The private sector invests a staggering US$5tn in nature-harming activities each year. But the tide is starting to turn, with influential names like Aviva committing to long-term investments in nature recovery, and innovators like Finance Earth bringing vital funds into this field. But can forward-thinking finance overcome fears – of financial risk, greenwashing and more – in time to prevent ecosystem collapse?

“A turning point in the history of tropical forest conservation”; “unprecedented innovation in international financial architecture”: this is how Brazilian ministers described the Tropical Forests Forever Facility (TFFF), announced at the COP30 climate talks in Belém last month.

The TFFF is indeed unusual: it plans to pay countries that have tropical forests to keep trees standing; and rather than using grant capital for it, it will be based on a for-profit investment model.

It will use public investments to catalyse up to four times as much private investment, reaching a targeted US$125bn – which would make it the world’s largest multilateral fund. The fund will invest its money sustainably and use part of the returns to pay tropical countries that preserve their rainforests – incentivising conservation instead of deforestation.

The TFFF is one recent example of how innovative finance can start tackling the twin crises of climate change and nature depletion. But, while investment into climate change mitigation has risen in recent years (more than doubling between 2018 and 2023), finance towards nature protection is meagre – despite the crisis reaching unprecedented scale.

More than 10m hectares of forest – roughly equivalent to the size of Iceland – are being cut each year. Wildlife is disappearing: on average, species have seen populations fall by 73%. The Amazon rainforest is nearing a tipping point where it will become a carbon emitter, due to the number of dead trees, rather than a carbon sink. And biodiversity loss and ecosystem collapse are the second-biggest risk over the coming decade, according to the World Economic Forum’s latest Global Risks Report.

Yet finance for nature-based solutions – actions that protect and regenerate nature while addressing social challenges – remains insufficient. They can include restoring mangroves to shield coastal communities from climate disasters and food shortages while storing carbon and supporting biodiversity; protecting forests to prevent flooding; or adopting new forms of agriculture that restore forests while increasing farmers’ income.

They also have a direct effect in mitigating climate change: the UN Environment Programme estimates that nature-based solutions of high quality and integrity could prevent approximately 27% of current global annual emissions.

But each year only US$200bn is invested into nature-based solutions globally, according to UNEP, only a third of what’s needed to reach climate and nature targets by 2030. Most funding towards nature-based solutions comes from governments (82%). Meanwhile, private sector investment in nature-harming activities add up to US$5tn each year.

But appetite from the private sector to invest in nature appears to be increasing, albeit on a small scale: according to the UN figures, private investment for biodiversity rose from US$748m in 2021 to US$4bn in 2023.

Alongside flagship initiatives like TFFF, smaller, innovative financial models to drive investment towards nature-based solutions are emerging. But they are still seen as risky by investors, and the shadow of greenwashing leads to scepticism over any form of new environmental finance.

In Borneo, rainforests are being cut to make space for palm oil production

A turning point: UN Secretary-General António Guterres speaks at the launch of the Tropical Forests Forever Facility

A turning point: UN Secretary-General António Guterres at the TFFF launch

In Madagascar, mangrove conservation brings multiple benefits, from biodiversity protection to sustainable sources of income for fisherpeople

Mangrove conservation brings multiple benefits, from biodiversity protection to sustainable sources of income

A 100-year commitment

Ensuring the Amazon remains a carbon sink is crucial to fighting climate change. Those who think human activity can’t wipe out entire native forests should look at Europe for evidence: temperate rainforests, once covering large swathes of the UK, now cover less than 1% of the country, according to environmental charity, the Wildlife Trusts.

But restoring these depleted ecosystems also represents an untapped opportunity to tackle both climate change and biodiversity loss – through carbon removal, ecosystem creation, water purification, flood protection and more. The Wildlife Trusts, in partnership with insurance company Aviva, is undertaking the mammoth task of trying to restore at least some of them.

In 2023, Aviva donated £38m to the Wildlife Trusts for that mission – one of the largest corporate donations ever to nature conservation in the UK, according to Aviva. The deal came with a contract committing both organisations to the project for 100 years – a way of future-proofing the agreement, ensuring that future bosses will not undo the deal.

“Aviva has been around as an organisation for over 300 years, and we hope to be around for another 100 plus years,” says Aviva’s chief sustainability officer, Claudine Blamey. “So whoever comes in our roles in the future, this contract stays in place.”

