Common Framework
of Sustainable Finance Taxonomies for Latin America and the Carribbean
Second phase: Conservation, restauration, and sustainable use of biodiversity and its ecosystems
Working Group on Sustainable Finance Taxonomies of Latin America and the Caribbean
October 2024
Taxonomies are being developed globally at a rapid pace
More than
50
taxonomy projects worldwide, hence the importance
of interoperability
Dominican Republic
Chile
Peru
Brazil
South Africa
Developing
Sustainable Taxonomy:
Existing
Private sector initiative
Mexico
Canada
Central America
Colombia
New Zealand
United Kingdom
European
Union
Serbia
Egypt
Rusia
Kazakhstan
Indonesia
Mongolia
Georgia
India
China
South Corea
UAE
Hong Kong
Philippines
Bangladesh
Vietnam
Singapore
Sri Lanka
Thailand
Malaysia
Source: UNEP FI, 2024
Rwanda
Senegal
Panama
Costa Rica
Taxonomies must be based on similar guiding principles, objectives, classification systems and activities that are comparable and are similar in approaches and methodologies used for eligibility
Ensures harmonisation of structure and framework with other taxonomies globally so that they are aligned in principle and use similar methodologies to achieve the objectives
Reduces barriers for international investors and capital flows
A lack of comparability could create hurdles for trade and international capital flows towards low-carbon projects. Could also raise transaction costs for issuers and investors
Need for interoperability
Working Group on Sustainable Finance Taxonomies in LAC1
Objective
Created as part of the Interagency Technical Committee (ITC) of the Forum of Ministers of Environment of LAC with the aim of promoting regional dialogue to support LAC member states in developing sustainable finance frameworks that are interoperable across LAC jurisdictions and internationally, while considering local specificities
1 UNEP, and its Finance Initiative (UNEP FI), UNDP, IFC, IDB, CAF, GIZ, WWF, ECLAC FAO, the staff of the International Monetary Fund (IMF) and the World Bank and the European Commission
Common Framework of Sustainable Finance Taxonomies for LAC
Is a guidance document that can serve as a voluntary reference to orient LAC member states that are in the process of or intend to develop sustainable finance taxonomies;
Establishes a set of guiding principles that will improve comparability and ensure interoperability of sustainable finance taxonomies in LAC & internationally;
Focuses on climate change objectives; prioritizes sectors that are important to these objectives for the LAC region
1.
2.
3.
Note: The next step will be to increase the scope of the current Common Framework of Sustainable Finance Taxonomies to Biodiversity objective
https://www.unepfi.org/publications/common-framework-for-sustainable-finance-taxonomies-for-latin-america-and-the-caribbean/
Structural elements
Objective
Helps define the ambition, selection, activities, and screening criteria
1.
Sectors
Economic sectors for which activities are selected
and defined
2.
Activities
Economic activities under the selected sectors for which definitions and eligibility criteria are developed
3.
Screening Criteria
Metrics and thresholds which determine the eligibility of an economic activity�under the taxonomy
4.
Common Framework of Sustainable Finance Taxonomies for LAC
GP-1
GP-2
GP-3
GP-4
GP-5
GP-6
Seek interoperability with other regional and global taxonomies
Material positive contribution to well-defined objectives and avoid damage
Clear definitions that are science-based for the environment or evidence-based for other sustainability issues
Credible transition of high-emission sectors with a clearly defined final goal, regardless of the pathway
Dynamic and subject to regular reviews
Ensure adequate governance, transparency, and practical applicability (usability)
Guiding Principles
Results & Next Steps
Second Phase – LAC Taxonomy Common Framework for Biodiversity
LAC Taxonomy Common Framework is gaining momentum with the development of several taxonomies in the LAC region. Financial national authorities in Panama, Costa Rica, Dominican Republic, Central America (7 countries), Brazil, Chile, and Rwanda have used the LAC Taxonomy Common Framework as a guidance for the development of their own taxonomies to ensure interoperability
Decision 2 (page 21) of the Forum of Ministers of Environment of LAC includes the LAC Taxonomy Common Framework
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2.
3.
4.
LAC Taxonomy Common Framework has been considered as one of the best global practices for taxonomy interoperability:
1
Development of the Landscape Mapping of Nature-related Frameworks
Methodology
International commitments
Assessment methodologies
Sustainable finance publications
Taxonomies
Nature-related global agreements, plans and long-term strategies.
