-up. None of the targets were achieved. According to IPBES, only six of the objectives showed some progress, including the designation of natural conservation areas. In the meantime, close to 17% of land and almost 8% of the oceans are protected. However, the target was only achieved numerically because a large proportion of these areas are considered to be “paper parks” that do not sufficiently fulfil their actual task of preserving the natural environment. Overall and globally, the world has fallen short of the targets. The balance sheet looks accordingly gloomy.

More than 50% of all natural ecosystems have already been destroyed. Every year, around 10 million hectares of forest disappear, an area greater than the size of Portugal. What is more, 50% of coral reefs have already been lost, not least due to environmental pollution and warming of the oceans. In addition, the oceans have been overfished to the limits of sustainability. According to IPBES, one in eight species are at risk of extinction.

If, for example, there is a lack of clean water, pollinators can die out or soil will degrade, which then has serious consequences for the survival of humanity. According to the World Economic Forum, half of the world’s gross domestic product also depends to a large extent on services provided by nature. For all these reasons, it is essential that we achieve a trend reversal in biodiversity loss. And because climate change mitigation and biodiversity protection have a reciprocally reinforcing effect, dealing with them together can bring invaluable practical benefits for the two major challenges of our time.

The transformation that lies ahead of us in terms of climate change mitigation and biodiversity protection requires significant additional funds. In the Paris Agreement, the parties set themselves the objective of restructuring all finance flows in climate-friendly ways (see Article 2.1c). This objective is addressed by mandatory regulations of the EU, central banks and financial supervision as well as voluntary actions taken by the financial sector. These include topics such as ESG reporting, the EU taxonomy, transparency obligations, the work of the Task Force on Climate-Related Financial Disclosures (TCFD) and the Partnership for Carbon Accounting Financials (PCAF), as well as self-imposed commitments to net climate neutrality by financial portfolios, such as the Glasgow Financial Alliance for Net Zero (GFANZ).

These processes require a high willingness to reform, a high degree of ability to execute these reforms on the part of the financial actors and hence also time, which is itself a very limited resource. KfW Group embarked on a promotional business strategy in 2018 to align with these aims, and has since achieved considerable improvements in data collection, management approaches and disclosures. It has connected this with the clear objective of making its work compatible with the objectives of the Paris Agreement.

In this way, KfW intends to integrate climate change mitigation and adaptation to climate change into its promotional business across the board (mainstreaming), so that climate risks and benefits will be taken into account in every promotional activity going forward.

Processes like these have yet to be implemented for the promotion, protection and preservation of biodiversity. And yet they are necessary, not only for KfW, but for all other financial actors as well. This realisation is starting to take hold and was emphasized as need and objective also at the Development Finance Forum. We can assume that the financial sector will be able to draw on the experience gained in the field of climate change. In the context of the Task Force for Nature-related Financial Disclosures (TNFD) and the forthcoming EU taxonomy for biodiversity, similar approaches to those applied to climate change are currently a work in progress. Nevertheless, when it comes to mainstreaming biodiversity in the financial sector, we still have a long way to go before we arrive at a collective target comparable to the generally recognised objectives in the climate sector, until management decisions are aligned accordingly and there are also practicable approaches to help achieve these. But this is exactly the task that we face, was a consensus at the Forum.