{"id":21248,"date":"2024-09-25T20:00:23","date_gmt":"2024-09-25T23:00:23","guid":{"rendered":"http:\/\/fund.ar\/publicacion\/innovative-financial-instruments-to-address-the-triple-crisis-of-debt-climate-and-biodiversity-to-address-the-triple-crisis-of-debt-climate-and-biodiversity\/"},"modified":"2024-12-12T14:05:55","modified_gmt":"2024-12-12T17:05:55","slug":"innovative-financial-instruments-to-address-the-triple-crisis-of-debt-climate-and-biodiversity-to-address-the-triple-crisis-of-debt-climate-and-biodiversity","status":"publish","type":"publicacion","link":"https:\/\/fund.ar\/en\/publicacion\/innovative-financial-instruments-to-address-the-triple-crisis-of-debt-climate-and-biodiversity-to-address-the-triple-crisis-of-debt-climate-and-biodiversity\/","title":{"rendered":"Innovative financial instruments to address the triple crisis of debt, climate and biodiversity to address the triple crisis of debt, climate and biodiversity"},"content":{"rendered":"\t\t
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It is estimated that as a result of climate change, Argentina could lose up to 4% of its GDP to drought by 2050. In addition, the country is ranked <\/span>12 among those that have deforested the most, and Chaque\u00f1o Park is the second largest deforestation hotspot in South America. This constitutes a worrying crisis of ecosystem and biodiversity loss. <\/span>Fiscal space to address these situations is currently limited. The possibilities for increasing domestic financing are also limited. This is why we need innovative financial instruments.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Illustration: Guillermina Teves-Bejar<\/a>.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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The triple crises and the funding gap<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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The notion of the “triple crisis<\/b>” refers to the challenges faced by emerging and developing economies (EMDEs) in terms of ecosystem and biodiversity degradation, life on a warming planet, and high levels of debt. Through its analysis, it also seeks to understand how these components interact.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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The concept of the “financing gap<\/b> ” <\/b>refers to this difference in the resources that are needed to ensure that the climate and biodiversity targets are met and the investments that are made. Infrastructure projects, new technologies, and conservation offset schemes, among many other elements, converge in a common need: financing.<\/p>

When it comes to biodiversity, the global funding gap was estimated to be between USD 598 billion and USD 824 billion per year. For size: global conservation spending ranged between USD 124 and 143 billion per year when the total estimated need is between USD 722 and 967 billion per year.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Innovation as an instrument<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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In this context, there is a call to <\/span>scale up financing through the implementation and execution of <\/span>innovative financial instruments <\/b>to <\/span>simultaneously address the three challenges of debt, climate and biodiversity<\/span>. While there is no internationally agreed definition of “innovative finance”, its origin is explained as part of the debate on the availability of finance for development objectives (beyond environmental and climate). <\/span><\/p>\n

Such instruments often prioritise the environmental sustainability performance of projects and can make investments more effective. They could also be the means by which the value provided by nature and biodiversity is recognised and thus monetary returns can be obtained through natural capital conservation practices, beyond mere transformation.<\/span><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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This working document aims to analyse three innovative instruments for raising climate and biodiversity finance: green bonds and sustainability-linked bonds<\/i> (SLBs), Payments for Ecosystem Services (PES) and debt swaps for climate and nature. We review their use in other countries and then assess their development in Argentina.<\/strong><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Green bonds and SLBs<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Bonds are fixed-income instruments used to raise funds to finance various investments. When a bond is issued, the issuer is essentially borrowing a principal from investors with a commitment to repay it at a future date, along with interest period payments (or coupon payments). The idea of fixed income comes from the fact that the interest rate is known.<\/p>

With increasing global needs to meet climate, environmental and social objectives, green, social and sustainable bonds<\/b> have emerged, commonly grouped under the term GSS ( green<\/i>, social <\/i>and sustainability<\/i>) bonds, and more recently another type of thematic bond has been introduced: the sustainability-linked bond<\/i>(SLB<\/b>).<\/p>

GSS bonds<\/b> are characterised as “use-of-proceed bonds”, <\/i>as the funds are committed to specific future projects <\/b>(or to refinance a portfolio of existing projects). This creates the need to track the use of the funds to ensure that the invested capital is being used to meet pre-set environmental objectives.<\/p>

For their part, SLBs<\/b> are more innovative than GSS bonds, as they can adjust some of the structural and financial characteristics depending on the degree of compliance with certain<\/b> previously defined environmental, social and governance\u00a0sustainability objectives<\/strong><\/span>.<\/b><\/p>

With the environmental commitments made by countries in the 2015 Paris Agreement <\/span>and the establishment of standards for their issuance<\/span>, <\/span>outstanding green bonds grew from USD 42 billion in 2014 to USD 542 billion in 2023<\/b>. As for SLBs, they have seen remarkable growth since their first issuance in 2019, peaking in 2021 at USD 113.9 billion.\u00a0<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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