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This report, contributed by our Managing Director Shunsuke Managi and our Director and Chief Researcher Keely Alexander Ryuta, provides an overview of the policy brief on 'A mechanism to facilitate loans to encourage the conservation of natural capital'.
The G20's 'Idea Bank' is positioned as the G20's 'Idea Bank', and is a forum for experts and think-tanks from the G20 countries to discuss the issues and challenges facing the G20, including the 'Idea Bank', which was presented at T20 (Think20) 2023 India by our CEO Shunsuke Managi and our Director and Chief Researcher Keely Alexander Ryuta.Mechanisms to facilitate financing to encourage conservation of natural capital.A policy brief on 'The Policy Brief' was adopted.
A Framework to Enhance Financing Capacity and Incentivise Preservation of Natural Assets
https://www.orfonline.org/research/a-framework-to-enhance-financing-capacity-and-incentivise-preservation-of-natural-assets/
This is the second T20 policy brief to be adopted this year.
This policy brief is positioned in Task Force 5: Reassessing the Global Financial Order (Purpose & Performance: Reassessing the Global Financial Order).
Challenges in natural capital conservation.
The challenge of conserving natural capital has never been more urgent.
While natural capital provides local benefits, it also contributes to global public goods enjoyed by all countries, such as biodiversity and ecosystems that contribute to climate regulation.
More than half of the world's GDP is dependent on nature ([1]United Nations, 2022), climate change and many other threats facing society show that natural capital is an essential component of the productive base of the economy (see[2]Agarwala et al. 2022).
As the costs of conservation usually fall on the host country in many cases, it is generally the case that the country has a large natural capital endowment (see[3]World Bank, 2021) Developing countries will bear a heavier burden (see[4]Managi and Kumar, 2018(See below). However, placing the responsibility for natural capital conservation on developing countries is not only unfair, but also unfeasible.
On the other hand, fiscal pressures from COVID-19 and slower long-term global growth ([5]Kose and Ohnsorge, 2023By the , fiscal resources in developed countries are strained and large intergovernmental transfers of financial resources in the short to medium term are not possible. Therefore, today's limited fiscal resources can be used for intergovernmental soft loansnote 1 (supplementary information)The amount of money available through traditional financing instruments such as bilateral aid and bilateral aid has not reached the amount needed to support developing countries in tackling climate change and other environmental goals.
Low-cost alternative sources of funding are therefore urgently needed to fill this gap.
This Policy Brief makes recommendations to conserve natural capital and at the same time increase the availability of development finance.
To increase the availability of development funds to conserve natural capital,
● On the premise that natural capital needs to be measured consistently and comprehensively across the country,
● Show that this can be achieved by creating innovative financial instruments that utilise the conservation of natural capital as a basis for low-cost financing for developing countries.
Role of the G20
Access to finance and the preservation of natural capital in developing countries are closely linked to the G20. Most of the debt of developing countries is financed by G20 countries. Therefore, if the debt repayment capacity of developing countries facing climate change and biodiversity loss is not ensured, there will be direct consequences for G20 countries.
As a forum bringing together developed and developing countries, the G20 is in a position to influence international financial institutions (IFIs) to internalise and use natural capital for financing G20 leaders can also promote best practice and share knowledge with other countries to give natural capital accounting can also give impetus to This could help popularise and mainstream the concept of natural capital in economic and financial decision-making.
The conservation of natural capital has many benefits, from improving resilience to climate change to promoting biodiversity conservation. It can also help achieve the goals of the Sustainable Development Goals (SDGs) and the Paris Agreement, and the G20's incentives for developing countries to conserve natural capital could have far-reaching positive consequences not only for member states, but also for the international community.
Recommendations for G20 countries.
Recommendation 1: Proposed funding mechanism.
In order for MDBs and IFIs to provide developing countries with affordable finance to support natural capital conservation, it is important to understand the potential long-term benefits of natural capital conservation and to develop alternative financing mechanisms.
The following conditions are necessary for realisation
● the benefits of conserving natural capital are clear, measurable and monitorable
● That lenders are willing to trade a low rate of return on investment for the benefits.
● that there is a means of verifying that commitments to natural capital conservation will be honoured in the future.
● Responding to currency instability in developing countries.
Recommendation 2: Proposed funding framework.
