By Ms. Belinda K. & Dr @Marcela Tarazona (Wednesday, 6 November 2024)
Having concluded discussions at Cali Biodiversity COP 16, leaders from both the public and private sectors are seeking practical ways to implement the summit’s recommendations.
The conference focused on three core objectives: conserving biological diversity, sustainably using nature’s resources, and ensuring fair and equitable sharing of benefits from genetic resources. A significant area of negotiation has been mobilising the financial resources necessary for effective implementation, particularly in addressing Target 18, which aims to reform environmentally harmful subsidies, and Target 19, which commits governments to mobilise $200 billion per year by 2030. In this context, financial institutions and political bodies will need clear guidance to take action.
Like many African countries, Zambia has incredible biodiversity, but the economy is heavily reliant on natural resources. Genesis Analytics has worked with the United Nations Development Programme Biodiversity Finance Initiative team to make recommendations to Zambian financial decision makers about how to integrate biodiversity considerations into their prudential supervision.
Zambia’s diverse landscapes, like the Zambezi River and Copperbelt, face severe threats from climate change and environmental degradation. Rising temperatures and reduced rainfall have lowered river fish stocks, increased invasive species, and worsened pollution from mining. This not only impacts biodiversity but also disrupts essential natural services like water regulation and ecosystem maintenance. Recent data reveals that Zambia has lost 1.28 million hectares of forest due to farming, rangeland use, and urbanisation. Consequently, water usage has increased from 13.8 billion m³ in 2018 to 14.9 billion m³ in 2020, further straining reserves amid an unprecedented drought.
Given Zambia’s heavy reliance on natural resources, these environmental stresses carry significant economic implications. Key provinces like Lusaka and Copperbelt containing biodiversity-rich areas are also hubs for industry activities. The economy depends on nature-related services, especially in agriculture and mining, which in turn impact core industries and consumers. Key sectors like metal ore mining require consistent water resources, making water purification and rainfall regulation essential for industry sustainability.
This dependence on nature also has significant ramifications for Zambia’s financial sector. The sector is deeply interconnected with natural resources, particularly water, and is therefore exposed to escalating systemic risks as climate change effects intensify. Approximately 60% of the banking sector’s portfolio exerts substantial pressure on nature, especially through water use in agriculture and food production. Overall, Zambia’s financial stability relies on nature’s role in mitigating hazards like floods, regulating water flow, and purifying pollutants, creating feedback loops that influence the entire economy.
Despite the heavy use of natural resources, there are opportunities to promote climate change solutions. Economic activities that positively contribute to climate change mitigation and adaptation can be developed. For example, thematic bonds can be issued under two categories by the International Capital Market Association (ICMA): environmentally sustainable management of living natural resources and land use, and conservation of terrestrial and aquatic biodiversity. One successful case is South Africa’s Rhino Bond, a $150 million sustainable bond aimed at protecting and increasing the black rhino population in two protected areas.
Prudent supervision of the financial sector can also focus on nature-related disclosures. Regulators can use this information to help financial institutions manage biodiversity risks and improve their Environment, Social, and Governance (ESG) practices. By issuing guidelines on biodiversity and nature-related reporting, the financial sector can set targets to minimise their impact on biodiversity loss.
We recommend three key strategies to incorporate nature-related considerations into financial decision-making in Zambia:
1. Strengthen Environmental Regulations: Update regulations to better respond to changes in biodiversity laws and stakeholder needs. Since 2010, there have been new accounting (Partnership for Biodiversity Accounting Financials), compliance (COP15/Kunming-Montreal Global Biodiversity Framework), and disclosure (TFND) requirements, with improved data quality for financial reporting.
2. Support Green Financial Products: Develop green financial products like green bonds to encourage investments in nature-friendly projects. This involves identifying the causes of nature loss in different sectors to create targeted investment opportunities.
3. Invest in Nature-Based Solutions: Fund initiatives like Rabobank’s biodiversity – linked loans, where Dutch dairy farmers receive lower interest rates based on their biodiversity scores. This open-source tool can be adopted by other financial institutions to incorporate biodiversity into their financing models.
Zambia’s unique landscape and ecosystem challenges pose significant financial risks. However, by making informed policy and investment decisions, we can mitigate these risks and promote climate-friendly investments that benefit both the economy and the environment.
