Biodiversity Finance

Caroline Flammer, Thomas Giroux and Geoffrey Heal

No 31022, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study biodiversity finance—the use of private capital to finance biodiversity conservation and restoration—which is a new practice in sustainable finance. First, we provide a conceptual framework that lays out how biodiversity can be financed by pure private capital and blended financing structures. In the latter, private capital is blended with public or philanthropic capital, whose aim is to de-risk private capital investments. The main element underlying both types of financing is the “monetization” of biodiversity, that is, using investments in biodiversity to generate a financial return for private investors. Second, we provide empirical evidence using deal-level data from a leading biodiversity finance institution. Our findings are consistent with a three-dimensional efficient frontier (return, risk, and biodiversity impact)—deals with a favorable risk-return profile tend to be financed by pure private capital, whereas for other deals the biodiversity impact needs to be sufficiently large for blended finance to be used. Overall, our results suggest that blended finance is an important tool for improving the risk-return profile of these projects, thereby increasing their appeal to private investors and crowding in private capital. Finally, our results suggest that private capital is unlikely to substitute for effective public policies in addressing the biodiversity crisis.

JEL-codes: G11 G23 G3 Q14 Q2 Q5 Q57 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-cfn, nep-env and nep-ppm
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