Nature-related market trends and best practices
Nature-related guidelines for financial institutions, insurances companies, etc.
Nature-related objectives
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Selection of key document sources for desktop research
International commitments
Assessment methodologies
Sustainable finance publications
Taxonomies
Methodology
Chapter 1
Biodiversity in Crisis:
A Central Focus for Global Financial and Policy Agendas
LAC suffered the greatest decline in biodiversity between 1970 and 2018 (94%).
Land conversion, habitat fragmentation and overexploitation of the natural resources are the most important direct drivers of loss of biodiversity, ecosystem functions and services during the last decades in the region.
5/20 countries in the world with the highest number of threatened fauna species and 7/20 countries with the highest number of threatened plant species.
Climate change - pressure in regional biodiversity: Increased vulnerability of Central America and Caribbean ecosystems, desertification risks, changes in precipitation and increased zones of diseases.
LAC: A key biodiversity spot suffering from biodiversity depletion
State of Biodiverisity in LAC:
Source: WWF, 2022; Bridgewater & Schmeller, 2018
Vulnerability of indigenous, peasant and afro-descendant populations in LAC
INDIGENOUS COMMUNITIES
PEASANTS AND AFRO-DESCENDANT PEOPLES
Conservation efforts must integrate the recognition of local rights, cultural treatment, governance and economies and require adequate support from a wide range of organisations with complementary skills.
Source: WWF Chile, 2023; Iniciativa por los derechos y Recursos-Proceso de Comunidades Negras, 2023
Chapter 2
State of Play of Biodiversity Finance Globally and in LAC
Global and Regional Finance Flow towards Biodiversity
The global biodiversity annual financing gap is estimated between USD 700 billion and USD 824 billion. In LAC on average, only 0.1% of national budgets are spent on biodiversity protection, one of the lowest globally.
By 2020 global financial flows to biodiversity were estimated between USD 124 and 143 billion, public finance as the primary source (80-85%).
The CBD estimated the total annual spending on conservation for the LAC region at USD 632 million per year.
Key Points:
The financial flows towards nature-negative activities from both public and private sources accounts nearly USD 7 trillion annually.
Source: IFC, 2023; UNEP, 2023;UNDP, 2018; Nature Finance, 2023
Ecuador secured an USD 85 million IDB guarantee and USD 656 million DFC political-risk insurance to refinance its public debt under better terms. This debt buyback, with lower-cost financing, is expected to save over USD 1.126 billion over its lifetime. Of these savings, USD 323 million will be allocated to conservation efforts. The Galápagos Life Fund will be established to support conservation activities in the Galápagos Marine Reserve and the newly established Reserva Marina Hermandad for the next 18.5 years.
Nature-Finance instruments in LAC
Costa Rica led the way in the region with Payment for Ecosystem Services (PES) schemes, moving from timber exploitation to valuing forests' broader ecosystem services. Starting in 1996, this program pays forest owners for the environmental benefits their forests provide, such as clean water and carbon sequestration. The beneficiaries of these services contribute financially, creating a sustainable model that supports both conservation and economic viability.
Payment for Ecosystem Services schemes
Debt for Nature Swaps
Green Taxonomy
The Colombian Government launched the Colombian Taxonomy on 2022, the first of its kind in Latin America and the Caribbean. This Green Taxonomy aligns with Colombia's environmental commitments and policies, focusing on climate change mitigation and adaptation, water and soil management, circular economy promotion, pollution prevention, ecosystem conservation, and biodiversity preservation. It prioritizes sectors such as Buildings, Energy, Transport, Water, Industry, Waste Management, Information and Communication Technologies (ICT), and Agriculture, Forestry, and Other Land Use (AFOLU), this last one being crucial for nature conservancy.
Source: Porras, 2010; IDB, 2023; CBI, 2023
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Biodiversity Financing Challenges
Lack of standardized data, metrics, and frameworks
Complexity of integrating biodiversity into key decision-making processes
Absence of effective policy support
Lack of bankable biodiversity projects
Uncertain integrity of offsets and other mechanisms
Insufficient industry and local community buy-in
Governments, companies, and financial institutions must incorporate biodiversity considerations into their risk assessments, planning processes, policies, and investments. Integrating biodiversity into decision-making is complex and time-consuming, requiring expertise and standardized data, metrics, and frameworks.