The long-term contract, which was conceived with support from law firm Hogan Lovells, is also a recognition of the time needed for the project to create its full impact. Spread across several sites on the Western side of Great Britain, the programme will involve tree-planting across 665 hectares, and an additional 1,443 hectares of other habitat creation including peatlands, species-rich grasslands and heathlands.

Eleven nature reserves have been established with sites in Cornwall, Devon, Wales, Cumbria, Yorkshire, Northern Ireland and on the Isle of Man. Carbon removal will be at its fastest around 2060, by which time the forests are expected to remove about 24,000 tonnes of CO2 equivalent a year. Over a 100-year period, the forests will have removed a total of 800,000 tonnes of carbon from the atmosphere.

“Trees sequester carbon as they grow but they do this at the fastest rate once they are more than ten years old,” explains Rob Stoneman, director of landscape recovery at the Wildlife Trusts. The 100-year partnership ensures that the carbon they capture remains locked up permanently.

The Wildlife Trusts is a federation of local charities, established in 1912, and relies on members, donors and partners, like Aviva, to achieve its mission of “bringing wildlife back and empowering people to take meaningful action for nature”. Long-term partnerships such as this “are essential for all of our futures”, says Stoneman.

Aviva’s donation was part of its net-zero strategy, adopted in 2021, which commits the company to become net-zero by 2040, and Aviva also has a policy to invest 2% of its pre-tax profit to what Blamey describes as “social action”.

The £38m given to the Wildlife Trusts is part of a £100m funding pot to support nature-based solutions in the UK, Ireland and Canada. To date, £87m has been donated – including to the Wildlife Trusts, the Wildfowl and Wetland Trust and the Woodland Trust in the UK, and other projects in Canada and Ireland.

The remaining £13m has not been allocated yet, and might take the form of grants or investment. Aviva’s support for nature-based solutions runs across the business: the insurer’s investment arm, Aviva Investors, last year launched its Carbon Removal Fund, expected to grow to £10bn in the next ten years. This invests in nature-based carbon removal solutions, like afforestation – the process of planting and growing trees where there weren’t any – and restoration, as well as commercial forestry. In the future, Aviva plans to invest about a fifth of the fund in engineered carbon capture technologies, once these are advanced enough.

Temperate rainforests once covered large swathes of the UK – now they cover just 1%

Temperate rainforests once covered large swathes of the UK

Claudine Blamey, chief sustainability officer at Aviva, which donated £38m to the Wildlife Trusts

Claudine Blamey, chief sustainability officer at Aviva

Hazel gloves fungus is a flagship species of temperate rainforests, growing on ancient trees, and a sign of clean air

Two crucial sources of income

How does planting trees, or restoring marshes or a mangrove make money? Much of the income from developing nature-based solutions rests on two key mechanisms: carbon credits and biodiversity units.

CARBON CREDITS

Carbon credits are issued by organisations undertaking an activity that removes carbon from the atmosphere, like growing trees. The amount of carbon removed equates to a certain amount of carbon credits, which can then be sold on carbon markets for a certain price per tonne. Organisations seeking to offset their emissions can then purchase those credits.

There are many carbon markets around the world, where carbon credits are traded at very variable rates – and some are more regulated, and trustworthy, than others, explains Richard Fitton, investment director at social enterprise Finance Earth, which helps organisations to use finance and investment to deliver impact for climate, nature and communities. Some are government-backed, like the Woodland Carbon Code in the UK.

So far, carbon markets have included a mixture of regulated and voluntary transactions, enabling companies with net zero plans to neutralise their carbon emissions.

BIODIVERSITY UNITS

The approach to biodiversity is different: “There’s not really much of a voluntary biodiversity market,” says Fitton. “There are a few ad hoc transactions here and there, but nothing remotely at scale.”

The main challenge in creating biodiversity or nature credit markets is the difficulty to measure what biodiversity value really is, and there is a lack of an international, standardised methodology that would form the basis of the market.

“To measure carbon is very easy – it’s a tonne. It’s quite easy to show that you sequestered that, or you've reduced that in emissions,” says Fitton. “Biodiversity value… is made up of lots of different things and it’s not as clear how you standardise that.”

