How nature can help power the recovery and development of Latin America and the Caribbean
Perspective 01

How nature can help power the recovery and development of Latin America and the Caribbean

The people of Latin America and the Caribbean are fortunate to inhabit a region of great natural beauty, from the endless expanse of the Amazon to the raw solitude of the Patagonia. Our region holds 40% of the world’s biodiversity and contains seven of the 25 critical biodiversity points. It has 11 of the 14 terrestrial biomes, and the second largest reef system on the planet. More than 30% of the freshwater available on Earth and almost 50% of the world’s tropical forests are in the region. This natural capital is not only important as nature reserve or habitat, but it also generates important benefits for human development and well-being, including our path to recovery post COVID-19.

Investing in nature is a good business opportunity, but to seize it we need to act fast. Nature drives the economy. It is a vital global asset that provides us with goods and services such as food, air, and water. All economic activities fundamentally rely on these services to some extent, with estimates suggesting that a massive US$44 trillion of the global economy – over half of global GDP—is highly or moderately dependent on nature. For example, in sectors such as the tourism industry, coral reefs generate US$ 36 billion a year. And in agriculture, bee pollination directly contributes to the production of between 5% and 8% of world crops.

Nature also creates benefits on climate regulation and resilience. The United Nations estimates that global terrestrial ecosystems and oceans are each absorbing 25% of emissions. Nature should be at the center of our response to climate change. Nature-based solutions could account for 40% of the reduction in carbon emissions needed to limit global warming to less than two degrees Celsius by 2030. Nature-based solutions can also provide important resilience services, protecting us against rising sea levels and the more intense storms resulting from climate change.

Investing in nature is a good business opportunity, but to seize it we need to act fast.

Unfortunately, we are witnessing the destruction of forests and other habitats, and the fastest decline in biodiversity ever recorded. None of the 20 objectives of the Aichi targets of the UN Convention on Biological Diversity set in 2010 have been reached. If we want to turn this around , the world will need to increase global biodiversity conservation and restoration financing from US$ US 120 billion per year to between US $722-967 billion per year over the next ten years. Global initiatives such as the High-Ambition coalition for Nature, and a comprehensive view of the value of natural capital can help putt us toward this path. Countries like Costa Rica, Colombia, France, and the United Kingdom are leading the way.

Bringing biodiversity into government decision-making processes, or mainstreaming, starts with planning. To fill this funding chasm, we need to include nature-based solutions throughout government processes. The problem is that natural capital is not adequately valued in public and private decision-making. As a result, it ranks low among investment priorities. Often, the preservation of nature is perceived as a cost or a luxury. With a few exceptions, nature’s benefits – or the costs associated to its degradation - are not captured within national accounts nor assigned to a specific ministry or industrial sector. The traditional measure of economic progress, the Gross Domestic Product (GDP), does little to explain how a country´s natural wealth is being utilized. Without this information, nature cannot be funded, preserved, or used efficiently.

Finance ministries can spearhead this effort by determining early in the decision-making and budgetary processes where nature-based solutions may intersect with the full-range of national plans. This requires developing value cases that resonate with key ministries so that budget resources not normally earmarked for nature can be properly aligned to support triple wins on nature, climate, and livelihoods. It also requires developing concrete tools to ease this integration. Credible decision making requires credible data. This should help make public finance more efficient and to increase the budget share assigned to nature-based solutions.

We need to work together to green the economy.

In a period of considerable fiscal constraints, public funds alone will not be able to pick up the tab. Countries must leverage private finance by crowding in the growing number of private investors realizing environmental sustainability does not hurt, but may improve, financial performance. Private interest is high. Asset managers like Blackrock have recently put nature at the center of their investment strategies. To engage these private actors, at the IDB we are working with governments to identify investment portfolios and supporting new funding vehicles to bring in private capital. Indeed, working with the private sector is one of the key elements contained in our Vision 2025 plan to accelerate the recovery in Latin America and the Caribbean. Meanwhile, nature and bio preservation are central to one of Vision 2025’s five critical pillars—climate change action. No recovery will be sustainable if it is not accompanied by concrete steps to combat climate change.

Without this information, nature cannot be funded, preserved, or used efficiently. 

Innovators and entrepreneurs need to be supported to create new businesses and to experiment with new instruments. At the same time, traditional actors, such as national development banks, insurers, and local financial institutions need to be given space to take on new roles and develop new financial products.

The IDB is supporting these efforts through its Natural Capital Lab program (NCL). A joint venture between our Climate and Sustainability Division and the IDB Lab – our innovation unit -, the NCL is supported with € 24 million from the government of France and £ 12 million from the United Kingdom’s Department of Environment and Rural Affairs. We are working to develop financial products such as bioeconomy special purpose vehicles and risk capital to invest in local Latin American and Caribbean projects. At the same time, we are mapping opportunities to include nature in COVID recovery programs, as in the case of the Blue Recovery strategy of Costa Rica, which will identify projects that can contribute to livelihoods and incomes while having important impacts on marine resources. The NCL is also supporting countries such as Colombia in their work to mainstream biodiversity into planning by convening stakeholders, embedding mainstreaming experts in the government, and mapping investment opportunities.

The IDB also recently approved an ambitious Amazon Initiative to support the sustainable development of the Amazon for seven countries in Latin America. It will build on four pillars: bioeconomy, land use, forestry and sustainable livestock, human capital development, and sustainable cities. Finally, this year we expect to approve an action plan to consider biodiversity in the projects we finance and support countries in the mainstreaming agenda.

With the right policies, budgeting, and investment, nature can help bring about a robust, job-rich recovery. We can improve our infrastructure – an urgent need for the region – in a way that is nature-friendly and in keeping with the Nationally Determined Contributions under the Paris Agreement and National Biodiversity Action Plans. We are committed to supporting our countries as they embark on sustainable development pathways that incorporate biodiversity and natural capital as one of their assets.

We look forward to deepening this work in the context of the Climate and Biodiversity Conferences of Parties later in the year.

Bringing biodiversity into government decision-making processes, or mainstreaming, starts with planning.

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