13.4 Barriers and suggested solutions

Lack of information and knowledge: investors suffer from a lack of information concerning existing and developing biodiversity business opportunities. Furthermore, BES project managers often lack expertise and experience in structuring their funds in such a way that they meet the strict investment criteria of institutional investors. There is a two-way need for information provision and training in order to encourage the further development of a market framework that facilitates biodiversity business opportunities.1 In addition, it appears that the biodiversity sector (including NGOs) - that possesses knowledge about biodiversity - is not effectively assisting commercial actors in the development of a portfolio of bankable biodiversity projects.2 The knowledge gaps are an important factor in the present lack of investment in biodiversity projects.

High risks: multiple risks can materialise regarding BES investments. One of them is the lack of predictability concerning the outcome. This is related to the fact that only a few front-runners have successfully engaged in the pro-biodiversity business. For example, the involvement of the private sector in PES is still relatively limited. Consequently, a lack of successful case studies in this field prevents large investors from considering biodiversity as a profitable business opportunity. Another risk relates to the implementation of pro-biodiversity projects located in developing countries that have a weak government and an inadequate regulatory environment. Apparently, in sustainable forest practices, land tenure and the enforcement of compliance are often not properly handled.

High transaction costs: a main impediment to BES is the relatively high cost of due diligence required to meet financial and biodiversity criteria. Most BES projects are aiming at a long-term life cycle and require adequate assessments. The finance sector has often demonstrated its inability to estimate the size of transaction costs. It is important to address this issue in bidiversity business projects and to make it transparant. - Lack of management capacity and entrepreneurs: in order to manage pro-biodiversity business and especially to develop an effective system of payments for environmental services, like sustainable forestry and water services project management needs to be knowledgeable and efficient. It was estimated that only well-designed and implemented pro-biodiversity businesses can deliver biodiversity objectives cost-efficiently.3Small projects/low revenues: voluntary mechanisms of biodiveristy business, with a few exceptions such as the voluntary carbon market, tend to be small and have relatively high transaction costs. Considering the fact that investors, especially institutional investors, are generally looking for a longterm investment of a substantial volume, this can constitute an obstacle to participation. As was mentioned before, most of the projects are too small for direct financing and need to be bundled to make them interesting for large investors.

Lack of enabling environment: in order for a business to prosper, the environment in which it operates has to be favourable for commercial activities. An enabling environment includes an effective regulatory structure that reflects public expectations about the rights and responsibilities of business and society.4 In the context of business and biodiversity, the enabling climate is often underdeveloped. Based on the perception that biodiversity is a public good, businesses consider that all related problems are the responsibility of the government and society in general. For most financial institutions and fund managers, biodiversity is no more than an ' environmental liability, responsibility or a resource that they can exploit.' Presently, the majority of the private sector does not see biodiversity as a business asset that ought to be conserved and managed in its own right.5

Inability to think 'long term': financial institutions lack an understanding of what biodiversity loss means for them. The investment in biodiversity can be a risk today which, however, can be turned into long-term benefits and profits tomorrow. The financial returns and conservatory benefits at the early stage of commitment to pro-biodiversity business might not be as impressive as expected. Strict return-on-investment criteria employed by investors constitute a barrier to investing in BES funds. Presently, they do not seem to take into account the long-term nature of biodiversity business development.

Encouragement of multi-stakeholder cooperation: all parties interested in biodiversity preservation have to work together in order to make it a priority issue. Governments, companies, individuals, religious groups and local communities, who are usually initiators of biodiversity conservation projects, could work closely with investors and other stakeholders.6 The collaboration of actors also means shared responsibilities. Governments, as participants, therefore have to provide finance for research in the field of biodiversity and business, to provide financial contributions such as subsidies, grants and guarantees, to stimulate start-up pro-biodiversity initiatives, and to set up or maintain a sound regulatory framework that can support and stimulate a BES market (property rights, cap and trade liability). On the part of investors, clarification and consistency has to be achieved regarding companies' BES dependence and impacts through lending and investment requirements addressing these concerns. The identification and recognition of risks and opportunities related to BES markets can assist. Other actors could generate knowledge and share expertise in relation to biodiversity and ecosystem services that will help to trigger finance in biodiversity. Moreover, they can actively develop initiatives and monitor projects on biodiversity value.

Sharing information: one of the main barriers that prevent investment in biodiversity is a lack of information. Information regarding the loss of biodiversity in general, and ecosystem degradation in particular, therefore needs to be available and widely accessible. The new business risks and opportunities arising from a company's dependence and impact on ecosystem services have to be clearly mapped. Transparency in business practices and in research results in this field will help companies and investors to produce sound business planning and response strategies.

New tools to innovate BES business mechanisms: according to the meeting of business leaders and other interested actors organised by the Earthwatch Institute in 2006, further actions could include the development of new tools that can help businesses to manage ecosystems. These new tools will facilitate the recognition of the true value of the ecosystem services and to internalise the costs of public goods and service usage in business operations.7 On the part of investors, they could incorporate BES risks as a factor in their risk assessment mechanisms. Profound due diligence can assist in providing information about possible impacts. One of the recommendations for institutional investors8 is to encourage sell-side analysts to consider other issues besides finance, such as BES, when making investment recommendations. Participation in the Enhanced Analysts Initiative might be worth considering.9

Creating a good investment climate: this is primarily a task for (inter) national governments. Innovative biodiversity initiatives are usually successful in countries that have a favourable investment climate. It includes: good governance, a developed legal system, and supportive policies and institutions.