Financing Biodiversity in Colombia

By any measure, Colombia has an extraordinary wealth of biodiversity. Straddling the Amazon, the Andes, and the Caribbean and Pacific coasts, the country’s environmental riches range from river dolphins to coral reefs to alpine glaciers. In the Americas, only Brazil is believed to have more species within its borders.

Colombia has also been a global leader in climate finance. Yet until recently, its efforts at deploying green finance had focused almost entirely on reducing greenhouse gasses through investments in areas such as alternative energy and low-impact transport.

Now Colombia has diversified its climate-finance portfolio into the growing, more technically challenging area of biodiversity. Government regulators are setting new rules and frameworks for biodiversity finance while one major bank, BBVA Colombia, has issued the world’s first biodiversity bond, and Banco Davivienda is gearing up for another.

Both efforts – crafting the upstream regulatory frameworks, then issuing the bonds to mobilize money for green projects – have received critical advisory support from World Bank Group programs and publications, including the Joint Capital Markets Program (J-CAP), the International Finance Corporation’s Financial Institutions Group, and IFC’s Biodiversity Finance Reference Guide.      

Efforts to finance biodiversity have focused on bond issuances that raise money that the issuer can then lend to borrowers working in fields ranging from sustainable agriculture to forest regeneration – areas that may not directly reduce carbon footprints but encourage species and habitat diversity.

Before the bond issuances, the government’s chief banking regulator, the Colombian Financial Superintendency (SFC, its acronym in Spanish), consulted international best practices to forge the right mix of policy and regulatory approaches to promote biodiversity finance. That’s where WBG entities including J-CAP were able to help.

“We have been supporting the Superintendency as it develops a sustainable-finance economy that covers biodiversity and climate adaptation,” said Carlos Senon Benito, Financial Sector Specialist at the World Bank and J-CAP’s lead on Colombia.

He helped officials craft a “taxonomy” of biodiversity finance – that is, an internationally accepted standard for what kinds of financial instruments would lead to positive outcomes for nature – that would fit Colombia’s unique environment. With the taxonomy in place, private banks can proceed to issuing biodiversity bonds.

“The upstream component is the first one, and then the second is the actual transaction,” said Senon Benito, adding: “In a sense we are implementing the taxonomy by looking for transactions that can be aligned with the [regulatory] framework.”

Calculating Financial Risk

Writing the taxonomy has relied on an innovative mix of environmental science and finance, an effort drawing on expertise across the Colombian government and WBG, said Angela Maria Angulo Daza, Senior Adviser to SFC’s Sustainable Finance Group, in an interview.

“Broadening our green taxonomy was […] a process rooted in science. We worked with the support of the World Bank and IFC to add objectives regarding biodiversity to our existing green taxonomy related to climate change,” said Angulo Daza. 

Biodiversity refers to the variety and quantity of plants and animals, their habitats and interactions. Around the world, biodiversity has suffered from climate change, urbanization, and the spread of non-natives species. In Latin America and the Caribbean, total wildlife populations are reported to have declined by an alarming 94 percent since 1970.

Policy makers and international organizations have tried increasingly to measure the long-term consequences of the loss of biodiversity for economic growth and human living standards. Destroying nature can equate to destroying an economy’s ability to grow and produce wealth, said Irina Likhachova, global lead for Biodiversity and Nature Finance at the International Finance Corporation (IFC). Moving away from business models that destroy nature takes investment, she said.

“Essentially, we need finance to stop financing activities that destroy nature, and we need to start financing activities that allow nature to regenerate,” she said. “It’s not about ceasing to use nature – that’s impossible – but allowing nature to regenerate.”  

Likhachova used a metaphor from the world of business to describe what happens when economic models neglect biodiversity: “You have a supply warehouse that needs to be replenished, but they’re emptying the warehouse with no new supplies coming in. So how do you move to business models that allow nature to regenerate? How do you shift to where your supply chain is always full?”

‘Working With Nature’

J-CAP, a joint program of the World Bank and IFC, both divisions of WBG, has been providing advisory on green finance to regulators and the private sector in selected countries of Africa, Asia, and Latin America almost since the program’s founding in 2017.

In Colombia, J-CAP’s advisory to the SFC focused on establishing metrics to measure a project’s environmental impact in terms of financial risk, said Senon.  Regulations emerging from that process led to the world’s first biodiversity bond, in July last year, when BBVA Colombia and IFC issued a bond worth $70 million that raised money for reforestation, wildlife habitat restoration, and other environmental goals.

The second followed soon after. In October, at the COP16 U.N. summit on biodiversity in Cali, IFC and Banco Davivienda, a commercial bank with a long track record of funding environmentally sustainable projects, signed an agreement to issue a biodiversity bond worth $50 million in Colombian pesos.

Projects set to be financed with the bond include Pacific coast mangrove restoration – expected to account for about 10 percent of proceeds – and loans to small and medium farm exporters seeking coveted green export certifications from Rainforest Alliance and other environmental groups, said Alejandra Diaz Agudelo, Director of Sustainability at the bank.

“This is about biodiversity, but it’s just as much about ensuring the permanence of our business over time and helping our clients work with nature in a way that is sustainable,” said Diaz Agudelo in an interview. The bond is expected to be issued by the end of March, she said.

IFC will be the bond’s sole buyer, but the point is that it serves as a “demonstration transaction” – a sign of confidence to local-currency bond markets for future issuances, said Felipe Sanint, a Bogota-based IFC Senior Investment Officer who helped steer the transaction. IFC has been a global leader in green finance, delivering $19.4 billion in climate finance in fiscal 2024 alone.

“Banks need new areas in which to expand their portfolios,” said Sanint. “It’s still in the early stages, but this is a clear sign that biodiversity finance is gaining traction.”

J-CAP’s work in Colombia is supported by the government of Switzerland through Swiss SECO via the WBG’s Sustainable Finance Facility (SFF), and globally also by the governments of Germany, Luxembourg, Japan, Norway, and Australia.