Currently, more than 3,000 metrics are used, making it difficult to compare biodiversity projects and quantify required financing for conservation efforts. The lack of comprehensive, up-to-date data hampers rigorous analysis, forecasting, and risk assessment.
Many governments fail to provide effective domestic support for conservation, restoration, and sustainable use of nature. Subsidies, particularly those for environmentally harmful activities, distort prices and incentivize detrimental behavior. Policy can reframe nature as an asset.
Financing biodiversity faces challenges due to project characteristics: they are typically smaller than what financial institutions fund and highly localized, making it hard for the private sector to identify and finance opportunities at scale.
Certain mechanisms with potential to scale biodiversity finance, like offsets, have faced controversy. Carbon offset may compromise biodiversity outcomes if done inadequately (e.g. focusing on a monocrop forest rather than a natural forest).
Some industry groups have shown less willingness, while greenwashing has stymied progress on nature, introduced additional uncertainty into markets and hindered sustainable finance. Local communities are also critical players in tackling biodiversity loss.
Source: BloombergNEF, 2023
Chapter 3
Mapping nature and biodiversity protection into global Sustainable Finance Taxonomies
Taxonomy opportunities to close biodiversity financial gaps
Analysis of potential connections and scope of nature and biodiversity aspects in existing taxonomies
To further explore the potential connections and scope of nature and biodiversity in existing taxonomies, an analysis was developed in four steps:
Step 1: Taxonomy selection
A qualitative analysis was conducted, examining a diverse range of global and regional taxonomies. As of August 2024, over 47+ taxonomies were in development, with 20 already published. For this analysis, 16 taxonomies were selected based on two criteria: (1) had publicly available information and (2) were relevant at international and regional level. Additionally, BIOFIN's Global Biodiversity Expenditure Taxonomy (GLOBE) was also considered.
Step 2: Identification of objectives and sectors
TECHNICAL SCREENING CRITERIA
Based on quantitative or qualitative thresholds and screening criteria, the economic activities/assets/projects have a substantial positive environmental impact (substantial contribution) or substantially reduces negative impacts of the activity on the nature or biodiversity.
CO-BENEFITS
Interrelationships between different environmental and climate objectives that make some activities, and economic assets have benefits related to more than one of them.
DO NO SIGNIFICANT HARM
A principle stating that an economic activity must contribute to environmental objectives without causing significant harm to other environmental objectives, including biodiversity.
The first step was to identify how the conservation of ecosystem and biodiversity objective has been addressed in the different taxonomies, including an understanding of its current scope, the specific approach (whether through substantial contribution or through the criteria of do no significant harm) and the sectors covered.
Sustainable finance taxonomies have, to date, integrated nature and biodiversity-related aspects across different approaches:
Overview of the conservation of ecosystems and biodiversity objective in in the taxonomies analysed
In total, 14 out of the 16 taxonomies assessed include a biodiversity-related objective. Among them, 11 address this objective to determine substantial contribution for different sectors and activities. Additionally, 10 taxonomies incorporate the biodiversity objective to define criteria of 'Do No Significant Harm' in relevant and applicable activities.
ASIA
*The country is currently developing its Biodiversity Taxonomy
3 taxonomies in Latin America (Colombia, Panama y Costa Rica) address the biodiversity objective in a cross-cutting approach with other environmental objectives, to determine eligible practices in land use sectors (agriculture, forestry and livestock).
Legally protect a minimum of 30% of the EU's land area and 30% of marine area.
EU Biodiversity Strategy
Ensure that by 2050 all the world's ecosystems and their services are restored to good ecological status, are resilient and adequately protected.
Targets by 2030
One third of the EU's protected areas should be strictly monitored and effectively managed.
Analysis of biodiversity ambition in existing taxonomies
Only the EU taxonomy provides a clear quantitative ambition on the protection of biodiversity and ecosystems, based on their EU Biodiversity Strategy.
Some taxonomies such as the Singapore Taxonomy sets a phase out by 2030 the plantation of forests with the goal of extracting timber products. Dominican Republic details its biodiversity strategy but does not set ambition for the Taxonomy.
