Current state and barriers to investing in nature-based solutions

Global annual investments in nature-based solutions (NbS) range between $78 billion and $154 billion, primarily from public sources. The private sector contributes only $6 to $26 billion. The United Nations Environment Programme (UNEP) estimates that $674 billion is needed annually by 2050 to meet climate, biodiversity, and land restoration goals. However, harmful subsidies in agriculture, fisheries, and fossil fuels amount to $500 million to $1.1 billion annually, further exacerbating environmental decline.

The report identifies key barriers to scaling up private sector finance: systemic undervaluation of nature, fragmented and small-scale projects, limited investable pipelines, and weak financial returns. Early-stage projects are considered high-risk, with long timelines and uncertain revenue streams. Additionally, a lack of standardised impact measurement, inadequate human capital, and market liquidity issues hinder scalability. Innovative solutions, blended finance, and collaborative approaches are required to address these challenges.

Nature finance through the lens of the capital continuum

The capital continuum framework maps the financing journey of NbS projects across four stages: incubation, implementation, scale-up, and institutional finance. Each stage has distinct financial needs, risk profiles, and appropriate instruments. The early stages require philanthropic grants, concessional finance, and technical assistance. As projects scale, blended finance instruments like junior equity, thematic bonds, and guarantees become necessary to attract private investors. Institutional financing involves commercial debt, equity, and market-based mechanisms.

Recommendations to solve challenges at critical stages of the capital continuum

Addressing incubation and implementation challenges
The Partnerships for Forests (P4F) initiative demonstrates how grants and technical assistance can de-risk early-stage projects and build a pipeline of investable opportunities. P4F has leveraged $1 billion, reduced over 90 million tonnes of CO2, and sustainably managed over 4 million hectares of land.

Unlocking early-stage capital opportunities for development finance institutions (DFIs)
DFIs are urged to adopt higher risk tolerances, revise mandates, and engage in early-stage funding. Reducing profitability targets and allocating dedicated funds can catalyse private sector investment in NbS.

Adopting DevCo funding strategies
Development companies (DevCos) from the renewable energy sector can be adapted to NbS. DevCos provide early-stage funding, due diligence, and technical expertise to de-risk projects. They aggregate smaller projects, build capacity, and attract institutional investment.

Providing market pricing signals via voluntary carbon markets (VCM)
VCMs and results-based mechanisms can correct pricing signals for environmental assets. Stable, long-term carbon prices and market liquidity are critical to scaling NbS. DFIs and governments can mitigate market uncertainty through floor price commitments, encouraging broader investor participation.

Conclusion

The report stresses the need for collaboration across the capital continuum to unlock private capital for nature-based solutions. DFIs, governments, and private investors must align efforts to address funding gaps and barriers. Innovative mechanisms, such as DevCos and VCMs, can bridge the financing divide, enabling NbS to deliver on climate and biodiversity goals at scale.