Screening and greening subsidies that harm nature

Colombia — one of the most biodiverse countries in the world — is redesigning agricultural finance to reduce biodiversity loss and transform harmful incentives into positive investment mechanisms.

Over the past six years, Colombia has experienced forest loss linked to agricultural expansion equivalent to 3.7 times the size of Bogotá. Recognising that financial tools can unintentionally drive such outcomes, UNDP’s BIOFIN conducted a national harmful subsidies assessment in 2022 to analyse how agricultural credit and rural support schemes interact with biodiversity.

The findings confirmed that certain financial instruments may create unintended pressures on forests and ecosystems. In response, UNDP BIOFIN partnered with FINAGRO, Colombia’s public agricultural finance institution, to design a pathway to green the agricultural credit system.

This collaboration led to:

• The development of a tracking tool to monitor biodiversity impacts

• Integration of credit incentives aligned with ecosystem criteria

• Use of geo-localization and financial modelling to ensure territorial and environmental safeguards

• Institutional recognition by FINAGRO of the “unintended effects on biodiversity loss” within its agricultural credit system

By 2024, approximately US$1.93 billion of FINAGRO’s credit portfolio, around 20%, had already been aligned with greener criteria. Ambition is even greater. By 2025–2026, the target is to green 100% of FINAGRO’s agricultural credit system, representing US$9.9 billion in finance.

The roadmap enabled the integration of environmental safeguards into agricultural credit lines, targeting key value chains including cattle, coffee, cocoa, rice, cassava, and non-timber forest products.

Colombia’s experience demonstrates how reforming harmful incentives under Target 18 can catalyze large-scale structural change in priority productive sectors, turning agricultural finance from a potential driver of biodiversity loss into a mechanism for conservation and sustainable rural development.

India provides an example of how evidence-based policymaking can guide the transition from traditional agrifood subsidies toward outcomes that are sustainable, biodiversity-positive, and aligned with national goals for food security, livelihoods, and climate resilience.

Through BIOFIN, UNDP India commissioned the Indian Council for Research on International Economic Relations (ICRIER) to assess how agrifood subsidies influence biodiversity and environmental systems.

The scale of support is significant. The ICRIER–BIOFIN–UNDP assessment estimates that government support to the agrifood sector amounts to US$90 billion annually (2025) — equivalent to 2.7% of GDP.

Nearly 63% of this support is concentrated on just two subsidies:

• Fertilizer subsidies (28%)

• Food subsidies (35%)

In addition, many states provide heavily subsidised or free electricity for agriculture, further shaping farmers’ production decisions.

While these interventions have historically addressed low productivity and food affordability, they also generate unintended environmental impacts, including soil degradation, water pollution, monocropping, groundwater depletion, and increased greenhouse gas emissions

A central issue lies in fertilizer policy. Minimum support prices and public procurement systems are concentrated largely on wheat and paddy, discouraging diversification toward more sustainable crops such as pulses, oilseeds, and millets. Paddy cultivation, further incentivised by electricity and irrigation subsidies, is particularly resource-intensive and contributes to both groundwater depletion and carbon emissions.

Rather than removing support, the study proposes crop-neutral incentives, ensuring farmers receive comparable support regardless of crop choice.

One proposed model includes:

• Providing US$410 per hectare for farmers shifting from paddy to crops such as pulses, oilseeds, millets, or maize

• Implementing the scheme over five years

• Sharing costs between central and state governments (50:50)

Importantly, this transition would not require additional public spending. It would be financed by repurposing existing subsidies currently allocated to electricity, irrigation, and fertilizers.

Complementary measures, such as guaranteed procurement of alternative crops at minimum support prices, would help reduce market risks for farmers during the transition.

To advance policy dialogue, BIOFIN convened a high-level roundtable with the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), bringing together stakeholders to explore practical reform pathways.

India’s experience demonstrates a critical principle of Target 18: subsidy reform is not about reducing support, but about realigning it to promote biodiversity conservation, climate resilience, and improved farmer incomes.

By shifting incentives rather than removing them, India is developing a scalable model for repurposing agrifood subsidies in line with global biodiversity and climate commitments.

