Conservation finance: What are we not doing? A review and research agenda

The protection of biodiversity is a highly relevant issue in the current context, so much so that it is included among the sustainable development objectives of the 2030 Agenda and the objectives of various national and international conventions and strategic plans.

The conservation of biodiversity is often still considered an issue that exclusively concerns the protection of species in danger of extinction, neglecting the fundamental role that nature can play in the fight against climate change, in safeguarding the health, and in supporting the economy (approximately half of the world's GDP depends heavily or moderately on nature according to an analysis by the World Economic Forum, 2022).

Protecting biodiversity requires the mobilization of financial resources and the direct involvement of the business sector. Mobilizing public funds and private savings is essential and crucial, which implies a role for banks and financial institutions. At the same time, the issue's importance has been confirmed by the EU biodiversity strategy 2030, which allocates €20 billion per year for the protection and promotion of biodiversity through EU funds and national and private funding.

The primary challenge of conservation funding is identifying revenue-generating solutions for conservation and effectively managing and allocating those funds to deliver social and community benefits.

The term' conservation finance' indicates the activity aimed at raising and managing capital to be used for biodiversity conservation.

In light of the importance of the topic, the study sought to identify the gaps in the scientific literature that finance scholars should fill to contribute to the mobilization of financial resources.

The study results show that the topic of conservation finance is currently a prerogative of scholars and environmental sciences journals. Finance scholars pay very little attention to the topic, yet there are many opportunities/needs for future research.

The paper aims to act as a wake-up call for urgent academics of economics and finance to turn their attention to resolving the financial problems faced by conservation by disproving the assumption that conservation finance can fulfill the role of procuring funds with no need to enhance the ability to manage risks, reduce funding gaps and create financial schemes and incentives capable of aligning the objectives of the supply and demand for capital about the conservation of biodiversity.

Future research should apply a financial perspective to investigate the causes of uncertainties that limit or prevent the intervention of the financial system and the correct allocation of resources. This will go hand-in-hand with the analysis of the value of conservation to be measured and demonstrated.

The current literature still presupposes, rather than demonstrating, that the allocation of funding and investments to the protection of biodiversity generates positive impacts in terms of the specific objectives pursued and of a more general social and environmental nature.

As well as measuring the conservation value generated, it is also important to investigate and study how this value manifests itself and is distributed among the subjects involved: financiers, financed subjects, stakeholders, states, and local communities. The possibility of identifying new financial intervention schemes to reduce the funding gap is closely linked to these research guidelines.

Financing conservation projects implies facing critical uncertainty and risks, long time horizons, difficulties in assessing the probability of success, and uncertain economic returns, which make traditional decision-making ineffective. Contributing to measuring and determining these variables means gradually helping solve some of the problems private capital encounters in meeting conservation funding needs.

Future research in conservation finance must go on to study the economic and social sustainability of financing for the protection of biodiversity and, if this is not achievable, must help identify and study the correction mechanisms required to make it so.

In this perspective, numerous further lines of research are opening up aimed at identifying portfolio selection criteria or methods for risk sharing among potential participants, forms of public incentives, public interventions, and private and any other participatory schemes capable of making the payoff of conservation projects acceptable and broadening the pool of possible private investors.

Research on the correct methodological approaches aimed at identifying the real expected negative (financial costs and needs) and positive (prices and revenues) financial flows, revenues, and opportunity costs, not limited only to the economic sphere but extended to environmental and social aspects, can further contribute to calculating projects' true value and enabling more efficient allocation of existing resources, leaving sustainable projects to private finance and using public funding for all the other interventions not sustainable by the market but considered ethically and ecologically important.

There is also scope for work by 'financial literacy' scholars. The dissemination of knowledge regarding the economic, environmental, and social causes and consequences of biodiversity loss could help to channel financial resources into this area by raising awareness and encouraging stakeholders to exercise active, democratic citizenship by putting pressure on management and governance bodies.

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Authors at the Department of Management

Simona Cosma, Associate professor

Academic disciplines:  Financial institutions

Teaching areas: insurance and banking

Research fields:  sustainability, corporate governance, risk management

Associate Professor since 2011, she teaches the economics of insurance companies, financial instruments and markets, and risk management. She worked for many years as an Affiliated Professor at the SDA Bocconi School of Management (Banking and Insurance Department), Milan, Italy. She is the author and co-author of many books and articles in international academic journals.