Recent regulation, however, has seen the emergence of mandatory biodiversity units. England now has a “biodiversity net gain” law that requires land developers – for housing or for industry – to show their projects will result in more biodiversity than there was before development, in order to get planning permission. The UK government has created a “biodiversity metric” to measure how much biodiversity there is on a site before and after the project.

If developers can’t deliver a net gain – for example through planting trees or growing plants on roofs – they are allowed to buy “biodiversity units” from suppliers, creating a whole market of “habitat bank developers” that build new nature reserves and generate biodiversity value through restoration projects. This then allows developers to secure planning permission, explains Fitton.

Elsewhere, the US pioneered the mitigation banking market as part of its “No Net Loss” policy for wetlands, which was first introduced in the 1970s: the negative impact of a development on wetlands must be offset by paying for projects that restore the wetlands elsewhere. Germany and Australia also have similar markets, Fitton says.

“The private sector, the cause of much environmental pollution and extraction, has a responsibility to contribute”
Rob Stoneman, Wildlife Trusts

Laying the foundations of a growing market

Nature-related risks, such as floods or disruptions to food supplies, could shrink the UK’s GDP by 12%, says the Wildlife Trusts’ Stoneman. Restoring nature in a way that meets the current climate and nature emergency requires “a transformation”, and public funding is unlikely to achieve this on its own, he explains.

“The private sector, the cause of much environmental pollution and extraction, has a responsibility to contribute – and a clear interest to do so, given how nature related risks will affect their future activities.”

Private finance for green activities is “a necessary foundation to future economic growth,” Stoneman adds, so the Wildlife Trusts has worked to develop the various “nature markets” – including carbon credits, biodiversity units, flood management and more.

Despite these providing emerging sources of income for environmental projects, investment in nature-based solutions remains limited. That is why grants are still needed to help establish and build this market, according to Aviva’s Blamey.

“At the moment, it’s very difficult to connect investment to nature, and that’s been an issue for many, many years, because you don't know who benefits and who, therefore, pays for it,” explains Blamey.

“Across the world, the role of nature in adapting to climate change and connecting that to finance isn’t well understood,” she adds. “There are areas where there probably haven’t been enough examples where the two things meet and are working to be able to point to it.” The projects Aviva funds through its £100m commitment will provide the evidence needed to create models that the insurance company and others across the world can replicate and build upon to actually make nature an investable commodity, she says.

For example, Aviva is working on the restoration of salt marshes across the UK with the Wildfowl and Wetland Trust that will create a new salt marsh carbon code: this will be used to assess how much carbon can be sequestrated thanks to the creation of salt marshes. That will enable those projects to issue carbon credits. The hope is that restoring salt marshes becomes an investable activity – with a clear return perspective for investors.

For Aviva, investing in nature-based solutions isn’t just the moral thing to do: it makes good business sense, explains Blamey. “Ultimately, we’re an insurance company. We face risks, in terms of flood risks, droughts, overheating, all of these, and we know that that’s increasing with climate change risks, and being able to adapt to these kinds of risks is very, very important.”

When ecosystems degrade, natural disasters like floods become more frequent and more severe, because the forests and marshes that act as giant sponges, absorbing and regulating excess water, can no longer do their job. Biodiversity degradation can also affect food systems – which directly impacts food-producing companies. From an insurance perspective, that has an impact on claims, and as a result on risk premiums, explains Blamey.

Aviva employees can take three days paid volunteering leave every year, including for environmental projects

Pine martins are critically endangered in England and Wales, as much of their woodland habitat has been lost

NATURE FINANCE
IN FIGURES

More than 10m hectares of forest – roughly the size of Iceland – are being cut each year

Nature-based solutions of high quality and integrity could prevent around 27% of current global annual emissions

$200bn is invested into nature-based solutions globally, only a third of what’s needed to reach climate and nature targets by 2030

Private sector investment in nature-harming activities adds up to $5tn each year

Private investment for biodiversity rose from $748m in 2021 to $4bn in 2023

Sources: UNRIC, UNEP, UN SDG report

“For years, the carbon credit world was dominated by those carbon cowboys and unsophisticated methodologies… that's less of a problem now”
Richard Fitton, Finance Earth

Innovative finance: making nature “bankable”

Investing in nature-based solutions is only part of the story. Blamey acknowledges this too, and says that the “biggest tool” in Aviva’s toolbox is its efforts to engage policymakers, regulators and the wider industry to make changes. Unless the wider financial system moves away from activities that harm nature, “greening finance” will not be sufficient: total finance flows (both public and private) with direct negative impacts on nature totalled nearly US$7tn globally in 2023, according to UNEP – 35 times more than the total investment in nature-based solutions.

