Pakistan innovates for nature with new financial instrument for nature-based solutions
Economies depend on nature to sustain the quality of the air and soil, distribute fresh water, regulate the climate, provide pollination and pest control, and reduce the impact of natural hazards. The World Economic Forum (WEF) estimates that over half of global GDP is highly or moderately dependent on nature, with this share higher in many developing countries. The release of the UK’s Dasgupta Review on the Economics of Biodiversity in February 2021 has cemented the idea that nature functions like any other type of capital, including produced capital (like roads and buildings) and human capital (like education and health). Yet natural capital is declining at an unprecedented rate, and pressures driving this decline are intensifying.
Many countries face the twin challenges of stopping the decline in nature and responding to the climate crisis, requiring coordinated but distinct policies to address both. Addressing the pressures on nature will require national policies focused on ecosystem and species protection and restoration, including protection of highly bio diverse forests, wetlands and marine areas. At the same time, meeting climate mitigation and adaptation targets requires countries to invest in low-carbon energy systems and a resilient infrastructure.
Countries lack the financial resources and incentives to address nature and climate challenges, despite the growing evidence of its materiality. Unsustainable levels of sovereign debt threaten many countries and the imperative of an inclusive, green transition becomes all the more important. COVID-19 has put an immense strain on the governments’ ability to service their mounting debts. The International Monetary Fund (IMF) has warned that half of low-income countries are either at high risk of, or in debt distress. The G20 has temporarily suspended debt payments for many developing countries, and the international community is now looking for solutions to ensure that the pandemic does not lead to lasting economic damage.
This new instrument will connect the cost of repayments to quantified biodiversity targets to attract investors’ interest in social, environmental, and governance assets. The UK government reviewed the concept of nature for conservation bonds and urged the need for an urgent overhaul of economic metrics so that they take account of the price of damaging natural ecosystems.
Dr. Mehreen Mujtaba
A very positive development happened just before Pakistan hosted World Environment Day on June 5. The country reached an understanding by signing a joint statement of intent with Canada, Germany and UK for further action on the design and launch of a new financial instrument called the “Nature Performance Bond (NPB).” Pakistan will be the first country in the world to pilot this initiative.
The officials and leadership of the country have already been working with the UK for valuation of natural capital as a first step for initiating action on NPB. This new instrument will connect the cost of repayments to quantified biodiversity targets to attract investors’ interest in social, environmental, and governance assets. The UK government reviewed the concept of nature for conservation bonds and urged the need for an urgent overhaul of economic metrics so that they take account of the price of damaging natural ecosystems.
Short and longer-term solutions to addressing both debt and the nature and climate crises must be mutually reinforcing. The solutions to today’s crises must embed nature and climate risks and opportunities into tomorrow’s sovereign debt markets, and indeed across all of global finance. For the first time in history, there are calls for an ‘inclusive, green debt relief’ round. Leading policymakers, organizations and figures in the financial community are calling for actions and initiatives that integrate nature, climate and other Sustainable Development Goals (SDGs) into the response to the debt crisis, by funding short-term recovery needs while kickstarting a virtuous circle to rapidly scale up international nature and climate finance. The World Bank, with a wide-ranging global partnership, is advancing approaches to sovereign debt instruments that integrate nature and climate priorities.
In the words of Mr. Malik Amin Aslam, Special Assistant to Prime Minister on Climate Change: “There is a growing global momentum toward linking sovereign debt payments with quantifiable performance on biodiversity protection. Pakistan is working to recover from COVID-19 by protecting nature and creating green jobs. Commitments from the international community to establish and launch this new facility can rapidly support Pakistan to embark on ever more ambitious ways to rebalance our relationship with nature.”
- Dr. Mehreen Mujtaba is a freelance consultant working in the areas of environment and health.