How to close the almost $1tn nature finance gap

Samantha Willis is a biodiversity consultant at Ramboll

A combination of innovative financing approaches and policy interventions is essential to unlock much-needed nature investment

The nature finance gap — the shortfall between investment in nature-based solutions, and the amount needed to address climate change, biodiversity loss and land degradation effectively — stands at an estimated $942bn, shows data from BloombergNEF. This is despite the issue being a major talking point at the recent COP16 2.0 talks in Rome in February, where some positive policy measures were agreed.

To bridge the gap, government and industry must collectively encourage far more investment.

The UN Environment Programme estimates that private sector investment in nature-based solutions sits at $154bn a year, half of what is needed to meet the 2030 goals in the Kunming-Montreal Global Biodiversity Framework.

Incentivising investors

One significant barrier is the common perception among investors that nature-based solutions can be high-risk with low returns, and that conservation projects can struggle to generate stable revenue streams and often requiring long-term commitment. 

Innovative financing mechanisms can reduce the risk to private investors and encourage investment.

Investment risk can be balanced through blended finance and public-private partnerships, where private and philanthropic investors take first-loss positions to de-risk the investment. These mechanisms offer credit enhancement and provide concessional loans below market rate, helping nature-based solutions to be more financially viable.

One example is the Global Environment Facility, which works closely with financial leaders to identify where financial innovation can facilitate environmental benefits. It has employed a co-financing model to increase funding for natural resource projects, where private sector investment is scarce.

Government incentives

Bridging the nature finance gap is also reliant on how well financial systems, policies and markets are structured.

Investors can be deterred by inconsistent policies on environmental protection and carbon credits. There is no universally accepted framework to measure the environmental and social benefits of nature-based investments, and the difficulty of quantifying biodiversity and ecosystem services, and a lack of clear methodologies for monitoring impacts, means many ecosystem services are not “market ready”. 

Governments should offer robust incentives, including subsidies and tax breaks, to make nature-positive investments attractive and competitive, encouraging private investors to allocate more resources towards environmentally beneficial projects such as reforestation. The public sector must also create a supportive environment through cohesive policies and regulations.

Clear metrics

It is also vital that governments, investors and private and public sectors work together to ensure standardised impact metrics can measure the nature and social benefits of nature-based solutions. Currently, the use of biodiversity metrics is highly fragmented, with the Nature Positive Initiative reporting more than 600 metrics in circulation.

Governments should offer robust incentives, including subsidies and tax breaks, to make nature-positive investments attractive and competitive

Standardising metrics used to measure nature outcomes would help ensure transparency and accountability, and allow for the demonstration of the effectiveness of investments.

Frameworks such as the Taskforce on Nature-related Financial Disclosures can support businesses in contributing towards environmental reform, offering the use of standardised metrics and methods of disclosure. Uptake of the TNFD is encouraging, with more than 500 organisations, representing $17.7tn in resources, committing to risk management and corporate reporting.

Countries must lead by example

A critical aspect of bridging the nature finance gap is countries making progress towards biodiversity pledges, such as the commitments set out in the Kunming-Montreal GBF, including the target of protecting 30 per cent of the planet’s land and oceans by 2030.

As of October 2024, only 17.2 per cent of land and 8.4 per cent of marine areas are under protection, and more than half of the world’s countries arrived at COP16 2.0 in Rome with no plans to protect 30 per cent of their nature, demonstrating that additional accountability is needed.

Developing countries in particular, which hold much of the world’s biodiversity, face a steeper challenge in achieving these goals, due to limited access to finance, lack of strong environmental regulations, and competing economic priorities due to industrial development.

Positively, several frameworks were agreed upon during COP16 2.0, which will support developing countries and ensure nations are held accountable for their progress. The Planning, Monitoring, Reporting and Review Framework was created to hold nations accountable and address gaps in implementation.

The Cali Fund, for the fair and equitable sharing of benefits from the use of digital sequence information on genetic resources, will mobilise new streams of funding for biodiversity action, with 50 per cent of the fund allocated to Indigenous peoples and local communities who are often vital stewards of local biodiversity.

Bridging the nature finance gap is crucial for achieving biodiversity targets and mitigating climate change, and collaboration across the board is key to progress. Even with the positive steps taken at COP16 2.0, substantial efforts from the public and private sector as well as innovative financing mechanisms are need to close the $942bn gap and ensure sustainable investment in nature-based solutions.