The third step is to collect, systematically and comprehensively, private and public expenditure data. Data might be collected from either public or confidential sources. In the latter case, confidential and privacy clauses and data sovereignty considerations will be strictly applied. The guidance under this step covers:
Box 4.7 Private Sector: Data Collection and Results from Guatemala
To determine the biodiversity finance actors, two prioritization criteria were considered. These included the experience of the entities within the environmental field and the economic contribution to biodiversity (based on analysing 20 percent of the institutions/companies that contributed 80 percent of the resources targeted for biodiversity). As a result, within the commercial sector, sugar, African palm, banana, extractive industries and coffee-producing entities were considered in the biodiversity expenditure analysis, as well as Guatemala’s principal donors (the G13), NGOs, and academia. To familiarize the selected entities with the purpose of BIOFIN and encourage them to provide information about their biodiversity expenditures:
As a result, it was determined that the private sector contributed US$48 million, development partners US$35.37 million and NGOs and academia US$26.84 million.
Biodiversity Expenditures in Guatemala (2010-2014)
The total biodiversity expenditure of Guatemala from 2010 to 2014 amounted to US$331.16 million, which corresponded to 0.14 percent of GDP. Public expenditure contributed 67 percent of the total amount (US$221 million) and the private sector, international cooperation and NGOs contributed 33 percent (US$110.1 million).
Source: BIOFIN Guatamala.
Initiating data collection
This substep requires the identification of technical partners and data sources needed to capture data on public and private budgets, allocations and expenditures. In data collection, the granularity and specificity of the dataset is what guarantees the depth and quality of analysis. However, there is a tradeoff between the resources spent, both time and money, and the results expected from the analysis. Typically, countries will want to collect data on projects and activities at the subagency or departmental level. A data request letter from BIOFIN’s principal collaborating ministries, usually the ministry of finance or ministry of environment, can facilitate the sharing of information. Data on budgets, allocation, and actual end spending should be collected for all main organizations.
It is useful to build on existing initiatives where possible (SEEA, natural capital accounting, public environmental expenditure reviews, etc.), and hold discussions with the national statistics department that prepares the SNA.
Care should be taken in data comparison and in describing data sources and any administrative change in budget composition. For example, not all budgeted money is allocated to projects or other activities, and not all allocations are spent (see Step 4.2A). Budget data in one year should not be compared to spending data in another without checking for consistency and controlling for inflation. Attention should be paid to the composition of the data collected. For example, in Indonesia, budget data were collected from 2006, but did not include personnel costs until 2010. Without appropriate correction, any graphical representation would have given an inaccurate impression of trends.
Suggested data sources
To the extent possible, the data used should be authoritative, dependable, and ideally from publicly available sources. The BER should be based on detailed primary data wherever possible, and not on reports that summarize previous studies. The main sources for biodiversity budget, allocation and spending data are:
Basic data that should be collected for every BER includes the following for each year covered:
Private companies and project developers
To date, most efforts to understand biodiversity expenditures, needs and investment gaps have focused on the public sector. However, some 80 percent of the global economy is made up of private sector companies and financial institutions, and as a result private companies and developers are inevitably responsible for many harmful impacts on biodiversity. Many are highly dependent on nature for their profits. More and more private companies are reducing their negative impact or even contributing positively to biodiversity. The BER should seek to capture this spending. Moreover, identifying private spending can help generate public support for biodiversity and can inform supply chain management, risk management and the scoping of business opportunities.
Engaging private companies requires the communication of a clear definition of biodiversity expenditures and an explanation of why the private company should be interested in the BIOFIN Process or biodiversity finance. Furthermore, important biodiversity investments taking place in the private sector are not well documented or understood. Incorporating the private sector into the BER will provide critical information to formulate finance solutions.
Collecting comprehensive data on private sector biodiversity expenditures is difficult and may be severely constrained by lack of data, so the BER should be seen primarily as an opportunity for engagement. We must accept that limited financial data may be generated regardless of the collection approach. The identification of leading companies which might have the capacity to collect data, such as those engaged with the UN Global Compact, the Natural Capital Declaration, or similar initiatives is an important step.
It may be possible to look for data sources working in partnerships with the industry and sector or business associations. At the company level, firms are increasingly publishing annual Corporate Social Responsibility (CSR) reports, which often include a narrative on environmental actions and risks. Other reporting, including annual financial reports, government surveys and industry reports, may also provide data or insights. These external reports tend to be available only for large publicly traded companies. If data are collected solely from a subset of company leaders in sustainability—as most who engage with BIOFIN and share data are likely to be—then care must be taken to avoid linear extrapolation to the industry from this subset. Conservative assumptions should be used if drawing general conclusions from any such subsample of leading companies.
Civil society: NGOs and other organizations
The third sector, such as non-profit organizations, are often “end-users” or implementers of projects and investments in biodiversity at the local and national level. Some NGOs typically channel support from a variety of national and international sources into specific biodiversity actions and projects. Expenditure data for these projects may be found in the annual reports of the implementing organization and/ or, often, of the donor organization or, failing these preferred sources of information, it can be requested directly. However, care should be taken to avoid double counting expenditures from both the source and channelling organizations.
