China is one of the most biodiverse countries in the world. Its 960 million hectares of land include mountain ranges (such as the Himalayas) and plateaus, vast deserts and immense grasslands, boreal and tropical forests, very long rivers, and coral reefs. It ranks third in the world for the number of known higher plant species (nearly 35,000), while the 6,455 species of vertebrate animals and more than 10,000 species of fungi found within its borders account for 13.7% and 14% of the global total, respectively.
In short, the People's Republic has an immense heritage of biodiversity, which comes with great responsibilities. These responsibilities require investment. The conservation of endangered species, the restoration and protection of ecosystems, and the sustainable use of land and natural resources are priorities that must be met with specific funds and financing, as the Kunming-Montreal Global Biodiversity Framework adopted during COP15 in 2022 made very clear.
What, then, are the policies adopted by the Chinese government to finance biodiversity? What initiatives are in place to attract private capital to this particular branch of green finance? We discussed these questions with one of China's leading experts in biodiversity finance, Wang Yao, the Director General of the International Institute of Green Finance (IIGF) in Beijing.
What is the International Institute of Green Finance's role in the development of green finance in China?
The International Institute of Green Finance (IIGF) is an independent think tank affiliated with the Central University of Finance and Economics (CUFE) in China. Serving as the executive unit of the Green Finance Committee (GFC), IIGF collaborates with various stakeholders to promote sustainable finance practices domestically and globally. With a team of over 70 experts, we have played a significant role in areas such as climate finance, green finance, energy finance, ESG, and research on the green Belt and Road Initiative. Our objectives go beyond research to encompass knowledge sharing, advocacy, and capacity building. Through our proactive approach, we strive to bolster academic, policy, market, and global influence, fostering the evolution of "finance for good" and supporting green finance for worldwide sustainable progress.
Through forward-thinking research, we propel the advancement of green finance disciplines. Presently, the theoretical framework of green finance is still evolving. At IIGF, we engage in research from both theoretical and empirical angles, producing pertinent papers and publications. Furthermore, we host international and domestic conferences to foster engagement and encourage scholarly exploration in the realm of green finance. We undertake policy-focused research to drive national policy formulation and regional economic evolution. The establishment of policies and regulations is pivotal for the development of green finance in China. Through strong partnerships with diverse ministries and local administrations, IIGF delivers research-driven policy suggestions, actively engaging in the development of pertinent policies and standards to facilitate the shift of financial services towards the real economy. Simultaneously, we also support the development of green finance markets through technical research endeavors. Given their significance for sustainable economic and social progress, efficient green finance markets are imperative. IIGF engages in close partnerships with financial entities, exchanges, and businesses to achieve this. Such collaborations entail researching green finance strategies, setting up ESG databases, releasing green/ESG indices, crafting green financial instruments, and instituting green financial data management systems. These initiatives are aimed at aiding financial institutions in innovating and expanding their range of financial products to better cater to the real economy. Currently, there is a need for ongoing efforts to enhance the understanding of green finance principles among both government entities and financial market stakeholders. To address this necessity, IIGF organises numerous forums, salons, and diverse communication initiatives designed to heighten stakeholders' comprehension of the significance of green finance. Through these endeavors, our goal is to foster heightened awareness of green finance concepts by disseminating them through events and outreach activities.
We are also committed to nurturing talent in the field of green finance since the shortage of skilled professionals poses a challenge to its advancement. To address this issue, IIGF initiates and backs "sustainable finance" courses at universities to nurture talent at the academic level. Additionally, we provide comprehensive training programs for professionals to bolster the pool of specialised talent in green finance. In addition, we endeavor to establish a "common language" for advancing green finance, both domestically and internationally, through collaborative efforts on the global stage. Serving as a facilitator for international exchanges and partnerships, IIGF has formed alliances with nearly a hundred international organizations, including the World Bank, Asian Development Bank, GIZ, KfW, UNDP, UN Women, and academic institutions. On one hand, we play a role in "bringing in" international expertise into China, thereby introducing valuable global practices. On the other hand, we actively engage in "going out" initiatives, sharing China's innovative approaches with the world and fostering collaboration between China and other nations. In summary, the International Institute of Green Finance is committed to promoting green finance practices, fostering global sustainable development, and bridging China with the world through impactful research, advocacy, and collaboration.
