Colombia, rich in biodiversity, has expanded its climate finance from primarily reducing greenhouse gases to include biodiversity financing. The government, with support from the World Bank Group, has developed regulations and frameworks that led to the creation of biodiversity bonds by BBVA Colombia and Banco Davivienda. These initiatives aim to support projects that enhance species diversity and habitat restoration, illustrating a shift towards sustainable environmental finance.
Colombia possesses an unparalleled variety of biodiversity, featuring diverse ecosystems such as the Amazon, Andes, and the coasts of the Caribbean and Pacific. The country’s ecological wealth includes species from river dolphins to coral reefs, making it second only to Brazil in terms of species diversity in the Americas. Additionally, Colombia has emerged as a front-runner in climate finance, primarily focusing on reducing greenhouse gas emissions through renewable energy and sustainable transport.
Recently, Colombia has expanded its climate-finance initiatives to include biodiversity, which presents unique technical challenges. The government is implementing new regulations and frameworks designed to support biodiversity finance. A pivotal achievement includes BBVA Colombia launching the first biodiversity bond globally, with Banco Davivienda preparing a similar initiative. These developments are supported by the World Bank Group through resources like the Joint Capital Markets Program (J-CAP) and its Biodiversity Finance Reference Guide.
The biodiversity bonds are designed to finance projects such as sustainable agriculture and forest restoration, which may not directly reduce carbon emissions but enhance the diversity of species and habitats. Before these bond issuances, the Colombian Financial Superintendency (SFC) consulted global best practices to create a sound policy and regulatory framework, for which the World Bank Group provided substantial assistance.
Carlos Senon Benito, a Financial Sector Specialist at the World Bank, emphasized their support, stating the aim is to “develop a sustainable-finance economy that covers biodiversity and climate adaptation.” This involved creating a tailored “taxonomy” for biodiversity finance that aligns with Colombia’s environmental context, enabling private banks to issue biodiversity bonds effectively.
The taxonomy merges environmental science with financial frameworks, drawing on expertise from both the Colombian government and the World Bank Group, as noted by Angela Maria Angulo Daza, a Senior Adviser at SFC. She explained how they expanded their green taxonomy to include biodiversity objectives amid grave concerns over biodiversity loss, with wildlife populations in Latin America plummeting by 94 percent since 1970.
Irina Likhachova of the IFC underscores the urgency of financing initiatives that support nature’s regeneration. She stated, “We need finance to stop financing activities that destroy nature.” Likhachova likened neglecting biodiversity to depleting a warehouse without replenishing stock, necessitating shifts toward sustainable profit models that allow for ecological recovery.
J-CAP provides crucial advisory services to regulators and private sectors in various nations. In Colombia, it has assisted the SFC in establishing metrics for assessing projects’ environmental impacts concerning financial risk. Consequently, BBVA Colombia and the IFC successfully issued a $70 million biodiversity bond last July to fund critical environmental initiatives.
Following that success, a second bond worth $50 million was initiated by Banco Davivienda during October’s COP16 summit in Cali. Projects financed by this bond include mangrove restoration and loans for farm exporters pursuing green certifications. Alejandra Diaz Agudelo from Banco Davivienda highlighted the bond’s dual purpose: supporting biodiversity while ensuring business sustainability.
The International Finance Corporation (IFC) has committed to purchasing these bonds and views them as a “demonstration transaction,” boosting confidence in local currency bond markets. Felipe Sanint of the IFC noted that there is a growing interest in biodiversity finance, aiming to broaden banks’ portfolios to include these emerging areas. The J-CAP initiative in Colombia is part of a broader, Switzerland-supported effort and is accompanied by assistance from several other governments demonstrating a collective commitment to sustainable finance practices.
In conclusion, Colombia’s endeavors to finance biodiversity reflect a significant expansion of climate finance initiatives. With the issuance of biodiversity bonds and the establishment of tailored regulatory frameworks, the country is making critical strides towards enhancing ecological diversity. The collaborative support from the World Bank Group and various international entities signifies the importance of sustainable finance in safeguarding biodiversity while enabling economic growth. These efforts underscore the necessity of redefining financial models to include environmental stewardship, promoting a resilient and sustainable future.
Original Source: www.ifc.org