Overview of other environmental/climate objectives with potential alignment to biodiversity objective in existing taxonomies
Due to the transversal role of nature and biodiversity, there are other environmental objectives that may have a direct or indirect relationship with the biodiversity objective.
While progress has been made, the incorporation of nature and biodiversity in taxonomies remains limited. In summary, all 16 taxonomies analysed incorporate this aspect to some extent. Among them, 11 include environmental objectives and guiding principles—such as climate change mitigation and adaptation, sustainable use and protection of water, and land management—covering sectors with activities that have different co-benefits to biodiversity protection.
Forestry and agriculture sectors , including livestock and fisheries, are the primary sectors addressing objectives related to the protection of nature and biodiversity in a cross-cutting manner. The results also showed that the “Water supply and treatment” sector in several taxonomies hold activities that can have a clear co-benefit with the biodiversity objective. Dominican Republic taxonomy stands out for addressing biodiversity through sectors such as “Manufacturing” and “ICT” and “Disaster management
Key findings related to the coverage of biodiversity objective and the related economic sectors in the existing taxonomies
Key finding 1: Taxonomies should be designed with a robust and flexible structure that effectively addresses environmental objectives, particularly biodiversity
Taxonomies establish distinct structures and approaches that influence how objectives, sectors, activities, and metrics are integrated. When it comes to biodiversity, this presents challenges due to the complexity of ecosystems, the variability in regional contexts, and the lack of standardized data and metrics, which can be qualitative or quantitative.
Key finding 2: More interoperability is needed between taxonomies, including the alignment of the name, scope and ambition of this objective
Currently, most of the taxonomies include an environmental objective associated with the protection of biodiversity and ecosystems. However, the definition of this objective in the taxonomies remains ambiguous and does not follow a pattern of interoperability between the taxonomies analysed.
Key findings related to the coverage of biodiversity objective and the related economic sectors in the existing taxonomies
Key finding 3: More research is needed to determine the substantial contribution of activities to the objective
Further research is necessary to define exactly activities not only for conservation or restoration of ecosystems and biodiversity, but also for the sustainable use of ecosystems and biodiversity, focusing on nature instead of using an anthropocentric approach.
Key finding 4: The substantial contribution to biodiversity is mainly being addressed through land use related sectors in the taxonomies
Taxonomies have predominantly focused on the AFOLU sector to address biodiversity protection and conservation, as land use and related practices have a direct and significant impact on ecosystems and the species that inhabit them.
Key findings related to the coverage of biodiversity objective and the related economic sectors in the existing taxonomies
Key finding 5: There is a high potential to substantially contribute to biodiversity protection and conservation through other sectors
Biodiversity impacts are not limited to land use sectors; industries such as tourism, energy, mining, and infrastructure development also interact with ecosystems in significant ways. By broadening the focus beyond traditional sectors like agriculture and forestry, there is a considerable opportunity to incorporate biodiversity conservation measures across diverse industries.
Step 3: Identification of activities
The sectors identified in the previous step were grouped based on their nature and characteristics as follows:
In total 38 activities (non-exhaustive list) were identified within 12 sectors that may have a direct/indirect relationship with the biodiversity objective.
The sectors with the highest potential to include activities that may have an impact on the biodiversity objective are: Forestry, agriculture, livestock, ecosystem conservation, environmental protection and restoration activities, accommodation activities / ecotourism, species conservation, water supply and treatment, disaster risk management, ICT and manufacturing.
Step 3: Identification of activities
For each sector, the economic activities and assets relevant to nature and biodiversity conservation were identified and categorised.
Step 3: Identification of activities
Step 3: Identification of activities
Furthermore, the taxonomies analysed exclude some activities due to their detrimental impact. Just to mention a few:
Key findings related to the coverage of activities related with biodiversity
Key finding 1: Activity-specific criteria are essential for biodiversity impact
By applying precise criteria tailored to each sector, taxonomies can ensure that biodiversity protection is effectively integrated into economic activities, fostering more sustainable and measurable outcomes across various industries.
Key finding 2: Exclusion of harmful activities is crucial for effective biodiversity protection and conservation
Taxonomies must exclude activities that pose significant risks to ecosystems and species. The definition of detrimental practices must consider the specific characteristics of ecosystems, which vary between regions, as well as the applicable local regulations.