During COP28, China announced the Kunming-Montreal Global Biodiversity Framework implementation initiative. According to the GBF, $700 billion annually would be needed globally by 2030 to protect and restore biodiversity. How much funding would be needed in China?
The specific funding needed for biodiversity conservation in China as part of the Kunming-Montreal Global Biodiversity Framework's implementation would depend on various factors, including the scale of biodiversity loss, the extent of degradation of ecosystems, and the specific conservation goals set by the Chinese government. Recently, China approved the China National Biodiversity Conservation Strategy and Action Plan (2023-2030), a significant step towards enhancing biodiversity governance and fulfilling the GBF's mandates. This plan outlines specific targets and priority projects across various conservation areas. Additionally, the strategy includes 27 priority actions and 75 priority projects across four key areas, including biodiversity mainstreaming, addressing threats to biodiversity, sustainable use and benefit-sharing, and modernising biodiversity governance capabilities. A collaborative report by the Paulson Institute, Duke Kunshan University, and the Shan Shui Conservation Center highlights that China's financial investment in biodiversity conservation from 2011 to 2020 totaled about RMB 2.16 trillion, accounting for approximately 0.24-0.29% of GDP, which is comparable to other nations' investments during the same period.
Considering different economic and social development scenarios, the report presents three forecasting scenarios for funding requirements from 2021 to 2030: baseline, sustainable development, and ecosystem protection priority. Under the sustainable development and ecosystem protection priority scenarios, the projected total investment in biodiversity conservation in China from 2021 to 2030 is estimated to be 10.96 trillion yuan and 18.84 trillion yuan, respectively. This funding is distributed across four key areas: ecosystem protection, ecosystem restoration, sustainable resource utilisation, and research and education. The estimated funding needs for the next decade vary across these areas, reflecting the diverse aspects of biodiversity conservation efforts. Government expenditure currently serves as the primary funding source for biodiversity conservation and restoration efforts in China. However, to fully achieve conservation objectives, it is essential to establish a diversified investment and financing mechanism led by the government, while engaging enterprises and society. Private capital is pivotal in biodiversity conservation due to its ability to leverage additional financial resources, foster innovation and efficiency, and promote long-term sustainability through varied perspectives and economic benefits.
What are the strategies to mobilise private capital?
Various approaches have been adopted in China to encourage private investment in biodiversity conservation. One strategy involves offering financial incentives and subsidies to private sector entities engaging in conservation projects. These incentives could encompass tax incentives, grants, or subsidies for the development of biodiversity-friendly technologies or practices. China has employed fiscal and tax incentives to attract private capital for biodiversity conservation, including the establishment of a national green development fund in 2020, which initially raised RMB 88.5 billion ($12.59 billion). Promoting the issuance of biodiversity bonds and other innovative financial instruments earmarked for biodiversity conservation projects can attract private investment. These instruments offer investors the chance to support environmentally beneficial projects while generating financial returns. In China, policy initiatives since 2021 have facilitated biodiversity financing. In April 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued Opinions on Establishing and Improving the Value Realization Mechanism of Ecological Products (关于建立健全生态产品价值实现机制的意见), emphasizing the development of ecological value accounting and its application in various financing areas. Additionally, in November 2022, the Bank of China successfully issued the world's first biodiversity-themed green bond worth RMB 1.8 billion, further illustrating China's commitment to innovative financing mechanisms for biodiversity conservation.