Thailand illustrates how harmful subsidies embedded in infrastructure spending can be reversed.

A BIOFIN study found that approximately US$6.28 billion in national budget spending between fiscal years 2021–2023 was allocated to harmful subsidies, much of it supporting rigid infrastructure projects along the beach that negatively impacted river and coastal ecosystems. At Mrigadayavan Palace, US$8.4 million had been spent on constructing grey coastal infrastructure.

While justified as necessary for erosion control and tourism promotion, the structures disrupted coastal ecosystems and degraded biodiversity.

Working with marine scientists and botanists, BIOFIN supported the shift toward nature-based solutions, including restoring beach ecosystems and promoting natural dune formation.

After the scientific analysis was presented to the Ministry of Natural Resources and Environment, the issue was escalated to the Thai cabinet.

The outcome was a landmark decision:

• US$285,714 allocated to remove harmful structures

• Further harmful subsidies for similar projects were halted, including the Marine Department’s original US$7.6 million expansion plan

For the first time, new budget allocations for coastal seawall projects were excluded starting in 2025, effectively removing over US$300 million in planned subsidies linked to coastal infrastructure over the past 15 years.

This shift has been reinforced by legal action:

• The Supreme Court reinstated requirements for Environmental Impact Assessments (EIA)

• Mandatory public consultations are now required for coastal infrastructure projects

As a result:

• An estimated US$8 million has already been saved by dismantling existing seawalls

• Additional environmentally harmful investments have been avoided

Thailand’s decision to halt new coastal seawall projects sets a strong precedent, demonstrating that subsidy reform can both prevent future harmful spending and redirect public finance toward more effective, nature-based solutions.

Post-removal monitoring revealed that native coastal grasslands naturally regenerated, dunes reformed, and migratory birds like plovers returned in large numbers.

It highlights a critical dimension of Target 18: reform is not only about correcting past investments, but also about stopping the pipeline of future harmful subsidies at scale.

Ecuador is taking an integral approach to the biodiversity finance gap, not only by developing harmful subsidy analysis but actively promoting a large-scale positive alignment finance reform towards sustainability, demonstrating how Target 18 can operate on both sides of the fiscal equation.

A preliminary BIOFIN assessment estimated that by 2021, biodiversity-harmful subsidies in Ecuador exceeded US$994 million annually, equivalent to 0.94% of GDP.

A significant portion of these subsidies — between US$480–580 million per year — came from tax incentives directed toward the agriculture, aquaculture, and fishing sectors. While designed to promote production and competitiveness, such incentives can unintentionally drive ecosystem degradation, overexploitation of natural resources, and biodiversity loss.

Fuel subsidies benefiting large-scale shrimp farms and major mining firms were recently eliminated. However, no environmental impact assessment has yet been conducted to measure the ecological effects of this reform. BIOFIN has therefore proposed follow-up assessments and sector-specific subsidy reviews to ensure that future fiscal decisions are evidence-based and biodiversity-aligned.

At the same time, Ecuador has moved beyond diagnostics to actively screen microfinance systems of the National Corporation of the Popular and Solidary Economy, CONAFIPS, so that microcredits are aimed at supporting sustainable activities.

BIOFIN supported the development of the SARAS system, which screens businesses against environmental and sustainability criteria. This framework ensures that credit allocation favors biodiversity-positive enterprises rather than environmentally harmful practices.

Using this framework, more than US$1 billion was disbursed in green credits to small and medium enterprises (SMEs) engaged in environmentally friendly activities, including ecological agriculture, renewable energy, green buildings, and sustainable production systems.

The credits were distributed through 78 credit unions, expanding access to finance for groups that are often excluded from traditional banking systems, including youth, women, and small-scale producers. More than half of the loans were provided to women-led businesses.

The scale is significant: while nearly US$1 billion per year has been identified as potentially harmful in subsidies, a comparable US$1 billion has now been channeled into green, biodiversity-aligned enterprises.

Ecuador’s experience illustrates a core principle of Target 18: reform is not only about removing harmful incentives — it is about redesigning financial systems so that public and private capital actively support nature-positive development.