UBS: How Transition Finance can Unlock Biodiversity Benefit

When you consider that an estimated 37% of emissions reduction to meet Paris Agreement goals can be achieved with natural climate solutions, you start to understand the importance of biodiversity.

That stat came from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), and is backed up by The World Bank.

Nature-based solutions protect, sustainably manage, or restore natural ecosystems that can help mitigate climate change.

For example, flooding in coastal areas can also be addressed by planting mangroves, which reduces the impact of surges and provides biodiversity – not to mention carbon sequestration.

That is why Red Sea Global has planted more than a million mangroves in its development, and plans to increase that to 50 million.

The United Nations says 85% of wetlands (including mangrove swamps which absorb large amounts of carbon) have simply disappeared.

How Finance can Fund Technology to Boost Biodiversity

Finance that unlocks the technology required to boost biodiversity is therefore essential, says UBS in its new white paper ‘Bloom or Bust’, produced and discussed at the World Economic Forum’s Annual Meeting in Davos.

Switzerland’s largest bank, UBS examines global biodiversity loss, existing technology solutions, and the role that finance and government action must play.

UBS says that biodiversity and climate are linked to such an extent that failing on one means failing on both.

Biodiversity is also essential to the global economy, with UBS analysis showing around 60% of global GDP relies on nature. This means more interest from investors, corporates and governments in how to mobilise finance for these nature-based solutions.

“Biodiversity loss requires swift action,” says Sergio Ermotti, Group CEO of UBS.

“Collaboration between governments, industries, academia, and communities is critical to accelerate and scale the solutions needed to reduce biodiversity loss by 2030.”

Here is the tricky part – it will take an estimated US$700 billion to meet the 2030 goal – every single year. UBS says that can only be achieved by leveraging private capital through innovative approaches, to close this biodiversity investment gap.

The white paper also highlights the need for understanding the drivers and pace of biodiversity loss, and this will require significant investment in technologies including AI and remorse sensing via satellite.

UBS Suggests Innovative Nature-Based Financial Solutions

The State of Finance for Nature report released at COP28 by the United Nations Environment Programme (UNEP) showed that financing in activities that have a direct negative impact on nature outweighs financing that has a positive impact on nature by a scale of 30 to 1. That nature-damaging finance totals US$7 trillion – the annual GDP of Germany and the UK combined.

UBS suggests public, private and blended finance approaches will be needed to fight biodiversity loss, and that nature-focused transition finance offers the best potential for unlocking private capital at scale.

At the same time, government action is required to bridge the gap, and the UBS report highlights these four key areas:

1. Provide suitable economic incentives: Such as linking agricultural subsidies to positive environmental outcomes.
2. Send clear signals: Through clear biodiversity strategies that prioritise measurement and report their progress.
3. Provide public capital to supplement private capital: Concessional finance will be required for some projects in the short term.
4. Mainstream better data and methodologies: Supporting the take-up of Taskforce on Nature-related Financial Disclosures (TNFD) in the private sector, and a public data facility.

“There is growing client interest in directing capital toward nature positive solutions both through investment and philanthropic solutions,” said Suni Harford, President of UBS Asset Management and Group Executive Board lead for Sustainability and Impact.

“Governments can help send clear signals to the markets to encourage investors to take account of biodiversity and ultimately expand investment into biodiversity measurement and assets at scale.”

UBS is a leading global wealth manager and the leading bank in Switzerland. It also provides diversified asset management solutions and focused investment banking capabilities. 

With the acquisition of Credit Suisse, UBS manages US$5.5 trillion of invested assets as per Q2 2023.

Headquartered in Zurich, the firm operates in more than 50 markets.