Keeping the life insurance

Biodiversity is essential for the survival of humanity. Stephan Opitz, member of the Management Committee of KfW Development Bank, explains what lessons are to be learned from 30 years of conservation finance.
Nature needs protection: Tsavo West National Park in Kenya. Charlotte Thege/Lineair Nature needs protection: Tsavo West National Park in Kenya.

We have known it for long, but still do too little about it: species are becoming extinct at the rate of one every 15 minutes, an estimated 100 a day, nearly 700 a week, more than 30,000 a year. Yet we need biodiversity today more than ever – because it provides food, building materials, energy, medicine and a great deal more to a growing number of people.

Science cannot yet say exactly how many species are actually necessary for the survival of humanity, but it does tell us that “a lot is good”. The reason: diversity is like a life insurance. If one species fails, due to drought or heat for example, its function is transferred to another. Accordingly, the continuous decline in the number of species is eroding humanity’s insurance cover day by day.

In response to the alarming depletion of biodiversity worldwide, the international community agreed in 2010, under the UN Convention on Biological Diversity (CBD), to commit to what is known as the “Aichi Targets”. They range from halving the loss of natural habitats to stopping the overfishing of oceans and placing 17 % of inland water and 10 % of marine areas under protection. The deadline for achieving the goals is 2020. Judging by the progress made so far, however, most of the targets will not be met. Therefore, at their latest meeting in Egypt in late November, the parties to the CBD launched one more urgent appeal, calling for the extension and intensification of global efforts to preserve biodiversity (see Günter Mitlacher, Debate section, D+C/E+Z e-Paper 2019/01).

What is needed is not just political. Significantly more money is necessary too, and it must be spent more efficiently. Experts reckon that an annual $ 1.3 billion are needed to close the funding gap for maintaining today’s protected areas in developing countries and emerging economies alone.

KfW has a great deal of experience in this area. We have been involved in conservation for over 30 years. And with a portfolio of more than € 2 billion, we rank among the biggest international financiers in the field. Many years of engagement have taught us five important lessons for the future of conservation finance.

Lesson number 1: Long-term conservation works only if the local community benefits directly.
From the 1980s onwards, financial support to partner countries focused predominantly on government-funded conservation. In effect, this mainly meant helping under-funded, poorly equipped administrations of national parks in sub-Saharan Africa, with natural resources neither being protected nor managed sustainably. Their protection status existed only on paper. KfW responded by frequently investing in park infrastructure and in better equipment for park administrations. Later on, we extended our focus to include the development of the rural peripheries of the parks in order to secure support from local communities. It had become clear that long-term success was only achievable if both the local communities and the national players had incentives to preserve biodiversity.

Lesson number 2: The running costs of protected areas need to be met, so long-term funding must be guaranteed.
One example is the case of the Amazon Basin, where protection for the rainforest is linked to protection for indigenous livelihoods (see Carmen Josse in Focus section of D+C/E+Z e-Paper 2019/02). But before long, evaluations from every region started to show that national-park finance was generally only assured for the duration of the ongoing project. Once the investments were made, the question of long-term funding arose.

In Eastern and Southern Africa especially, the problem was compounded by increasingly well organised – and in some cases heavily armed – gangs of poachers. They decimated entire populations of rhinoceroses, elephants and other species to the brink of extinction. So even if the local community is involved, it is not enough just to designate protected areas or improve their management. The question of how parks can be sustainably financed must be considered early on.

Lesson number 3: The massive cost of preserving biodiversity cannot be shouldered by the public sector alone. Financing models need to mobilise private funding.
Against this backdrop, KfW joined with other actors to develop a new policy instrument: the conservation trust funds (CTF). Funds of this kind now play an important role in the preservation of biodiversity, especially in developing countries and emerging economies that struggle to earmark limited public money for safeguarding protection areas.

Most CTFs are established as endowments. These institutions generate revenues from the assets they own and use them to sustainably finance ongoing expenses. On behalf of Germany’s Federal Government, KfW is currently supporting the establishment and capitalisation of 18 CTFs, contributing to finance more than 200 protected areas. Examples of CTFs range from trusts that promote regional protected area systems (for instance the Amazon Fund in Brazil) through funds with a national remit (as in Madagascar), to transnational institutions (like the Sangha Trinational Trust Fund in the Congo Basin). In times of negative interest rates, however, the model has its limits. In some cases, CTF revenues have dropped so low that the management had to raise additional funds to cope with the lean times until interest rates rise again.

Lesson number 4: Intelligent use of public funds can prompt private investors to invest in new areas.
Public funds are best deployed by multiplying their impacts through other channels. One option is to cooperate with the private sector, which has been showing a growing interest in a healthy environment. First of all, sustainability is an increasingly important selling point in the eyes of consumers. Second, many companies realise that they rely on services that nature provides. They face escalating costs if such services fail – for example when water is in short supply or contaminated. Indeed, there are strong arguments why using natural resources more sparingly can interest the private sector. KfW supports that process. On behalf of the Federal Government, KfW has teamed up with Finance in Motion, a financial institution, and Conservation International, a US-based non-governmental organisation, to establish the Fund. Its purpose is to promote enterprises that develop innovative sustainable products and processes. The fund offers such companies low-interest loans, which are provided through local financial institutions. Shareholders of the Fund include state agencies, private investors and NGOs. The private investors benefit from the public-sector partners bearing the largest share of the risk. The Fund is currently operating in Colombia, Costa Rica, Ecuador, El Salvador, Honduras, Nicaragua and Panama. There is significant demand elsewhere too. KfW is working on transferring the model to Africa, where funding is set to start this year.

Lesson number 5: Cooperation with NGOs can supplement conservation work with partner governments in useful ways.
NGOs generally have a great deal of expertise because of their many years of experience on the ground. One example of cooperation with NGOs is the Blue Action Fund, which KfW initiated over two years ago on behalf of and in conjunction with Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) (see contribution in the Monitor section  D+C/E+Z e-Paper 2018/1). The Blue Action Fund is special because it supports the work of international NGOs such as Worldwide Fund for Nature (WWF) or Conservation International in coastal and marine protection while at the same time mobilising additional capital from other donor governments. And the response has been positive: Sweden and France are now on board, and other governments have shown interest in joining.

Thirty years of experience in nature conservation show that the classical funding model of donors and partner countries neither fulfils the financial requirements of conservation nor sufficiently addresses the complexity of the issue. To halt species decline, a wide range of approaches and funding sources need to be coordinated and reinforced. An alliance of public donors, partner governments, NGOs, the private sector and philanthropists is necessary. A few weeks ago, Swiss-American philanthropist Hans-jörg Wyss pledged to donate $ 1 billion over the next ten years to biodiversity protection. Such funding should be integrated in conservation approaches that are prepared and structured by development banks in order to avoid duplication of efforts or conflicting impacts. As an experienced development bank, KfW can combine the diverse interests and capacities of public and private finan-ciers and channel them through scalable new approaches like the Fund or the Blue Action Fund.

Great strides need to be taken in conservation finance. Otherwise, the international community will find, when the Aichi Targets are reviewed at the global biodiversity summit in Beijing 2020, that the extinction of species has accelerated, and there is no money for the ambitious conservation goals needed for the next decade. That would be a disaster.

Stephan Opitz heads the Policy/Latin America Directorate of KfW Development Bank.

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