Macroeconomic indicators: GDP, inflation and exchange rates
To contextualize biodiversity spending, data on macroeconomic values and public and private spending should be collected. Understanding growth and spending patterns in the economy provides inferences upon which to analyse biodiversity spending. Biodiversity expenditures should at the very least be compared to GDP and total public expenditures
GDP can be gathered from official sources—often online— both in nominal and real terms (adjusted for inflation) but it is important to note the source and type of data referred. Most sources of budget and expenditure data are reported in local currency and in nominal terms, not adjusted for inflation. These data should be entered in any spreadsheet in nominal terms. However, the analysis should preferably refer to real or inflationadjusted numbers. BIOFIN recommends a GDP deflator. A variety of approaches exist to calculate inflation. It is best to use official inflation data provided by the ministry of finance or the central bank. In the absence of an official deflator, data from the IMF or the World Bank can be used. Since the BIOFIN methodology makes use of both within-year and across-time comparisons, both nominal and real expenditures should be reported.
Cross-country comparisons are desirable to better communicate with policy makers and determine benchmarks for improvement. Countries may thus decide to communicate aggregated numbers in USD. Similar caution is required as for inflation in the use of exchange rates. In addition, countries with significant exchange rate variability may present aggregated numbers based on a conversion to a USD equivalent (or use purchasing price parity-PPP) in addition to adjusting for inflation.
Managing the double counting risk
Double counting happens when one expenditure is counted twice in an expenditure review, resulting in an over-estimation of the amount of money budgeted, allocated or spent.
It is a well-known and common risk in BER. The most common mistakes involve budgets and expenditures reported by organizations that transfer resources to other organizations. This is what happens if both the ministry of environment and a parastatal park entity receiving money from the ministry report the same expenditure. These “transfers” include subsidies and intra-governmental transfers.
To manage the risk of double counting, the BIOFIN team may choose to adopt either an “abatement or execution principle” or a “financing principle”. The former principle is recommended and requires the accounting for expenditures to be recorded at the level of the executing or implementing agency. For example, a planning team might determine that the ministry of finance—the financing agency—spends US$100,000 on biodiversity education through allocation to the ministry of education, the executing agency. Under the “execution principle”, only the expenditure from the executing agency, the ministry of education, would be counted. Under the financing principle, biodiversity expenditures are instead recorded at the source, thus not allowing the level of detail the BER analysis requires.
Gathering data on nature-based revenues
The BER process also seeks to capture income in addition to expenditures. Tracking revenues serves to 1) better understand and describe the fiscal value that biodiversity and ecosystem services provide to the national and state governments and 2) expand upon the initial review in the PIR to identify opportunities to formulate finance solutions, e.g. to propose the revision of fisheries fees/taxes or the earmarking of a certain revenues to biodiversity. The documentation of fiscal revenues generated by biodiversity is also a powerful tool to make a case for increased biodiversity expenditures.
The focus is recording revenue sources from biodiversity and ecosystem services. Each BER should cover at least protected area entrance and other fees, tourism charges, water tariffs, fines and penalties, Payment for Ecosystem Services systems, and forestry and fisheries revenues. Revenues dependent on biodiversity and ecosystems are rarely categorized as such in public documents and thus require the review of a country’s green taxes and the revenues reported by the same agencies identified in the PIR/BER. Further, it is important to consider that revenues raised at a site level may be retained there and not captured in central accounts. Revenues from biodiversity and ecosystem services consist of:
Tax revenues from biodiversity, the income generated by governments through taxation of activities related to biodiversity. Taxes generally go to the state treasury, but they can also be imposed and retained locally. Direct taxes include pollution taxes; income taxes from the selling of biodiversity goods and services; import/export taxes from the selling of biodiversity goods and services; income taxes of employees working in a biodiversity related sector; land taxes for occupation of natural areas, etc. Indirect taxes include the value added tax and sales tax on transactions related to biodiversity goods and services.
Non-tax revenues include user fees for extractive (hunting, fishing, collection of medicinal plants) and non-extractive uses (entrance fees to protected areas, camping fees, diving/snorkelling fees, biosecurity service fees, licenses, permits); volume-based resource use fees (water, wood, non-timber forest products [NTFPs]); infrastructure fees (tourism concessions, rights of way); and biodiversity trust fund interest proceeds are other examples of non-tax revenues.
Environmental fines and penalties collected because of an illegal act that directly harms the environment, such as illegal logging, poaching, illegal dumping, and unplanned pollution from companies. Fines and penalties vary; some can be a flat rate for specific illegal acts while others may vary in amount or type of penalty based on the extent of the environmental impact. Some penalties seek to capture the economic impacts on both nature and society to avoid a transfer of costs from a company to society or the government.