Step 4: Identification of metrics
For each activity, eligibility criteria and compliance requirements were assessed, recognising possible metrics and indicators that could have a potential connection to nature and biodiversity factors
Indicators and metrics were addressed under three scopes, enabling the assessment of both positive (enhancement) or negative (degradation) impacts on ecosystems and species, as well as changes in ecosystem services:
Step 4: Identification of metrics
Taxonomies covered: Georgia, EU, Mongolia, CBI
Step 4: Identification of metrics
Taxonomies covered: Georgia
Taxonomies covered: Singapore, Sri Lanka, Malaysia, Indonesia, CBI, Colombia, Panama, Costa Rica, México
Step 4: Identification of metrics
Taxonomies covered: Dominican Republic
Taxonomies covered: Singapore, Sri Lanka, Malaysia, Indonesia, CBI, Georgia, EU, Colombia, México, Panamá, Costa Rica
Step 4: Identification of metrics
Taxonomies covered: Georgia, EU, Mongolia, CBI
Step 4: Identification of metrics
Taxonomies covered: EU, Panamá, Dominican Republic
In total 68 indicators and 33 metrics were identified
Majority of them refer to basic controls (preventing the introduction of invasive species) and are aspirational in nature, without necessarily being measurable.
Step 4: Identification of metrics
Criteria: DNSH approach
From the DNSH approach, taxonomies have addressed biodiversity to ensure that economic activities do not cause significant adverse environmental impacts on ecosystems or species. The DNSH approach was identified as including criteria such as:
Sectors | Type of No Significant Harm Criteria |
Energy |
|
Construction |
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Water/Waste |
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Manufacturing |
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Transport |
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Step 4: Identification of metrics
Criteria: examples of DNSH approach
Key findings related to the coverage of metrics related with biodiversity
Key finding 1: The taxonomies have different criteria and thresholds for economic activities to ensure the protection and conservation of biodiversity
Different metrics and indicators are used to assess various aspects of biodiversity. Taxonomies analysed have included thresholds for screening criteria using different approaches such as:
Key finding 2: Further details and guidance are needed to properly develop the generic and specific DNSH related to biodiversity
While most taxonomies outline general requirements for the Do No Significant Harm (DNSH) principle, emphasizing the use of various international frameworks to address biodiversity objectives, it is crucial to further refine these guidelines.
This involves not only deepening the understanding of how these frameworks should be applied but also clarifying their specific application across different types of activities.
Overarching objective: Biodiversity: "any expenditure whose purpose is to have a positive impact or to reduce or eliminate pressures on biodiversity".
The main elements of the Globe Taxonomy are:
BIOFIN GLOBE Taxonomy
.
The nine categories are made up of subcategories that classify all types of biodiversity expenditures that a government may have. These categories range from access and benefit sharing, biodiversity awareness, biosafety, green economy, and pollution management to protected areas, restoration, and sustainable use of natural resources. For each category, specific expenditures are detailed, along with biodiversity attribution rates that assess how much of the expenditure directly contributes to biodiversity goals.
While not a traditionally structured sustainable finance taxonomy, the GLOBE taxonomy integrates relevant elements on nature and biodiversity that could be considered within a future biodiversity taxonomy. Some of these considerations are:
Enhancing biodiversity integration in LAC Taxonomies: Key recommendations
To effectively safeguard biodiversity in Latin America and the Caribbean (LAC), it is crucial to strengthen the integration of biodiversity objectives within sustainable finance taxonomies. Below are key recommendations to achieve these:
Thank you!
Second phase: Conservation, restauration, and sustainable use of biodiversity and its ecosistems
Working Group on Sustainable Finance Taxonomies of Latin America and the Caribbean
October 2024
Annexes
Second phase: Conservation, restauration, and sustainable use of biodiversity and its ecosistems
Working Group on Sustainable Finance Taxonomies of Latin America and the Caribbean
October 2024
Annex 1 - Global Biodiversity Framework
Targets 1 to 8: Related to area management, restoration, conservation of biodiversity, halping species and protection of genetic diversity.
Targets 9 to 13: Provide sustainability Guidelines that ensure people meet their needs while sharing benefits equitably.
Annex 1 - Global Biodiversity Framework
Targets 14 to 23: Expand the scope of the Framework by including concrete actions for various economic actors
Annex 1 - Global Biodiversity Framework