Financing Nature-based Solutions for adaptation at scale

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Introduction

Scaling funding to effective nature-based solutions (NbS) for adaptation is key to tackle climate change and support sustainable development. NbS can play a crucial role in adaptation and investments deliver multidimensional benefits for climate mitigation, resilience, people and livelihoods as well as the protection, maintenance, or enhancement of biodiversity. UNEP estimates that approximately $11tn of investment in NbS is required between 2022 to 2050, equating to over $500bn of annual investment by 2030. This means that investment into NbS needs to be quickly and drastically scaled from its current levels of around $200bn per year. This report is a first output from the project “Global Tools to Unlock Capital for Investments in Nature-Based Solutions” of the Global Center on Adaptation in partnership with the Environmental Change Institute (ECI) at the University of Oxford.

This first output, completed by the Resilient Planet Finance Lab at the ECI, reviews the status of nature finance globally, to learn from the role played by nature-focussed funds and their investment managers, understand what works, and draw conclusions for how we might mobilize more financing for nature-based solutions for adaptation. This knowledge will inform a roadmap and toolkit for identifying viable investment modalities in Bangladesh.

Our focus is on exploring opportunities to overcome the barriers that hold back finance and action for NbS at scale. These common barriers can include: (i) the novelty, relatively long-time scales (and so risk), (ii) local specificity (and so low replicability) and small-scale of these investments versus (ii) the relatively small commercial returns, linked to inability to monetise the full benefits of NbS, as well as (iv) difficulties in quantifying results. The lack of a conducive policy environment, both in terms of regulations and incentives, and appropriate sustainable finance frameworks, particularly in emerging and developing markets, can also be a barrier. To better understand and learn from what works, we generate and analyze a new database of the activities of 25 nature funds and their investment managers, based on publicly available data and analyse case studies.

Methodology

The authors developed and analyzed a database of 25 nature-focused investment funds and their managers, using publicly available information. This analysis aimed to identify effective strategies for mobilizing private finance towards nature-based solutions (NbS) for climate adaptation. Additionally, the study included detailed case studies of specific funds, such as the &Green Fund, Climate Investor Two, and Aqua-Spark, to gain deeper insights into successful investment approaches and structures.

Here is an overview of the 25 NFs on which the qualitative analysis was undertaken:

Global findings for mobilizing private finance for NbS for adaptation

1. Not all NbS are financially equal. Most nature-based solutions (NbS) investments focus on established sectors like agriculture, forestry, and tourism, which offer clear commercial returns. More innovative NbS, such as green infrastructure and conservation, deliver substantial social and environmental benefits but face challenges in monetization.
2. Projects favour financial returns. Because adaptation benefits are hard to monetize, investments tend to favour projects with traditional or carbon-related revenues. However, growing interest in biodiversity and social benefits shows potential for expanding the investment base, especially with better metrics and disclosures.
3. NbS investments are complex and tailored. NbS deals are often highly structured, illiquid, and actively managed, using a range of financial instruments and ESG-linked features. Standardization of structures and impact metrics could help scale these investments.
4. Public and blended finance are essential. Development finance institutions (DFIs) and public finance play a key role in de-risking and catalyzing private investment through tools like guarantees, concessional capital, and technical assistance. DFIs also help bridge global investors with local projects and context.
5. Specialist funds and managers matter. Private investment managers focused on nature finance complement DFIs by deploying high-impact capital and pioneering new models. Though still small in scale, their role in developing replicable deals and building market knowledge is crucial.
6. The market is evolving. There are clear signs of growing investor interest and momentum for NbS for adaptation. Strong policy, regulation, and incentives will be key to embedding nature in the economy and unlocking investment at scale.

Charting NbS investment pathways for Bangladesh

This study draws insights from global nature funds for financing NbS for adaptation to inform and shape pathways to scale NbS investments in Bangladesh. Globally, around 10% of financial flows to protected areas has gone to Asia and this is in the low billions, whereas financial flows in trillions are needed. The analysis highlights how scaling financing for NbS in Bangladesh will require both investing in a supportive enabling environment while also structuring investment projects that leverage nature funds and attract concessional finance.

Specific recommendations include:

• Develop tools to identify and map NbS opportunities and co-create common, robust metrics to quantify adaptation and co-benefits (e.g. carbon, biodiversity, social). These tools can help investors and governments prioritise projects with viable returns and measurable impacts. [Example: https://resilient-planet-data.org/planet/natural-assets-and-capital]
• Create a typology of NbS investment types to support a national investment plan, outlining project characteristics and revenue potential to clarify where private finance can contribute and where public finance is most needed.
• Strengthen the enabling environment by setting national/regional targets and plans, investing in standards, open data and frameworks (e.g. taxonomies, bond standards), testing new market-based approaches, and strategically using public finance to crowd in private capital.
• Mobilize private finance across all levels: locally through banks and revenue-generating sectors (e.g. agriculture, fisheries); regionally via DFIs; and nationally through sovereign green/nature bonds and new sustainability-linked instruments.
• Integrate nature-related adaptation risks and opportunities into all financial and policy decisions, including through international standards like TNFD, mandatory climate risk disclosures, and stronger regulation in key sectors (e.g. agriculture, tourism, fisheries).
• Collaborate internationally to develop shared metrics and markets for NbS for adaptation, reduce investor risks and transaction costs, and value the adaptation dividend. Engage through platforms like the G20 and international sustainable finance initiatives.

Citation

Van Raalte, D. and Ranger, N. (2023). Financing Nature-Based Solutions for Adaptation at Scale: Learning from Specialised Investment Managers and Nature Funds. Global Center on Adaptation and Environmental Change Institute, University of Oxford.