Investors and businesses urged to address $700bn nature-based solutions finance gap
A new report has warned that a $700bn investment gap into "Nature-based Solutions" needs to be addressed in order to meet wider net-zero goals and combat the climate crisis.
The findings come from the Green Purposes Company (GPC), a not-for-profit dedicated to safeguarding the aims of the Green Investment Bank (GIB) prior to its privatisation. GPC worked with Finance Earth to publish a new report on the urgent need to accelerate and scale-up investment in nature.
The report notes that while investment into areas such as forestry and agriculture are picking up, high-impact NbS markets such as marine and coastal conservation, peatland restoration and species protection represent huge value for investors.
However, the report states that a range of stakeholders need to agree on robust definitions, metrics, standards and verification to improve market confidence and prevent greenwashing around NbS and their role in combatting the climate crisis.
Once definitions are in place, governments and businesses must create a regulatory and fiscal environment that attracts investment in nature and spurs demand for NbS solutions. Currently, the report argues, there is a lack of capacity and understanding amongst the investor community on the benefits and challenges of NbS, which is holding back funding.
Research from Global Canopy suggests that there is a $700 billion annual financing gap towards biodiversity conservation. Estimates suggest that financing this market will reach $854bn annually by 2030 to halt natural degradation, but just $130bn per year, and predominantly provided by public and philanthropic sector organisations, is being provided.
As such, the report calls governments, investors and businesses to work together to create frameworks mobilise funds into NbS. According to the report, 200 global projects had a total disclosed value of approximately $1.5bn, suggesting long-term value for those who support the market.
GPC’s chair of the trustees Trevor Hutchings said: “Our social and economic wellbeing depends fundamentally on nature. Yet our investment in nature is not at anything like the scale needed to address environmental collapse and to meet net-zero. It is seen as a niche area, an immature market, and without the financial returns necessary to attract mainstream investors. This needs to change, and to change now.
“However, like low carbon before, and with the right actions by institutional investors and policy makers, we believe that investing in nature will become mainstream - the next global financial asset class.”
At the start of the year, Prime Minister Boris Johnson outlined plans to allocate at least £3bn of the international climate finance that the UK will spend through to 2026 on NbS.
The figure is more than a quarter of the UK’s existing commitments within the five-year timeframe, which total £11.6bn. Finance will be provided through bodies including BEIS, Defra and UK Export Finance, which, late last year, confirmed plans to end fossil fuel financing overseas ahead of COP26.
Funding from the commitment will go towards the conservation and regeneration of marine habitats, forests and mangroves. Mangroves can sequester more carbon per square foot than traditional forests and could absorb 380 million tonnes of CO2e by 2040 if scaled up.
The Intergovernmental Platform on Biodiversity and Ecosystem Services (IBPES) estimates that extinction rates are currently around 100 times higher due to human activity. Globally, on average, there has been a 68% decline in populations of mammals, birds, reptiles, fish and amphibians.
In related news, HSBC has this week confirmed it is joining with World Resources Institute (WRI), WWF and a global network of partners to unlock barriers to finance for businesses looking to combat climate change through NbS, renewables and carbon reduction methods.
In the UK, HSBC will work with the University of Birmingham and Imperial College London to support 150 companies developing services or technologies with potential for impact on climate change, including a focus on NbS.
“The transition to net-zero must be driven by cutting edge science and innovation - and also collaboration. Finding the best solutions for clean energy, clean transport and environmental protection is vital, as is making them commercially viable,” HSBC’s group chief executive Noel Quinn said:
“Our Climate Solutions Partnership with the World Resources Institute (WRI) and WWF will make a tangible contribution towards those goals, combining our knowledge and resources to accelerate the pace of change towards a more sustainable future.”
Last year, HSBC partnered with Pollination to launch what it is describing as the first large-scale investment fund focused solely on nature conservation and restoration. The fund aims to raise $1bn to finance “a diverse range of activities that preserve, protect and enhance nature over the long-term, and address climate change”.