Welcome to the Business Engagement Programme

Business.2010 newsletter: Agribusiness

Volume 3, Issue 2 - February 2008: Agribusiness

Promoting "pro-biodiversity" SMEs

Jean-Marie Frentz
Programme Officer, European Commission
Zbigniew Karpowicz
RSPB, International Coordinator of the EC Project "Supporting Business and Biodiversity" in Bulgaria, Hungary and Poland
Zenon Tederko
Country Coordinator, European Commission
We are witnessing today encouraging signs that biodiversity issues are gaining more traction in the political and commercial agendas. Fully engaging the business community and the financial services sector is a critical step in aligning economic and environmental objectives and redress the downward trends in biodiversity. In 2007, the G8 countries committed themselves to approach the financial sector to effectively integrate biodiversity into its decision-making frameworks (1).

A key objective is to develop conservation finance mechanism which can increase the volume of finance available and also contribute to economic development and poverty alleviation. The European Union’s approach to biodiversity is based on the principles contained in the EU Nature Conservation Policy, particularly the Natura 2000 (N2000) ecological network of sites of high biodiversity value. However, in order to conserve the Natura 2000 network it has been estimated by the European Commission that at least EUR 6,1bn is needed per year, substantially more than current public outlays.

The Portuguese EU presidency also hosted a major conference in November 2007 on business and biodiversity which recognized that “there is an urgent need to promote biodiversity conservation in micro, small and medium sized enterprises, and in particular those with a strong link to biodiversity conservation as well as those based in the rural economy and to provide them with the information, relevant expertise and tools which are adapted to the operating conditions of these enterprises”.

Many SMEs are nature-dependent …
There are many companies, of varying sizes and in a range of sectors, across Europe whose activities are based in areas of ‘high’ biodiversity or whose activities directly depend on biodiversity. For example, in Poland in seven pilot Natura 2000 areas, nearly 6,000 SMEs directly dependent on biodiversity were identified.

Such companies often need to be assisted to become ‘pro-biodiversity’, i.e. to shift into a sustainable mode of operation, through commercially viable solutions. In theory, doing so will ensure that investments made help reduce or mitigate impacts on biodiversity and contribute to sustainable development. Yet, until now, investing in ‘pro-biodiversity’ business has been largely neglected and there seems to be little support, from the mainstream banking sector to invest into such opportunities. Inadequate information certainly has been a key limiting factor for increasing lending to ‘pro-biodiversity’ businesses.

…but lack access to finance
Finding ways to increase financing options involves more, however, than overcoming the existing knowledge and information gaps. Businesses need to demonstrate both positive financial and biodiversity returns. At the same time, many of the benefits of biodiversity conservation are public goods with little scope for making money. With well developed private property rights, markets exist for many goods which can be produced in ways compatible with biodiversity conservation. Examples include forest products, eco-tourism, organic agriculture and certified timber.

A biodiversity financing facility could help improve both the commercial and environmental sustainability of these companies. To be eligible for financing, a company must meet both financial and biodiversity criteria. Whereas the financial eligibility would be established by a financing institution, the biodiversity eligibility would be assessed by a third party, e.g. an independent expert team or an NGO, to ensure than a SME has the capacity to run successfully investment projects in line with the standards and criteria of the facility.

Towards a Biodiversity Financing Facility
There are a number of challenges that will need to be resolved before biodiversity-friendly investments can be scaled up through such a financing facility. Private players, both on the banking side and the company side are often not well aware of commercial biodiversity opportunities. Pro-biodiversity businesses often encounter obstacles in accessing credit. The rate of return on investment into pro-biodiversity businesses is generally perceived by financial institutions to be sub-optimal.

To overcome informational gaps and lack of capacity, both on the supply (banking) and demand (company) side, technical assistance is also needed for training activities and capacity building together with more effective partnerships between government and business at local, national, regional and global levels. As with carbon trading, national governments should establish appropriate regulatory frameworks and incentives to make investments into pro-biodiversity businesses attractive to banks and accelerate market development. To catalyse market development, international financial institutions, backed up by public co-financing, could provide attractive credit lines or guarantees so as to reduce the risk perceived by local banks.

In the immediate short-term, the creation of an ‘institutional market place’ to champion the newly recognised market for micro enterprises in N2000 and, more generally, SMEs and biodiversity is the natural next step. Thanks to an EU funded project, teams in Bulgaria, Hungary and Poland are currently working to create biodiversity technical assistance units in support of the creation of biodiversity facilities. They will provide the necessary technical assistance and develop a pipeline of pro-biodiversity investment projects.

A prospective biodiversity financing facility should be seen as an instrument of transition for, ultimately, it would be replaced by commercial banks. Such a facility would help ‘accelerate’ the market for mainstream banks by showing that investments into pro-biodiversity businesses are commercially viable.

Jean-Marie Frentz,Programme Officer, European Commission; Dr Zbigniew Karpowicz, RSPB, International Coordinator of the EC Project “Supporting Business for Biodiversity” in Bulgaria, Hungary and Poland; and Dr Zenon Tederko , OTOP, Country Coordinator of the EC Project “Supporting Business for Biodiversity” in Poland.
(1) http://www.bmu.de/files/pdfs/allgemein/application/pdf/g8_potsdam_chair_conclusions_03_07pdf

The authors would like to acknowledge the review and comments by Mr Paul Morling, Economist RSPB.