Who finances nature-based solutions?

Despite the interest in Nature-based solutions, their financing remains an important gap that limits uptake by citizens, businesses, cities and government. According to a recent study led by University of Oxford Nature-based Solutions Initiative only 1% of climate financing is directed towards Nature-based Solutions, with the lack of finance being a leading cause of the absence of investments in projects and their monitoring.

Most of the funding for nature-based solutions projects come from private bilateral and multilateral, national and international stocks e.g.: Global Environmental Facility, Green Climate Fund, Adaptation Fund. The UN Framework Convention on Climate Change compliance (Green Climate Fund) funds most of the forestry projects and private funding also add to the projects’ finance. On the other hand, climate finance for forestry project is mainly provided through payments for ecosystem services under the UN Framework Convention on Climate Change compliance (Green Climate Fund) or the voluntary market (private funding). However, there remains much uncertainty about the extent to which PES can deliver social and ecological benefits.

A recent report by the European Environment Agency identifies the financial and economic tools that can be used to implement or reinforce nature-based solutions. These instruments are usually embedded across EU environmental law in the form of incentives (e.g. subsidies and payments) or disincentives (e.g. taxes or charges). Depending on the implementation of the different types of nature-based solutions, different financial tools can be made available. For example the expenses of making swales, water gardens or green roofs can be covered by the stormwater utility charges. Environmental tax reforms can help to shift the weight from where it could have a negative environmental impact to multifunctional nature-based solutions that contribute different environmental, social and economic benefits to communities.

There are more than 150 biodiversity-relevant taxes in the OECD countries, generating revenues of around USD 7.4 billion a year. Insurance is the most common way to financially support environmental protection activities. Furthermore, insurers can reward individual risk reduction measures. Green loans are also available to finance eligible green projects, or projects having positive environmental and/or climate benefits, and can help the transition to a carbon-neutral and resilient Europe. European funds also support the implementation of nature-based solutions, and a study estimated that around 6.6 billion EUR were invested in green infrastructure between 2007 and 2013 by the European Agricultural Fund for Rural Development which shows the weight of these funds.

The investment in Nature-based Solutions leads to long-term benefits but their implementation is also hampered by studies that value the variety of NBS benefits, and there is no generally accepted accounting and valuation framework that could be used in practice by financiers. Research and collaboration across disciplines can play an important role to tackle this challenge and build the business case for nature-based solutions. You can read more about the EU-funded project focusing on developing the knowledge base for nature-based solutions from here.

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