EIB: Private sector failing to invest in nature projects across Europe

Pictured: Black Forest, Germany

The European Investment Bank (EIB) has today (8 June) published an analysis of finance for more than 1,300 nature-based projects across the EU, including projects conserving and/or restoring habitats like woodland and peatland. The range of projects covered vary from small-scale to large, landscape-scale initiatives.

The analysis reveals that most private finance bodies are not yet investing in nature-based solutions at scale. 97% of the projects assessed received no significant financial support from the private sector.

Upfront cost does not seem to be a barrier to investment. Some 80% of the projects assessed require less than €10m of funding to complete.

Instead, the EIB believes that small individual investment size, compounded with long timeframes for financial returns, is deterring financiers without ‘patient’ capital to spare. Regulatory hurdles to cooperating and co-financing were identified by the EIB as another major barrier to investment.

The Bank also outlines how, as nature-based solutions are an emerging asset class, risk profiles are continuing to evolve. But the report notes how a failure to invest at scale will store up risk for the future.

PwC stated earlier this year that 55% of the world’s GDP is dependent on nature, equivalent to $58trn. Earlier this week, the Sustainable Policy Institute stated that at least 35% and as much as 54% of financial institutions’ assets are highly or very highly dependent on ecosystem services supported by biodiversity.

EIB vice president Ambroise Fayolle said: “The majority of nature’s benefits have no financial market value today. However, an enormous part of our economies is dependent on them.

“If we want nature-based solutions to become mainstream, we must increase transparency and measurability, and provide the enabling conditions for both the private and public sector to develop them. Knowledge and incentives are key for investment decisions.”

Policy changes

According to the EIB, the highest investment potential for nature-based solutions which overcome some of these challenges are in the water management, urban, forestry and agricultural sectors. In each of these sectors, there are climate adaptation and mirtigation benefits to be reaped, as well as potential public health and wellbeing benefits. For example, nature-based cooling in cities can reduce healthcare costs.

Scaling investment in these sectors will require reforms to regulation and/or subsidies, the EIB concluded.

The reform of the common agricultural policy (CAP) is identified as the biggest opportunity for redirecting subsidies. Environmentalists have long argued that the design of the CAP incentivises increased production at all costs, regardless of environmental degradation. While some changes have been made to farmer payments for the 2023-2027 period, larger changes are being recommended post-2027, to better incentivise the creation and conservation of nature on farmland.