Encouraging partnerships between government, private sector, and NGOs can harness their combined resources and expertise for biodiversity conservation. Public-Private Partnerships (PPPs) enable joint investment, risk-sharing, and mutually beneficial outcomes, with government funding often serving as a catalyst. Additionally, collaborations between non-state entities and protected areas facilitate joint management, allowing private capital to support conservation efforts through mechanisms like eco-tourism revenue or land acquisition incentives, promoting long-term cooperation and environmental enhancement. Raising awareness among investors and the public about the significance of biodiversity conservation can drive private capital towards conservation efforts. IIGF partners with various stakeholders to promote awareness of biodiversity conservation. Various research initiatives, like the Green Finance Committee's "Financial Support for Biodiversity Research Group" launched in February 2022, have been undertaken; this group, which developed a biodiversity green bond catalog, published its findings in November 2022. Additionally, IIGF explores innovative solutions like Debt Swap for Nature to promote biodiversity conservation in China.
Biodiversity management includes a wide spectrum of sectors, such as species conservation, water resources management, land use, marine resources, ecosystem regeneration, and protection of indigenous communities. Which sectors are Chinese biodiversity investments mainly aimed at?
During the National Conference on Ecological and Environmental Protection held in Beijing on July 19, 2023, President Xi Jinping emphasised the critical importance of the next five years in constructing a "Beautiful China". He highlighted the necessity of achieving harmonious coexistence between humanity and nature, stressing a comprehensive approach to ecological challenges. Subsequently, on January 11, 2024, the government issued guidelines titled "Opinions on Promoting the Comprehensive Construction of a Beautiful China," which elevated the concept's significance in the nation's development and rejuvenation process. Aligned with the vision of building a "Beautiful China", the Ministry of Ecology and Environment introduced the China National Biodiversity Conservation Strategy and Action Plan, which I mentioned earlier. This plan is in line with the Kunming-Montreal Global Biodiversity Framework and identifies four priority areas: Mainstreaming Biodiversity, Addressing Threats to Biodiversity Loss, Sustainable Utilization and Benefit Sharing of Biodiversity, and Modernization of Biodiversity Governance Capabilities. These priority areas form the foundation for comprehensive biodiversity conservation initiatives in China and guide the sectors targeted for investment. The report "Exploration of Investment and Funding Mechanisms for Biodiversity Conservation in China," authored by the Paulson Institute, Duke Kunshan University, and the Shan Shui Conservation Center, through a thorough analysis of biodiversity-related investments, identifies four main sectors that Chinese biodiversity investments focus on. These include ecosystem protection, focusing on conserving natural habitats like forests, wetlands, and marine ecosystems; ecosystem restoration, receiving funding for activities such as reforestation and wetland rehabilitation; sustainable resource utilisation, which aims to promote the sustainable use of resources like fisheries and forestry; and research and education initiatives.
A more sustainable use of resources will be increasingly necessary to preserve natural habitats from damage caused by extractive activities. To this end, is biodiversity finance in China also focused on the development of the circular economy?
Biodiversity finance in China does indeed encompass the development of the circular economy. China has integrated biodiversity conservation into its green finance standards and initiated measures to create financial products and implement eco-financial mechanisms that support biodiversity financing. This includes the introduction of Gross Ecosystem Product (GEP) calculation and piloting its application, aiming to quantify the value of ecosystem products and services. These efforts underline China's commitment to exploring and experimenting with biodiversity financing, emphasising the integration of biodiversity into green finance classification standards, the creation of financial products associated with biodiversity, and the establishment of eco-financial mechanisms. Additionally, China has introduced government-led ecological financing mechanisms that focus on ecological protection and restoration, aligning with the principles of the circular economy. These mechanisms involve diverse departmental funds and policies to promote development models that prioritise ecological considerations, strategies for realising the value of ecological products, and systems for ecological compensation. The government has also issued guidelines and policies encouraging the convergence of ecological protection and financial systems. This includes the "Opinions on Promoting the Comprehensive Construction of a Beautiful China," which aims to guide financial investments into significant ecological and environmental protection projects while supporting the development of green industries.
Talking about the link between biodiversity and climate adaptation, does China have specific funding for nature-based solutions?
