Sustainable Finance and Biodiversity: Building a Common Pathway

Within the Bio-Capital project, the Italian Sustainable Investment Forum (ItaSIF) is leading Work Package 2 (WP2), dedicated to mapping and assessing financial instruments , policy directions, and investment opportunities that support biodiversity protection and restoration across the project’s five Use Cases. WP2 explores the opportunities, challenges, barriers, and enabling factors within the current policy, financing, and investment landscape for addressing biodiversity loss and strengthening ecosystem resilience.

As the final stages of Bio-Capital will activate innovative sustainable finance solutions and integrate advanced geospatial analytics technologies to mobilise private capital, it was essential to establish from the outset a shared and robust knowledge base on the context in which the project operates.

The work on building a solid knowledge base started with an overview of the EU strategies, regulations and directives, international agreements, and global standards that shape the biodiversity investment landscape. The objectives set out in EU startegies  are implemented through different types of legal acts, some binding, others voluntary, some applicable to all Member States, others only to specific countries. For this reason, gaining a clear and structured understanding of both the European and national regulatory frameworks was a crucial first step.

Beyond regulation, the analysis also includes the identification of existing investment instruments, alternative funding mechanisms, and project pipelines capable of addressing biodiversity loss and supporting ecosystem restoration.

Overall, WP2 provides the theoretical basis for the development and implementation of biodiversity-friendly financial solutions and for engaging the investment community throughout the project’s lifecycle. This baseline work is essential for achieving Bio-Capital’s final objectives for two key reasons:

1. It highlights the direct connection  between the stability of natural ecosystems and the stability of economic systems.
2. It clarifies  which tools, methodologies, and approaches are already available to integrate biodiversity considerations into financial decision-making.

Biodiversity’s Economic Value

There is a clear and growing connection between ecological and economic stability. The loss of biodiversity increases the likelihood of extreme climate-related events and threatens food and water security. Habitat destruction and species decline reduce agricultural and fisheries productivity, generating direct economic impacts across multiple sectors. In fact, more than half of the world’s GDP (around $44 trillion) is closely tied to natural resources (WEF, 2020), and entire economic sectors directly rely on ecosystem services (for example, agriculture and the food industry, textiles, tourism, construction).

From a double materiality perspective, it is essential  to assess  both the risks stemming from the loss of biodiversity and the impacts of economic activities on ecosystems. These risks can be categorised similarly to climate risks: physical risks, arising  from  ecosystem degradation and the loss of essential services and transition risks linked to  regulatory changes, market shifts, technological developments, and evolving consumer expectations). These risks, in turn, can translate into  financial risks such as credit and counterparty, operational, market, and liquidity risks. Therefore, financial institutions must carefully evaluate and manage these risks, as highlighted by the Network for Greening the Financial System (NFGS).

Translating Biodiversity Priorities into Financial Practice

Achieving a global reversal of biodiversity loss by 2030 will require annual investments between $722 and $967 billion over the next decade. Yet the biodiversity finance gap, estimated at $700 billion per year, represents the shortfall in financial resources required to effectively protect and restore nature (UNEP, 2025). At the same time, public and private financial flows associated with environmentally harmful activities amount to nearly USD 7 trillion annually (UNEP, 2023). This contrast highlights the urgency of redirecting capital away from nature-negative activities and towards investments that protect and restore ecosystems.

As both an institution and a Bio-Capital partner, ITASIF’s role is to support financial market operators in their transition towards sustainable, biodiversity-positive investments. Our work therefore centers on highlighting the tools, methodologies, and approaches already available to integrate biodiversity considerations into financial strategies and products.

These include indicators to assess issuers’ transition plans; exclusions and disinvestment from sectors, companies and countries with the most harmful biodiversity impacts; green bonds and nature bonds  to finance ecosystem conservation and restoration projects; nature-related certificates and biodiversity credits to demonstrate measurable improvements; ad-hoc insurance solutions to mitigate physical and transition risks, leveraging nature-based solutions.

Stay tuned for the next phase of the project and follow Bio-Capital for upcoming insights, tools and results.