Investing in nature is key to building a sustainable future. By restoring and protecting ecosystems, we can significantly reduce global emissions—by over a third—by 2030. Nature-based solutions (NbS) not only benefit the environment but also provide vital infrastructure that supports society and the economy while protecting natural habitats.
Despite their importance, NbS such as wetlands, forests, and urban green spaces, are severely underfunded. To stay on track with the Paris Climate Agreement, an estimated USD 542 billion is required every year by 2030 for nature-based solutions. Currently, only USD 200 billion of that investment is being met, primarily through public funds. This figure needs to at least triple by 2030 to close the gap – small steps in financing today could result in significant progress for nature protection in the future.
Investments in NbS require different financial solutions than traditional built infrastructure. Key challenges for NbS projects are the lack of stable revenue streams that are needed for attractive risk adjusted returns, as well as high transaction costs due to small project sizes. These factors, combined with perceived high risks can make NbS a challenging asset class—but also one with enormous potential for impact.
We aim to tackle this by developing innovative financial solutions for NbS projects and helping with the development of best practices for this emerging asset class. We work to encourage public and private investors to adopt a “Nature-as-a-Service” approach to NbS financing. This involves setting up financial structures that focus on the monetization of the services nature provides. Over $44 trillion of the world’s total GDP is moderately or highly dependent on nature and its services. These risk mitigation benefits can be captured with the right financial mechanisms.
At the NBI Global Resource Centre, we work closely with project developers and investors to identify financing strategies that make nature-based infrastructure projects financially viable. By modelling different financing scenarios, we help project proponents evaluate the long-term viability of their investments. Our comprehensive analysis considers financial options over a project’s entire lifecycle, aiming to demonstrate that NBI can be a valuable investment for both public and private investors.
In collaboration with our partners, we develop financial models that assess whether the revenues generated by the project are sufficient to cover its costs and generate a return on investment. We move beyond conventional financial models and integrate environmental, social and economic factors that could be financially material for investors or demonstrate the societal rate of return for governments.
If revenues are not sufficient, we explore alternative sources through a variety of innovative solutions, such as outcomes-based financing structures. They refer to financing mechanisms where an outcome buyer makes payments conditional on achievement of a pre-agreed provision of a service.
Once we have identified suitable solutions, we produce a financial analysis that models potential financing structures, offering tailored guidance for project proponents to consider when approaching capital providers.
Closing the gap between available financing for climate change adaptation and the needs of developing countries requires looking beyond traditional sources of finance—i.e., grants and (concessional) loans—to innovative financial instruments and mechanisms that can unlock (private) investment. These instruments are increasingly viewed as a means to scale up the investment needed for countries to achieve their climate adaptation goals.
“Innovative financial instruments for adaptation” include mechanisms and approaches that can be used to acquire, structure, govern, and allocate financial resources towards adaptation priorities. They can enable access to financial resources from financial institutions, private investors, institutional investors (such as pension funds), impact investors, foundations, and other philanthropists, and may be blended with traditional sources of financing.
This inventory provides information on a range of innovative financial instruments that have been used, or potentially could be used, to finance the implementation of climate adaptation measures.
The NBI Global Resource Centre aims to bring together key partners to establish a business case for Nature-Based Infrastructure (NBI).
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