Introduction

The introduction of the report underlines the critical dependency of global economies on natural ecosystems, noting that approximately half of the world’s GDP is highly dependent on nature. The declining health of these ecosystems poses severe risks, with potential reductions in global GDP of US$2.7 trillion annually by 2030 due to nature loss. This sets a pressing context for addressing the financing gap in natural capital investments to sustain economic stability.

Market assessment

The market assessment provides an in-depth analysis of the current state of nature finance, highlighting a significant concentration of investments in forestry and sustainable or regenerative agriculture. These sectors attract the most funding due to perceived lower risks and more predictable returns compared to other nature-based investments. The report also notes a geographical concentration of nature finance in the Global North, despite significant biodiversity and natural capital in emerging and developing economies. The predominance of small deal sizes, typically under US$10 million, limits the involvement of larger institutional investors and highlights a critical gap in the market.

Barriers to investment

This section details the primary obstacles to scaling private sector investment in natural capital. Key challenges include persistently low returns, prohibitive transaction costs, and the small scale of projects which deter larger financial institutions. The report discusses the lack of comprehensive data and suitable metrics for assessing nature-related investments, which hampers investor confidence. Additionally, it covers the insufficient understanding of nature finance among investors and the novel risks involved, particularly those related to Gender Equality and Social Inclusion (GESI), which are often underestimated in financial assessments.

Recommendations

The report offers robust recommendations to address these barriers:

• Nature finance accelerator: Establishment of an accelerator to catalyse investment through innovative programs and public or philanthropic funds to de-risk private investments.
• Blended finance models: Utilisation of blended finance to increase private sector investment by leveraging public and philanthropic funding to reduce risks and enhance returns.
• Aggregation of projects: Encouragement of project aggregation to create larger, more attractive investment opportunities that can draw significant institutional capital.
• Enhanced metrics and data: Development of improved frameworks and methodologies for better data collection and analysis to support investment decisions.
• Investor and developer upskilling: Initiatives to enhance the knowledge and skills of both investors and project developers in nature finance to build a more robust pipeline of bankable projects.
• Monitoring, reporting, and verification (MRV) technologies: Investment in MRV technologies to provide accurate data on the impact and progress of funded projects, thereby increasing transparency and accountability.
• Gender equality and social inclusion: Integration of GESI considerations into investment analysis to mitigate social risks and enhance the sustainability of investment impacts.