Relevance
GS Paper III: Environmental Pollution and Degradation; Environmental Conservation
Key Terms
For Prelims:
United Nations Environment Programme (UNEP); Nature-based Solutions (NbS); National Mission on Sustainable Agriculture (NMSA); National Water Mission; National Afforestation Programme (NAP)
For Mains:
Nature-based Solutions as instruments for climate mitigation and biodiversity conservation; global financing gaps in environmental governance; role of subsidies in driving environmental degradation; fiscal federalism and biodiversity conservation in India
Why in News?
The United Nations Environment Programme (UNEP) has released its flagship publication, State of Finance for Nature 2026. The report highlights a stark imbalance in global financial flows, revealing that nearly USD 30 is channelled into ecosystem-degrading activities for every USD 1 invested in nature protection. This underscores deep structural distortions in global development finance.
Source: Down to Earth
Key Findings of the State of Finance for Nature 2026
Nature-Negative Finance
Global financial flows supporting activities harmful to nature—such as fossil fuel extraction, deforestation, and unsustainable agricultural practices—amounted to USD 7.3 trillion in 2023, nearly 7% of global GDP.
The private sector accounts for USD 4.9 trillion of this amount, largely concentrated in energy, utilities, and basic materials. Governments contribute around USD 2.4 trillion annually through Environmentally Harmful Subsidies (EHS), dominated by fossil fuel support, followed by unsustainable agricultural and water subsidies. These incentives distort market signals, making environmental damage cheaper than conservation.
Nature-Positive Finance
Investment in Nature-based Solutions (NbS) remains limited at USD 220 billion, resulting in a pronounced 30:1 imbalance between destructive and restorative financial flows. While funding for biodiversity and landscape protection rose by 11% between 2022 and 2023, the scale remains inadequate. International public finance for NbS increased by 22% over 2022 levels and by 55% compared to 2015, reflecting incremental but insufficient progress.
Financing Gap for NbS
Public sources contribute nearly 90% of NbS funding, with private investment confined to about 10%. To meet the objectives of the Rio Conventions, annual global investment in NbS must increase 2.5 times to reach USD 571 billion by 2030.
The Rio Conventions aim to:
- UNFCCC: Limit global warming below 2°C, preferably 1.5°C
- CBD: Conserve 30% of land, water, and marine areas and restore 30% of degraded ecosystems by 2030
- UNCCD: Restore 1.5 billion hectares of degraded land by 2030
Nature-based Solutions (NbS): Explained
Definition:
Nature-based Solutions involve protecting, sustainably managing, and restoring ecosystems to address societal challenges—such as climate change, food security, and disaster risk—while simultaneously delivering benefits for biodiversity and human well-being.
Illustrative Examples:
- Mangrove restoration for coastal protection and carbon sequestration
- Agroforestry to improve soil health and agricultural productivity
- Urban green spaces to mitigate heat island effects and enhance climate resilience
Constraints in Scaling NbS Finance
- High Transaction Costs: Ecological complexity and lack of standardised data make project appraisal expensive and time-intensive.
- Limited Investment Track Record: NbS is still an emerging asset class with insufficient historical data for robust risk assessment.
- Liquidity Challenges: Long gestation periods and absence of secondary markets deter private investors.
- Currency and Sovereign Risks: Most NbS potential lies in the Global South, while capital is concentrated in the Global North, exposing investors to exchange-rate volatility.
- Data and Metrics Gap: Unlike carbon markets, biodiversity outcomes lack universally accepted measurement standards.
Implications of Low NbS Financing for India
- Subsidy Contradiction: Environmentally harmful subsidies—such as fertiliser support and free electricity for groundwater extraction—far exceed investments in ecosystem restoration.
- Dependence on Public Funds: NbS initiatives in India rely heavily on government mechanisms like CAMPA, with limited private-sector engagement.
- High Economic Exposure: Over half of India’s workforce depends on nature-linked sectors, making ecosystem degradation a direct economic risk.
- Absence of a Green Taxonomy: Lack of a formal classification system enables greenwashing and discourages credible sustainable investments.
- Fiscal Federalism Constraints: While international environmental commitments are undertaken by the Centre, implementation rests with States, which often prioritise extractive, revenue-generating activities.
India’s Key NbS-Related Initiatives
- National Mission for a Green India (GIM)
- National Mission on Sustainable Agriculture (NMSA)
- National Water Mission
- National Afforestation Programme (NAP)
- AMRUT 2.0
- Mangrove Initiative for Shoreline Habitats and Tangible Incomes (MISHTI)
- Mission Amrit Sarovar
Measures to Scale Up Nature-based Solutions
- Nature Transition X-Curve: Gradual withdrawal of harmful subsidies alongside expansion of nature-positive economic activities.
- Internalising Externalities: Adoption of carbon taxes and nature-damage levies to reflect true environmental costs.
- Mandatory Disclosures: Align corporate reporting with TNFD standards to assess nature-related risks and dependencies.
- Innovative Finance Instruments: Scale up green bonds, sustainability-linked loans, and biodiversity credits.
- Risk Mitigation: Use public finance to provide first-loss guarantees and concessional funding to attract private capital.
- Standardised Biodiversity Indicators: Adopt metrics such as Mean Species Abundance to enhance transparency and curb greenwashing.
- Policy Alignment: Harmonise fiscal, agricultural, and energy policies with the Kunming–Montreal Global Biodiversity Framework.
Conclusion
The State of Finance for Nature 2026 clearly demonstrates that current global economic systems are structurally biased towards environmental degradation. For India, embracing the Nature Transition X-Curve is essential to shift from a resource-depleting growth model to a nature-positive development pathway—protecting biodiversity while supporting its long-term economic ambitions.