How to scale up nature-based solutions

While institutional investors are increasingly aware of the essential role of nature-based solutions for climate, people, and planet, private capital still accounts for only 5-10% nature-positive investments worldwide, according to HSBC estimates.

Scaling up nature-based solutions and bringing in more private capital should therefore be a priority for policymakers, argued numerous financiers, politicians, investors, and activists  during COP28's nature day. 

Various studies warn that a failure to mainstream nature-based solutions would mean missing the 1.5C temperature target.

For some asset owners, there is certainly both willingness and interest, though it's still early days.

Erick Decker, chief investment officer at AXA developing markets & group responsible investment head, said investing in nature-based solutions is one of the “three pillars” of the organisation’s net zero plans.

The other two pillars involve cutting emissions by half in the corporate book, which is mostly real estate, and transition efforts in the private asset practice.

At the moment, AXA's nature-based solutions investments consist mostly of “carbon credits”, though the group has also started to "dip its toe in the water" of agriculture through a third party asset manager.

Land use, especially unsustainable monoculture agriculture, is the single-biggest driver of biodiversity loss.

AXA’s strategy echoes that of other large asset owners, whose nature efforts tend to focus almost solely on timberland and carbon credits as "easy" nature investments for conservative institutional capital. 

As real assets, timberland is generally considered relatively “inflation-proof” in a challenging macroeconomic environment.

Yet timberland or sustainable forestry is just one small part of the diverse nature-based solutions offerings.

Examples of other projects include mangrove restoration, coastal resilience infrastructure, agroforestry, and a wide range of conservation projects, all of which emphasise working with the land as opposed to against it.

Since private capital still plays a marginal role in nature-based solutions investments, the question is, can it be mainstreamed? And if so, how?

More catalytic capital and better policies

For Nicole Rycroft, founder and executive director of Canopy, the answer to this complex problem is relatively simple: more catalytic capital to support blended finance vehicles and better policies.

She used the case study of conservation efforts in the Great Bear Rainforest in British Columbia, Canada, as an example of the way government and philanthropic support can foster the emergence of a next generation, and importantly for private capital, investable economy.

Back in the 2000s, around 90% of the Great Bear Rainforest was open to logging, but thanks to concerted efforts from NGOs and indigenous communities and the intervention of large corporates, the government passed a law protecting 85% of the forest.

That law was the first step.

The second step involved raising $120 million in conservation finance, half of which came from government, and half from philanthropic sources. 

This money was used as catalytic capital to promote private investment in rainforest-friendly economic activities, such as carbon credits, ecotourism,  and sustainble aquaculture.

"There's always the temptation to destroy a biodiverse ecosystem for the sake of quick cash," she said. "However, a combination of better policymaking and catalytic capital can help transition economies away from destructive practices into sustainable, nature-positive activities that are also able to attract private capital."

On this note, Rycroft commended efforts from the Lula-led Brazilian government at COP28. 

"The Brazilian delegation's call for a Tropical-Forest-nations vehicle to support the development of conservation economies and restore degraded forests is an excellent and timely initiative," she said.

The proposed "Tropical Forests Forever" fund calls for a new $250 billion mechanism for conserving the world’s tropical rainforests.

The funds, which would be raised from governments and the private sector, would go into an indepedently-managed fund which could be drawn upon by tropical countries that meet thresholds for limiting deforestation. 

Countries would see a reduction in the availability of funding if their deforestation rate increased.

Conservation: the best nature-based solution

Environmentalists widely agree on the need to create and scale up conservation economies, and time is running out.

UNEP’s State of Nature Finance Report reveals nature-damaging finance outweighs nature-positive finance by more than 30 to 1, with $7 trillion invested globally each year in activities that directly harm nature.

The report also reveals 82% of investments in nature-based solutions were from governments, yet suggests there is potential for businesses and investors to account for at least one-third of this financing by mid-century

Jockum Rostum is known for his work on calculating “the nine planetary boundaries,” six of which are already outside the “safe operating space.”.

“We don’t know how long we can keep transgressing these key boundaries before combined pressures lead to irreversible change and harm,” he said at COP28.

While phasing out fossil fuels – a hot COP28 topic – is “absolutely necessary”, the world must also preserve intact nature, which is responsible for absorbing “approximately half” of man-made carbon emissions.

This makes it the “largest subsidy” for the global economies.

However, the latest Carbon Cycle Update shows land-based ecosystems are stating to lose their carbon capture uptake, making their conservation more important than ever.

"The best nature based solutions are those that conserve pristine nature," he said.

The second best are those that address unsustainable agriculture, which is responsible for 4 billion tonnes of C02 per year (10% or total emissions), as well as ecosystem devastation. 

The good news is that there is a “smorgasbord” of nature-based solutions available, complete with “tested technologies”.

They just need to be scaled up and mainstreamed.

Additional technical challenges

Ambroise Fayolle, vice-president at the European Investment Bank, outlined "two tensions" in nature based solutions investments.

Firstly, there is a tension between “time to market” and the ability to “measure impact”.

Secondly, the internal organisation of financial firms makes it difficult to mainstream nature-based solutions.

Christian Déséglise, group head of sustainable infrastructure and innovation at HSBC said setting "a price on nature” would make it easier to catalyse private investment. 

Carbon pricing, for example, has been an incredibly effective way of driving innovation and reducing carbon emissions from certain sectors, according to the EU. 

Similarly, a nature price, set through nature taxes, bans, biodiversity credits, and regulation, would help create an enabling policy environment for nature-based solutions.

Déséglise also stressed the need for improvements in nature data to help streamline investment and financing decisions.

Christoph Winterhalter, chairman of the executive board of DIN, the German national standardisation body, said collaboration between regulators and the private sector was essential for "connecting the dots" and "standardising nature-related terminologies and methodologies".

Net Zero Investor has also reported on the need to "transform the way risk is perceived and managed" in the global financial architecture in order to bring more institutional capital into nature-positive investments, especially those in emerging markets.

Also read:

Overcoming risk is key to climate nature investment