1.4.3 Finance instruments

A finance solution’s mix of finance instruments is a central element. Instruments are defined by their transaction type, e.g. a grant or a tax. Table 1.1. presents the six categories of financial instruments, which can often be combined. Multiple instruments often interact in the design of a single solution. For example, grants from ODA and debt from a financial institution can be combined in a blended finance vehicle.

Table 1.1: Categories of Finance Instruments





An instrument that encompasses transfers made in cash, goods or services for which no repayment is expected. The definition includes ODA. Individual donations also take the form of grants.

The German International Climate Initiative – IKI – has funded climate and biodiversity projects since 2008.

The World Wildlife Fund is 35 percent financed by donations from individuals.


An obligation to make a payment or the acquisition of ownership rights (company or financial asset) in exchange of a payment. Debt can be in the form of repayable loans, government or corporate bonds, etc. Equity can be company stock or other forms of ownership and is often a riskier investment than debt.

Green bonds are a rapidly growing US$ 300 billion debt market.

The Althelia Climate Fund invests in sustainable land use and conservation of primary forest.

The EcoBusiness Fund invests equity in environmental businesses in Latin America and the Caribbean.

Risk management

Any instrument that involves the transfer of risks between two or more parties. The transfer of risks can be attached to a payment transaction (e.g. a typical insurance scheme) or a specific agreement (contract) between two or more parties.

Public guarantees for green investments are provided by the Multilateral Investment Guarantee Agency of the World Bank.

A compulsory insurance scheme such as the environmental pollution liability insurance regulations in China can cover the cost of environmental damages in case of a disaster.


Any instrument involving a fiscal reform and a subsequent change in the tax code, subsidies or fiscal allocation formula. Fiscal measures include both revenue-generating activities such as the establishment of a green tax and the phasing out of harmful public subsidies.

Timber taxes and auctioning systems support sustainable forestry in Central Africa.

Sri Lanka recently reformed the chemical fertilizer subsidy scheme, thus improving farmer health and environmental quality, and relieving government budgets.


Any instrument that involves or directly influences market transactions or prices. Markets match the supply and demand of a product or service. Markets can be created by public regulations such as cap-andtrade carbon markets.

The United States and Australia have established habitat banking markets.

Nestlé provides Payment for Ecosystem Services to farmers in France to preserve water quality.


Any instrument or approach involving a regulatory reform such as a change in laws, policies, regulations, and/or enforcement.

Fines can be used for preventing environmental crimes such as pollution spills or poaching. Compulsory insurance schemes in China are a combined regulatory, risk, and market instrument.

Solutions can be described in general terms such as ‘impact investment’ or ‘payments for ecosystem services’ but they become real and alive only when defined in detail. Framing a finance instrument into a finance solution requires understanding and planning for effectiveness, scale, and impact. The success of any solution is similarly highly dependent on the local context. For example, a tax may have been agreed on paper. If it is not collected because there is no capacity to do so, then the solution means fixing the tax collection capacity problem. In addition, some contexts are ideal for certain finance solutions, while others would not be. Understanding the full context is essential to knowing whether or not a solution is appropriate.

Many countries already have a wide range of existing biodiversity-related finance instruments in operation. Building a comprehensive list of these is an essential part of both understanding the biodiversity finance landscape and planning for future biodiversity finance solutions. Chapter 6 provides guidance on how to develop impactful finance solutions from existing instruments and how to contextualize and adapt generic solutions from elsewhere.

Finance solutions building on existing instruments usually have a higher success rate, since their initial costs are lower and usually face less resistance compared to innovative ones that may lack legal precedents. On the other hand, the financing needs of biodiversity are unlikely to be met without innovation. This suggests that the response to the biodiversity finance challenge does require a mix of finance solutions.

The range of available finance instruments is increasing, and the ways in which resources are both mobilized and spent have become progressively more diversified. Impact investment, green bonds, payments for ecosystem services, and other approaches that were not traditionally used to finance biodiversity are becoming more relevant. Blended finance, constituting a mix of philanthropic, public and private capital, can help leverage scarce public resources. The value of green finance markets is booming, spearheaded by the development of green bonds and more innovative forms of venture capitalism. Biodiversity finance practitioners can benefit from bringing in the most effective financial innovations from other sectors and directing them towards biodiversity objectives.

To help navigate this universe, the BIOFIN Catalogue of Finance Solutions (the Catalogue) offers a comprehensive list of available options or more than 150 solutions. Short descriptions accompany each solution, which are tagged by the financial result they produce, common sources of funding, the lead agent or intermediary and the type of financial instrument(s). The revision, adaptation and contextualization of solutions to the local context is at the core of what the BIOFIN Process will produce. Care should be taken in seeking to implement a solution in a country without going through the extensive assessments described in Chapter 6. Chapter 7 provides guidance on implementing finance solutions.