Yes, China does have specific funding and mechanisms in place for nature-based solutions, which include biodiversity conservation measures. These measures are intertwined with efforts to address climate change and are supported by various government initiatives and policies. In April 2021, the Ministry of Ecology and Environment, the National Development and Reform Commission, and the China Development Bank initiated the Ecology-Oriented Development (EOD) Pilots, identifying 36 projects spanning from 2021 to 2023. Additionally, in March 2022, guidelines were issued for the preservation and storage of ecological environmental protection financial support projects, aiming to guide financial investments into significant ecological and environmental protection projects. China has taken significant steps in the carbon market construction. The Ministry of Ecology and Environment launched the national carbon emission right trading market in July 2021. By February 2023, the market had accumulated a significant turnover, indicating its stable and orderly operation. This carbon market includes forest carbon sinks and is being expanded to incorporate other land-use-related carbon products, like wetlands and grasslands.
China has implemented various biodiversity conservation practices. These include the establishment of Ecological Conservation Redlines (ECR), which mandate the protection of ecologically fragile areas and biodiversity hotspots. Additionally, conservation efforts focus on ecosystem restoration and the recovery of habitats for endangered species. Examples include the protection network for Yunnan snub-nosed monkeys and initiatives like rural revitalisation, which integrate economic growth with biodiversity protection. China has established a government-driven, multi-layered ecological financing system, mainly drawing on government funds to safeguard biodiversity, complemented by contributions from private and international sectors. These efforts are concentrated on creating ecological models and strategies to recognise the worth of ecological goods. Throughout the "13th Five-Year Plan" period (2016-2020), the central government allocated nearly RMB200 billion annually for diverse ecological protection compensation funds.
In regional initiatives, Qinghai employed a "public foundation + trust" model to raise funds for the Sanjiangyuan National Park, supporting ecological conservation and cultural promotion. Zhangjiajie in Hunan utilized a "private equity fund + banking" strategy for poverty alleviation and biodiversity protection through tourism development. Meanwhile, Yunnan adopted a "special construction fund + bank" approach, funding water treatment projects to improve lake water quality and preserve biodiversity. As you can see, China has developed a range of funding mechanisms and policies to support nature-based solutions, including biodiversity conservation, as part of its efforts to address climate change and promote ecological civilisation. These initiatives reflect China's commitment to balancing economic development with environmental protection.
Is Chinese climate and biodiversity finance addressing the Belt and Road projects too?
In recent years, China has taken steps to integrate climate and biodiversity finance into its BRI projects. This includes promoting green investments, such as renewable energy projects and sustainable infrastructure development, along the Belt and Road routes. China has also expressed commitments to aligning BRI investments with international sustainability standards, such as the Paris Agreement on climate change and the Convention on Biological Diversity. Moreover, China has established initiatives like the BRI International Green Development Coalition to promote environmentally friendly practices within BRI projects. These initiatives aim to enhance cooperation among BRI countries in addressing climate change and biodiversity conservation.
Data from Bloomberg's database reveals substantial investments in green bonds, green loans, and green equity from nations engaged in the Belt and Road Initiative. Between 2010 and 2022, these countries collectively issued $400 billion in green bonds, accounting for 20% of the worldwide total, while green loans exceeded $193 billion, representing 27% of the global volume. Notably, prominent sovereign wealth funds in Asia, such as China Investment Corporation, have played a significant role in financing green equity initiatives. China has intensified its efforts to establish a sustainable supply chain for soft commodities, with initiatives proposed by the China Council for International Cooperation on Environment and Development (CCICED) and supported by various environmental organisations and industry associations. Through thematic policy studies, pilot projects, platform building, and advocacy work, steps have been taken to accelerate the promotion and ensure the green construction of this supply chain.
One of the main problems in developing biodiversity finance programs, not only in China, is corporate disclosure. What kind of strategies and initiatives is China implementing to address the transparency issue? What kind of standards have been adopted?
