Seeing nature as an asset in investment

Nature’s ecosystems provide essential services such as freshwater availability, carbon sequestration, and coastal flood protection. However, these services are undervalued in financial markets. The UN Environment Programme estimates that USD 8.1 trillion will be required by 2050 to meet global environmental targets, necessitating private investment alongside public funding.

Blended finance, which strategically uses public and philanthropic funds to attract private investment, has mobilised USD 144 billion across 600 transactions over 15 years. While blended finance is well-established in sectors like energy and infrastructure, nature-based investments remain underdeveloped, representing only 5% of blended finance vehicles with a combined fundraising target of USD 5.1 billion.

Investors are beginning to recognise nature as a critical asset. Swiss Re reports that 20% of countries are at risk of ecosystem collapse due to biodiversity loss. Investing in sovereign ‘nature’ bonds and natural infrastructure such as mangroves—which provide coastal protection worth USD 65 billion annually—demonstrates the potential for integrating nature-based investments into financial portfolios. The challenge remains in developing robust metrics and baselines to quantify and monitor nature’s economic value.

Four types of blended finance for nature

Blended finance structures capital to balance financial returns with social and environmental impact. The report identifies four key types of blended finance mechanisms for nature-based solutions:

Design and preparation funds

These provide early-stage grants to develop viable investment models. For example, the Cloud Forest Blue Energy Mechanism uses initial public and philanthropic grants to establish a framework for hydropower companies to pay for ecosystem services that improve water quality and reduce sedimentation.

Technical assistance funds

These grants build financial and technical capacity among project implementers. The Land Degradation Neutrality Fund, which focuses on sustainable land management, uses technical assistance to support local training in regenerative agriculture and forestry.

Guarantees and risk insurance

These mechanisms reduce investment risks, making nature-based projects more attractive to private investors. The Seychelles Blue Bond raised USD 15 million to finance sustainable fisheries, with risk guarantees from the World Bank lowering the borrowing cost.

Concessional finance

Public entities provide below-market-rate capital or first-loss investments to improve financial viability. The Forest Resilience Bond mobilised private investment for wildfire prevention by securing concessional capital from philanthropic investors, ensuring affordable repayment rates.

Blended finance for nature remains a niche sector, requiring further development to scale up investments.

Recommendations: Growing a blended finance portfolio

To expand blended finance for nature, the report outlines several key recommendations:

Mobilise public finance institutions

Governments and development finance institutions (DFIs) must increase concessional capital allocations for nature-based projects. Public entities can provide guarantees, first-loss capital, and technical assistance to scale up market participation.

Engage philanthropic foundations

Foundations play a critical role in financing early-stage research and pilot projects. They should explore more programmatic investments, such as taking junior positions in funds or using convertible grants to catalyse private capital.

Increase private sector participation

Institutional investors, including pension funds and insurance companies, need clearer guidance on integrating nature-based investments into portfolios. Aggregated investment structures could help attract larger capital allocations.

Strengthen market infrastructure

Greater standardisation of metrics, impact measurement frameworks, and monitoring systems is required to build investor confidence. Scaling up initiatives like Environmental Impact Bonds and results-based financing could further enhance the investment case for nature-based solutions.

Currently, a small pool of donors and investors dominates the sector. Expanding participation and fostering innovation in financing mechanisms will be critical to growing blended finance for nature-based solutions.