If 2019 was the year that climate finance went mainstream, 2020 promises to finally give nature a seat at the green finance table.

Massive biodiversity loss was flagged as one of the top five global threats at this year’s World Economic Forum in Davos, where businesses were called upon to start disclosing nature-related risks. Meanwhile investors such as BNP Paribas and AXA are now moving ‘beyond carbon’ to assess firms’ biodiversity impacts. And cognizant of the real economic threats of ecosystem destruction and degradation, central bankers and regulators around the world are working on a nature-focused expansion to the influential Task Force on Climate-related Financial Disclosure (TCFD) framework.

Given the usual focus on climate mitigation, it is encouraging to see the financial industry acknowledge the intersectionality of our ecological crisis. With the current rate of plant and animal species extinction up to 100 times greater than the average over the past 10 million years, biodiversity both exacerbates and is exacerbated by the climate emergency. Healthy, functioning ecosystems are the foundation of the biosphere upon which all of life depends. But initiatives to restore biodiversity face serious funding challenges. A report by McKinsey found that conservation projects need up to $400 billion a year yet receive only $52 billion, most of which comes from philanthropic and public funding.

Mainstream green finance initiatives conceptualise such environmental funding gaps as example of market failures. Nature- and climate-related risks are perceived as under-priced in financial markets, resulting in negative externalities borne by society and the natural world. Disclosures of better environmental information are considered to be the optimal solution to ‘fix’ the market for investments and hence optimise capital allocation. There have been valid criticisms of relying solely on market mechanisms to resolve the climate emergency. But biodiversity, too, is a complex and thorny issue to shoehorn into a market-based financial framework. The inherently political and ethics-riddled reality of conservation raises serious questions about privileging private finance as a dominant actor, and also reveals the problems inherent in an information-based approach to resolving the ecological crisis.

Natural capital approaches, which assign monetary valuations to the resources and services provided by nature, are market-based frameworks aiming to tackle biodiversity loss. Applying the logic of financialisation to nature is a controversial notion. As critics have pointed out, simplifying complex economic phenomena to monetary valuations embeds a false equivalence between natural and manmade ‘capital’, and also implies that habitat restoration in one place can fully offset destruction in another. Moreover, natural capital approaches rely on the notion of ‘efficient markets’ as the main mechanism for action. Not only is this problematic in that markets are designed to optimise for profit, usually in the short term, but financial models are poorly suited to capturing the non-linear tipping points, feedback loops, and systemic connections that characterise ecology. Financialisation also effectively removes the rights of nature to exist on its own terms. An asset must generate returns, after all.

This last point reveals an uncomfortable truth for the green finance world. Unlike low-carbon infrastructure investments, many biodiversity-related projects may not yield returns that are monetisable in the conventional sense. Wetlands restoration, for example, can deliver significant economic benefits – flood defences, carbon sequestration, rich wildlife habitats – but these are not easily translated into an income stream. Even where the rewards are tangible, conservation is a tricky sell for private investors. High transaction costs and returns that may take decades to materialise make for an unappealing risk-return profile. And the necessarily small and localised nature of many projects render them difficult and costly to incorporate into large-scale investment vehicles such as green bonds.

But the extension of markets into nature has also had darker, human consequences that are rarely acknowledged in green finance circles. There is mounting evidence that market-based environmental schemes such as the UN’s Reducing Emissions from Deforestation and Forest Degradation (REDD) have fuelled violent land grabs in the Global South, where thousands of indigenous peoples have been forcibly evicted from their ancestral lands as Western companies privatise vast swathes of forest for conservation. Markets require private property regimes to function. But the imposition of such regimes is often incompatible with communities whose cultures and means for prosperity are embedded within surrounding ecosystems.

It is hard to see such a trend as anything other than environmental colonialism. The notion that humans must be separated from land for nature to restore itself is a highly Westernized understanding of conservation. It has also repeatedly been demonstrated to be wrong.

A huge body of research led by Nobel prize winner Elinor Ostrom has shown that communities around the world have developed their own commons governance systems to sustainably manage natural resources for the long term. Instead of the top-down data-oriented methods often advocated by green finance, such approaches utilise a sophisticated combination of local knowledge, community rules, and adaptive management to steward complex ecosystems beyond the market sphere. Requiring the input and cooperation of the whole community to function, commons-based systems are necessarily inclusive and participatory political institutions.

The complex political ecology of conservation reveals the limitations and potential dangers of letting private sector initiatives dominate solutions to the biodiversity crisis. It is time to acknowledge that many aspects of nature are public goods or part of the commons and would be better served by a multi-stakeholder approach to mobilizing finance.

The public sector is not only a source of patient, long-term capital, but can also embed democratic, participatory processes to foster localised commons governance. Moreover, as economist Mariana Mazzucato has argued, incorporating ecological concerns into mission-oriented public policy establishes long-term certainty in the policy landscape and can ‘crowd in’ and direct private investment to the right ends. Instead of fixating upon information availability and prediction as a precursor to action, as market-fixing approaches do, effective public policy should focus on building ecosystem resilience and avoiding irreversible tipping points. For, as the precautionary principle states, informational uncertainty is no excuse for delaying urgent action when the consequences of ecosystem collapse would be catastrophic.

Overall, the biodiversity crisis reveals some uncomfortable truths for the world of green finance. Financial disclosures and metrics are not only ill-suited to capturing ecological phenomena, but they cast a veneer of neutrality over what are politically and ideologically charged issues, excluding those who have a right to be part of the decision-making process. This year’s World Economic Forum called for a move to stakeholder capitalism. Ahead of the UN’s COP15 Biodiversity Conference in China later this year, it is time for policymakers and green finance players to step up to the challenge of building inclusive, multi-stakeholder approaches to resolve the biodiversity crisis.

The solutions to restore our ecosystems cannot be confined to the market sphere.