China lacks explicit and comprehensive classification standards specifically for biodiversity finance. Currently, biodiversity considerations are encompassed within existing green finance classification standards, highlighting a need for targeted strategies to address transparency issues. In terms of information disclosure, China lacks a clear framework for disclosing biodiversity information, though progress is evident in global environmental information disclosure standards related to biodiversity. There has been an initial advancement in global environmental information disclosure standards concerning biodiversity, with an increasing number of international organisations and governments exploring frameworks for biodiversity disclosure. Representative initiatives include guidelines from the Climate Disclosure Standard Board (CDSB), the Taskforce on Nature-related Financial Disclosures (TNFD), and the Global Reporting Initiative (GRI). China actively participates in networks like the TNFD, with over 20 Chinese companies contributing insights to refine the framework and committing to incorporate TNFD-aligned disclosures into their corporate reporting. Regarding disclosure practices, while some companies and financial institutions have begun disclosing biodiversity information, the overall number of entities engaging in disclosure is comparatively small. Awareness of the risks linked to biodiversity loss is limited, and the disclosed data remains constrained and difficult to quantify.
The current landscape of ESG disclosure is witnessing greater alignment and consistency as global standards evolve. Initiatives like the International Sustainability Standards Board (ISSB) and the European Union Corporate Sustainability Reporting Directive (CSRD) are shaping sustainable disclosure standards, integrating "biodiversity conservation" into the ESG framework. Recognising biodiversity as fundamental across industries, particularly in critical areas like food, land, infrastructure, and energy, ESG frameworks are increasingly emphasising its importance. The International Institute of Green Finance (IIGF) at the Central University of Finance and Economics has independently developed a Biodiversity Analysis System, aligning with ESG principles. This system, structured around seven core dimensions and over thirty specific indicators, aims to comprehensively evaluate companies' biodiversity practices, reflecting their commitment to environmental stewardship and responsiveness to national ecological policies while pre-emptively managing potential risks. Recent developments on the regional level in China, particularly in Kaihua, Zhejiang Province, have seen the launch of a pioneering Standard for Financial Institutions on Biodiversity Risks Management. This standard, developed with collaboration from academic institutions, governmental bodies, and conservation organizations, marks a significant step in addressing biodiversity risks associated with domestic development and infrastructure projects. It provides specific guidelines for financial institutions to screen potential biodiversity risks along project lifecycles and outlines measures to avoid or mitigate these risks. Moreover, various regional initiatives in Shenzhen, Zhejiang, and Guizhou focus on implementing ecosystem services value accounting systems to foster the growth of green financial products, reflecting a coordinated approach to confront biodiversity loss challenges and safeguard financial stability at the regional level.
What are, in your opinion, the main issues still to be resolved in the development of effective biodiversity finance?
The development of effective biodiversity finance faces several key challenges, both in China and globally. Firstly, there exists a substantial funding gap for biodiversity conservation initiatives in China, despite its leading position in the global green finance market. This gap highlights the need for increased investment and financing specifically allocated for biodiversity protection. Additionally, there is a lack of targeted and comprehensive classification standards for biodiversity finance, both in China and internationally. While efforts are underway to expand existing green finance standards to incorporate biodiversity content, the absence of specific standards poses challenges in channeling funds into biodiversity-related sectors. Moreover, there is limited awareness and engagement in biodiversity disclosure practices among companies and financial institutions. Despite commendable advancements in establishing international standards for biodiversity-related information disclosure, there remains substantial scope for improvement in implementation. Furthermore, capacity building and interdisciplinary talent development in biodiversity finance are crucial but face challenges, as research in this field remains predominantly theoretical. Addressing these challenges requires collaboration, innovation, and political leadership at both national and international levels, alongside a concerted effort to accelerate financing models, utilise big data and AI, and enhance transparency and standards for finance for biodiversity.
This article is also available in Italian / Questo articolo è disponibile anche in italiano
Cover image: Zhangjiajie National Forest Park, Unsplash