There are at least three opportunities for G20 lender countries and IFIs lender countries to directly integrate natural capital considerations into their lending operations.
● Provide preferential borrowing conditions for demonstrating the preservation or accumulation of natural capital assets.
Lender countries and international financial institutions (IFIs) consider loan 'insurance' against natural disasters based on natural capital conditions and trends.
● Lender countries and IFIs have a nature conservation debt swap*2to use bought-down markdowns, subject to natural capital enhancement or climate change-related actions.*3The difference in the debt can be returned to the debtor State.
Recommendation 3: Support natural capital accounting.
● Ensure that the measurement of natural capital can be adjusted to local conditions and standards.
In order to make the conservation of natural capital a condition for low-cost financing, it is necessary to meet the standards of the international System of Environmental and Economic Accounting (SEEA), but it is important to allow developing countries to adjust their natural capital measurement methods to local conditions and standards to enable them to comply with such standards.
● Reconciliation of national accounting standards, corporate accounting standards and public accounting standards.
Maintaining statistical time series that quantify natural capital and link the environment and the economy is an essential planning tool. Data quality depends on public, reliable, accessible, timely and comprehensive sources of information and clear communication between natural capital quantifiers and information providers.
● Improved data collection mechanisms.
Natural capital accounting requires the integration of large amounts of data from many sources and, in some cases, the integration of multiple modelling approaches. Co-ordination is particularly necessary for environmental and economic statistics, as expertise is dispersed across government agencies.
It proposes a framework to promote natural capital conservation by changing funding and accounting mechanisms.
Please read on.
1 Soft loans: loans with moderate terms and conditions to developing countries from the International Development Association (IDA) and other organisations established in response to requests from developing countries that the International Bank for Reconstruction and Development (IBRD), which is primarily engaged in development lending to developing countries, had harsh conditions at its interest rates.
2 Nature conservation debt swap: a swap in which developed countries, NGOs and others shoulder the accumulated debt owed by a developing country in exchange for commitments to establish protected areas and promote other nature conservation measures.
3 Markdown: a price decrease from the price set at the start of the sale.
Bibliography
[1]United Nations. "Countries to Consider Ground-Breaking Change to Economic Reporting That Includes Natural Capital." United Nations (2022).https://www.un.org/en/desa/countries-consider-ground-breaking-change-economic-reporting-includes-natural-capital.
[2]Agarwala, Matthew, Matt Burke, Patrycja Klusak, Moritz Kraemer, and Ulrich Volz. "Nature Loss and Sovereign Credit Ratings. ."(2022).https://www.bennettinstitute.cam.ac.uk/publications/biodiversity-loss-sovereign-credit-ratings/.
[3]World Bank. The Changing Wealth of Nations 2021: Managing Assets for the Future.. The World Bank (2021). https://doi.org/10.1596/978-1-4648-1590-4.
[4]Managi, Shunsuke, and Pushpam Kumar. Inclusive Wealth Report 2018: Measuring Progress Towards Sustainability. 1st ed. London: Routledge (2018). https://doi.org/10.4324/9781351002080.
[5]Kose, M., Ayhan (Ed.), and Franziska (Ed.) Ohnsorge. Falling Long-Term Growth Prospects: Trends, Expectations, and Policies. World Bank : Washington, DC (2023). https://doi.org/10.1596/39497.
[Referral document].
Keeley, A. R., Halimatussadiah, A., Brodjonegoro, B., Agarwala, M., Adriansyah, M., Smith, R., Kurniawan, R., Lufti, R. E., gikami, Managi, S., & Takeda, S. (20, July). S. (2023, July). Policy Briefs T20 for the Presidency of the G20 in 2023, The G20 Insights Platform, Global Solutions Initiative Foundation.. Observer Reserch Foundation, A Framework to Enhance Financing Capacity and Incentivise Preservation of Natural Assets. https://www.orfonline.org/research/a-framework-to-enhance-financing-capacity-and-incentivise-preservation-of-natural-assets/?
*Related page*.
T20 Indonesia
https://www.t20indonesia.org/
● [Commentary] G20 T20 India2023 Policy brief on comprehensive national wealth growth measurement using the new national wealth index.
https://aiesg.co.jp/report/20230530_t20india_report/