Markets, financing and incentives for NbS. Invest4Nature Deliverable 3.3
Creators: name: Tedeschini, Francesca Romana
name: Tuerk, Andreas
name: Blaettner, David
name: Klinkenbergh, Oisín
name: Brangan, Emer
name: Romanovska, Linda
name: Chen, Wenting
name: Chakravorty, Diya
name: Furuseth, Ingvild Skumlien
name: McQuaid, Siobhan
Publisher: name: Invest4Nature. Horizon Europe Grant No. 101061083
Year: 2024
Subjects: Nature-based Solutions
Nature-based Enterprises
financing
investment
EU project
Horizon Europe

description: Abstract

The report provides a comprehensive overview of the financing landscape for Nature-based Solutions (NbS) and the potential for enhancing private sector involvement by examining the perspectives and needs of key stakeholders – public sector entities, investors, and Nature-based Enterprises (NbEs). It also identifies key barriers and drivers influencing NbS investments and offers recommendations to enhance the effectiveness and scalability of NbS projects.

Disclaimer: This version has been submitted to the European Commission / its Executive Agency and is currently under review.

 

Executive summary

The Invest4Nature (I4N) project recognizes the crucial role of Nature-based Solutions (NbS) in addressing societal challenges and securing a healthier and more sustainable future. While the potential of NbS is undeniable, unlocking their full potential depends on the development of robust markets and effective financing mechanisms. Currently, there is a range of NbS emerging, primarily supported by strong public funding, but a comprehensive market for NbS has not yet emerged, indicating a need for further exploration of how to attract private investment alongside continued public support. 

By examining the perspectives and needs of key stakeholders -public sector entities, investors, and Nature-based Enterprises (NbEs) -the report provides a comprehensive overview of the financing landscape for NbS and the potential for enhancing private sector involvement. The report identifies key barriers and drivers influencing NbS investments and offers recommendations to enhance the effectiveness and scalability of NbS projects. It emphasizes the importance of a diversified financing approach, combining public and private sources, to unlock the full potential of NbS and achieve global climate, biodiversity and restoration targets.

The report identifies a significant opportunity for private sector investment in NbS, particularly through blended finance mechanisms. However, at the moment the market is still dominated by public funding, highlighting the need for a supportive environment to attract private capital and ensure the financial viability of NbS projects. The investor community is interested in NbS projects, particularly those focused on agriculture/food, water, forestry, and urban environments, but several barriers hinder investments in this area, including challenges in accessing information, lack of clear revenue sources, knowledge gaps, high transaction costs, and limited valuation methodologies.

The report also highlights the growing marketdemand for NbS, driven by regulatory changes and increased awareness of climate issues. This demand presents significant opportunities for business growth and economic development, particularly for Nature-based Enterprises. However, NbEs often face challenges in accessing traditional financing options and require tailored support to scale their operations and maximize their impact.

To address the challenges in NbS financing, the report recommends a multi-level approach. At local level, it suggests raising awareness among banks, streamlining funding processes, integrating NbS into spatial planning, supporting long-term maintenance, and providing capacity buildingfor NbEs.

Nationally, recommendations include strong commitments to nature-related goals, clearpolicy frameworks, tax incentives for NbS investments, enhanced cross-sectoral coordination, prioritizing applied research funding, promoting public-private partnerships, recognizing NbEs, and considering sovereign green bond issuance.

At the EU level, the report recommends increasing direct support for local implementation, integrating NbS into Sustainable Finance policy, developing standardized monitoring and reporting, fostering knowledge exchange, and mainstreaming NbS policies into broader frameworks

 

This work has been funded by the European Union under the Horizon Europe grant 101061083 (Invest4Nature). Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Commission and its European Research Executive Agency (REA) – hereinafter referred to as the granting authority. Neither the European Union nor the granting authority can be held responsible for them.