Unlocking the Power of Nature for a Sustainable Future
“Nature is a national wealth service”[1], a service intrinsically intertwined with our health, wealth and security. Biodiversity loss and environmental degradation pose significant risks to the UK economy, with projections indicating a potential 12% reduction in GDP. To put that into perspective, the 2008 financial crisis, and the Covid-19 pandemic reduced UK GDP by 5% and 11% respectively.[2]
Given these risks, the call for financial institutions to fund natural capital and nature-based solutions (NbS) is growing louder. However, for investors to engage effectively, the broad definitions of these concepts must be distilled into clear, actionable frameworks. Confusion, after all, is the killer of action.
Understanding the Basics – Definitions
Natural capital and NbS encompass strategies to protect, restore, and leverage the world’s stock of natural resources to address societal challenges, such as climate change.
The European Bank defines nature-based solutions as “inspired and supported by nature”[3] —a concept that perfectly encapsulates the essence of the power nature holds. NbS are a step forward in how we can leverage the inherent resilience and adaptability of natural systems.
NbS solutions offer simultaneous environmental, social, and economic benefits while building resilience to climate impacts. Research suggests that NbS could provide 37% of the mitigation required to achieve the Paris Agreement[4], and they have already demonstrated success in various regions.
Case Study: Guyana’s Carbon Credit Strategy
Guyana exemplifies how NbS can be successfully implemented at scale. This jurisdictional project has helped maintain the annual national deforestation rate at 0.1%, while also developing finance mechanisms for a national carbon credit strategy. This initiative facilitates large-scale financing of low-carbon development activities[5]. As of September 2024, the carbon credit scheme has generated $237.5, all of which has now been invested in the community alongside regional and national low carbon development (LCD) priorities.[6]
Scaling Investment in Natural Capital
A critical challenge for the natural capital sector is making these projects commercially viable to attract large-scale investment. Without clear financial incentives, many promising initiatives fail to secure the necessary funding to create meaningful global impact. This has been a long-standing challenge within the natural capital space, contributing to a persistent and growing mismatch between the availability of these projects and the demand from investors.
Mobilising Private Investment
Public funding alone is insufficient to support these projects. While governments and philanthropic entities can play a vital role, it is private investment that will drive the substantial capital flows needed to bring natural capital initiatives to scale. In order to unlock this investment, the focus must be on:
- Creating commercial viability: Developing a solid business case that resonates with investors, highlighting financial returns alongside the environmental and social benefits.
- Blended finance models: Leveraging public or philanthropic funds to de-risk private investments and attract private capital to projects that may otherwise seem too uncertain or low yield.
Establishing Clear Standards and Policy Frameworks
Developing robust standards – whether market-led or regulatory-driven – can provide investors with the certainty they need to commit to NbS projects. These standards help reduce risks and allow investors to better assess and compare investment opportunities. Additionally, policies that integrate nature-related risks and opportunities into financial decision-making can stimulate demand for sustainable investments.
By aligning environmental factors with financial frameworks, governments and regulators can encourage the market to adopt sustainable practices, creating a more predictable and attractive investment landscape.
Developing Private Market for Public Goods
Monetising ecosystem services – such as clean water, biodiversity, and carbon sequestration – can make natural capital projects more appealing to investors. Mechanisms like voluntary carbon markets and biodiversity offsets enable businesses to meet sustainability targets while funding conservation efforts. These private markets provide tangible returns on investment, bridging the gap between ecological necessity and financial viability.
Looking ahead
Aligning economic systems with the natural world is no longer a choice but an imperative. The conversation must shift from “what can we afford to do?” to “what can we no longer afford not to do?” The intersection of NbS and sustainable finance presents a unique opportunity to drive economic growth while ensuring environmental protection.
By investing in nature-positive solutions today, we can create resilience against climate change while delivering benefits to the communities most affected by environmental degradation. It is time to act decisively, scaling up natural capital investments to safeguard our future wealth and well-being.
[1] Natural England, (2024). Nature is the national wealth service: Natural England chair calls for new approach in major report. UK Government. https://www.gov.uk/government/news/nature-is-the-national-wealth-service-natural-england-chair-calls-for-new-approach-in-major-report
[2] Green Finance Institute, (2024). Assessing the Materiality of Nature-Related Financial Risks for the UK. London: Green Finance Institute. Available at: https://www.greenfinanceinstitute.com/insights/assessing-the-materiality-of-nature-related-financial-risks-for-the-uk/
[3] European Investment Bank. (2023). Investing in nature-based solutions. Available at: https://www.eib.org/attachments/lucalli/20230095_investing_in_nature_based_solutions_en.pdf
[4] IPBES (2019): Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. E. S. Brondizio, J. Settele, S. Díaz, and H. T. Ngo (editors). IPBES secretariat, Bonn, Germany. 1148 pages. https://doi.org/10.5281/zenodo.3831673
[5] Nature-Based Solutions Initiative, Case Studies on Nature-Based Solutions (n.d.), available at https://casestudies.naturebasedsolutionsinitiative.org/case-search/.
[6] GUYANA’S LOW CARBON DEVELOPMENT STRATEGY (LCDS) 2030 October 2024 UPDATE – LCDS (REF)
