This report, commissioned by Green Purposes Company and produced by Finance Earth, presents a global review into nature-based solutions (NbS). NbS cover a broad range of habitats and activities, including coastal protection through coral and mangrove restoration, nutrient filtering through wetlands from freshwater supplies, and restoration of habitats to mitigate the effects of climate change and biodiversity loss. These models have received increasing recognition over the last decade as opportunities to unlock investment into markets that benefit nature and society. This report analyses a total of 88 transactions ($30m mean average and $9.3m median transaction size), with the aim of:

• Map completed investments into NbS to determine market trends
• Analyse common NbS business models and investment structures to identify existing and emerging opportunities for investors
• Identify existing and emerging opportunities for investors
• Determine key barriers to investment
• Provide recommendations to institutional investors and policymakers in the UK and Europe to support the acceleration and scaling of investment into NbS

Investors are encouraged to engage with the NbS market to deliver investment, building working partnerships and networks with project developers and other key actors. This is done through:

• Developing NbS investment strategies through engagement with market practitioners, such as environmental NGOs and the scientific community to identify and prioritise high-quality outcomes, while raising internal awareness of the role of NbS in climate change mitigation
• Investing in specialist resources to develop in-house expertise and establishing networks with other NbS investors, scientific communities and policymakers.
• Directing budgets to ‘pathfinder’ projects, to identify new sources of NbS or determining what existing capital can be allocated to NbS (e.g. allocating portions of a wider agriculture investment to regenerative agriculture).
• Developing blended finance approaches aligning in-house assets to tackle the key barriers within the NbS market. These assets could include charitable activities, CSR budgets, wealth management and philanthropic advisory units.

Investors are encouraged to unlock investment at scale by collaboratively developing governance and infrastructure to create a functioning NbS market. This is done through:

• Increasing NbS investment reporting and transparent data sharing. By reporting on both successes and failures, more consistent and centralised NbS market data can be collected on a scale equivalent to adjacent sectors (e.g. agriculture and timber). This encourages new investors into the market by reducing due diligence costs and supporting wider market development through shared learning.
• Actively engaging and collaborating with the scientific community to co-create international market standards of quality for impact measurement

Finally, policymakers should take the following actions to unlock the potential of the NbS sector through collaboration between public, private and philanthropic partners.

• Promoting policy and fiscal regimes that encourage investment by implementing floor prices for key ecosystem services markets, allocating public funds towards investment-ready NbS projects, providing catalytic capital for blended finance vehicles and allocating both land and sea assets for NbS project development.
• Accelerating market development through sponsoring the creation of standards and verification codes for ecosystem services
• Establishing cross-sectoral working groups by sponsoring the creation of market platforms to facilitate market development.

1. Institutional investors seeking to understand the international market for NbS, the emerging opportunities for investing within this asset class, as well as recommendations for supporting market development; and Policymakers seeking to understand the current status of the international NbS market, and opportunities for implementing policy to accelerate market growth.
2. There are significant numbers of NbS projects operating on ‘commercial’ rather than philanthropic terms. Although most of these transactions do not disclose financial returns, the majority were identified as offering market rate returns, with targeted performance ranging from 2-12% IRR. Almost half of all investments identified used ‘blended finance’ approaches, where grant capital is used to de-risk and enhance investor returns.
   
3. There are investible income models for NbS projects, with stacking of revenues increasingly being used to deliver more investment-ready transactions. The majority of NbS transactions identified had incomes based on commodity markets, where the most mature forms of NbS were seen across the timber, agricultural and water sectors.
4. Measuring the impact of NbS is left to fund managers and developers, leading to a range of different approaches being implemented. There are negative unintended consequences of this. This results in a complex and often ambiguous landscape for investors to navigate to assess relative levels of impact and quality. These issues highlight the importance and need for common, crosscutting definitions and approaches to measuring and validating impact from NbS investment.
5. Environmental NGOs are well placed to become major developers within the NbS market as they possess the empirical data and practical delivery experience, as well as being motivated by impact. However, many NGOs need capacity building to be able to develop projects that meet investor requirements.
6. The nascent development of the NbS market results in many of the existing products being first-time funds from new, specialist investment managers, who lack the track record typically required by institutional investors.
7. There is a need to pipeline more investment grade projects. The limited project pipeline reflects the low number of qualities NbS available. This pipeline is further hampered by the ticket sizes of the deals. Funds are simply too small to meet institutional investor minimum ticket sizes and maximum concentration thresholds.
8. Potential positives of proof of concept can be established: Many of the underlying opportunities have attractive investment characteristics providing non-correlated and often inflation proofed return profiles through asset-backed activities.
9. As an early-stage market, there remains complexity to work through and barriers to unlock to achieve scale There is a growing number of completed transactions across a range of NbS themes that appear to deliver high-quality, measurable impact. However, market analysis has demonstrated the high level of ambiguity within the market around the definition of NbS: projects often land on a spectrum of impact where additionality, attribution, permanence and unintended consequences are difficult to quantify and independently validate.