UL finance research aims to incentivise biodiversity restoration

UL’s Dr John Garvey tells us about his EU-funded project to develop finance mechanisms to restore and protect biodiversity.

A groundbreaking report from IPBES in 2019 estimated that one million species face extinction, many within decades. The report warned that unless action is taken to reduce the drivers of biodiversity loss, extinction rates will accelerate.

A report from WWF last year found that nature is disappearing “at an alarming rate”.

“Our natural world is in peril and the systems we depend on are rapidly deteriorating,” the report warns.

Given the rapidity with which global systems need to adapt to halt the climate and biodiversity crises, a key area of research has emerged – biodiversity finance.

The EU defines biodiversity finance as expenditures that contribute to biodiversity conservation, restoration or sustainable use. This can take many forms, including government funding, development assistance to emerging countries, philanthropy and market-based instruments such as incentives to reduce environmental harms.

“Transitioning to a nature-positive economy – where investments actively restore and protect ecosystems – faces several barriers,” says Dr John Garvey, associate professor of risk and finance at the University of Limerick (UL).

“[These include] structural and market barriers, data and measurement gaps, as well as capacity and knowledge limitations.

“At each juncture, there is also some ambiguity of policy incentives and shifting political landscapes.”

Garvey is leading the Biofin-EU project, which aims to drive innovation in biodiversity finance.

Funded by Horizon Europe, Biofin-EU brings together 13 partners from 10 countries to develop a framework and technologies to boost nature-positive investments, particularly investments that protect and restore biodiversity.

Garvey comes from a farming background in Co Clare. In 2016, he founded FarmHedge, a spin-out from UL, to develop a platform which is now primarily used to coordinate grain trading and the sale of farm inputs via farmer cooperatives. It was acquired by RWA in Austria last year.

With a research focus on market design and experience at the coalface of biodiversity and climate challenges, Garvey is well placed to lead a major project to rethink how we approach finance with nature in mind.

He says that Biofin-EU is looking at ways to redirect financial flows from “environmentally harmful activities toward investments that actively support biodiversity and ecosystem restoration”.

Data-driven insights

A central aspect of the Biofin-EU project is the development of a data-driven set of tools to support decision-making and streamline the financing process for nature-based solutions.

This includes a data analytics and underwriting engine, a nature-based solutions dashboard and a nature-positive business model builder – “all designed to reduce transaction costs and make biodiversity-linked investments more accessible to mainstream financial actors”, Garvey explains.

The analytics engine uses predictive modelling to evaluate risk, return and biodiversity outcomes to provide science-led financial and ecological assessments.

The dashboard categorises and tracks nature-based projects using ecological data and decision trees that map potential outcomes based on interventions such as rewilding.

The model builder supports the design of scalable, financially viable projects by offering governance frameworks and other resources.

Collectively, the tools aim to “play a crucial role in advancing the scalability and credibility of biodiversity-linked investments across Europe and beyond”, Garvey says.

The project is guided by the EU’s sustainable finance taxonomy. Described by Garvey as “like a green investment dictionary”, the taxonomy defines which economic activities can be considered environmentally sustainable.

Its core objectives include mitigating climate change, using water and marine resources sustainably, preventing and controlling pollution, and protecting biodiversity.

“To be classified as sustainable under the taxonomy, an activity must meaningfully contribute to at least one of these objectives while avoiding significant harm to the others,” Garvey explains.

“Additionally, it must adhere to minimum social safeguards – such as human rights and labour standards – and meet detailed technical screening criteria specific to its sector.”

Garvey says this approach not only guides companies towards truly green investments but, crucially, helps to combat greenwashing by requiring transparency and accountability.

He says that Biofin-EU will assess the taxonomy for any gaps “to ensure the financial ecosystem fully embraces nature-positive goals”.

Biodiversity finance in action

To implement practical actions from the research, Biofin-EU is working with 10 “learning sites” across Europe. Garvey tells us about the Waters of Life project that “aims to help reverse the deterioration of Ireland’s most pristine waters”.

Part of this project involves engaging with about 600 Irish farmers to develop a nature-based solution aimed at water quality restoration. A results-based payments scheme is being trialled whereby farmers can take certain actions to enhance water quality and biodiversity, with higher payments for better environmental scores.

Actions include grazing cattle further away from rivers and planting to improve vegetation near rivers.

According to its website, this project “creates a new market for the environmental services the landowner provides through their land management”. It provides an opportunity to support the “vital role” of famers in protecting the environment and “enhance[s] the resilience of farming communities”.

Speaking on a webinar about Biofin-EU last year, Garvey said that the challenge from a finance perspective is to figure out how the model for financing such a scheme for farmers can be extended beyond the life of the three-year project. He gives an example that parts of the food supply chain could provide corporate finance in partnership with public funding.

Taking part in such initiatives offers “quite a significant value proposition”, Garvey says, for example by ensuring greater security in the supply chain by creating cleaner environments for farms, and in doing so differentiating a product as higher quality, but there’s a gap in knowledge and guidance that Biofin-EU wants to fill.

“By constructing both the digital and institutional infrastructure needed for nature-aligned finance, Biofin-EU is paving the way for biodiversity to become a core component of economic decision-making at all levels.”

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