But some are optimistic that investment in nature can be significantly increased.

Finance Earth mobilises private sector funding towards nature-based solutions, by supporting NGOs or social enterprises to develop investable projects, and then connecting those to capital providers.

Not all nature-based solutions are “bankable”, insists Finance Earth's Richard Fitton. But there’s an increasing recognition that public sector and philanthropic money is nowhere near enough to fill the funding gap, so organisations focused on nature protection are increasingly looking at developing their commercial offering to attract private investors.

Despite growing sources of income like carbon credits, investing in nature-based solutions is still perceived as risky by some investors, explains Fitton, but new models are helping to address this concern.

Blended finance is often used to reassure and attract commercial investors – with government or philanthropy providing catalytic capital, for example that can take higher risk or accept lower than market-rate returns, in order to derisk the investment and crowd in private capital.

Impact bonds – originally pioneered in the social investment sector – have also been successfully applied in the nature space. These involve a public body paying an organisation once it has achieved certain outcomes, with the upfront investment provided by an impact investor.

Fitton gives an example of DC Water, a water company in Washington, DC, which was trying to manage sewer overflow. One potential solution was to build ‘green’ infrastructure like rain gardens, permeable pavement and planter boxes to absorb and slow the flow of rain water into the sewers, but there was a risk that this new approach would not work. Thanks to an environmental impact bond, the water company positioned itself as an outcomes payer, and shifted the risk onto impact investors that were happy to cover upfront costs – in this case, Calvert Foundation and Goldman Sachs. “That’s effectively a risk transfer mechanism [from the outcomes payer] to impact investors,” says Fitton.

The risk paid off: the project reduced run-off volumes by nearly 20% over five years, helping to reduce overflow in the stormwater system and enabling DC Water to expand its green infrastructure plans.

Speaking the right language

While the main message to investors is simple – “you can now make money from nature restoration” – they don’t tend to know what nature-based solutions are, explains Fitton. It is really important to speak a language that is familiar to them, so Finance Earth often talks about “nature-based infrastructure”.

“A lot of the investments in nature are very similar to infrastructure investments,” explains Fitton: they tend to be long term, generate recurring revenue (from the sale of carbon credits or biodiversity units), and usually require a large upfront capital investment – for example buying land to restore a woodland or peatlands.

Fitton compares the market for nature-based solutions to the renewable energy market of 20 or 30 years ago, when developers started creating renewable energy projects involving long-term leases, large upfront capital expenditure to build a solar plant or wind turbines and recurring revenue from selling energy. “That sector is very mature now, and there are lots of private sector developers who are quite sophisticated, and it’s all based on well-understood contractual mechanisms. What we’re trying to do in nature is to create the same conditions.”

The momentum is starting to build, according to Fitton – at least in the most established markets like the UK. “There’s more and more private sector developers coming in because they see the commercial opportunities… [of entering] into carbon projects and into biodiversity projects, where, traditionally, NGOs have been playing alone.”

Carbon credits are also a future-proof investment, he adds: companies that follow a net-zero strategy will never be entirely carbon neutral on their own, so they will look to carbon credits to offset their residual emissions, be it in 2050 or in 2100. Planting a woodland now will yield returns for a very long time.

The end of the carbon cowboys?

With many carbon transactions being voluntary, however, the scope for unregulated greenwashing is vast. “There are bad quality project developers out there who just want to make quick money; they don’t really follow good standards, and they try and sell carbon credits, and they tend to sell them at very low prices,” says Fitton.

But Fitton thinks the risk is lower now than it used to be – partly as a result of some high-profile scandals. “For years, the carbon credit world was dominated by those carbon cowboys and unsophisticated methodologies… that’s less of a problem now than it used to be.”

There is an increasing number of initiatives to ensure integrity. “It’s actually much easier now to separate the good from the bad, and there are gold standards out there.” The UK has its own carbon standards that have been developed based on science, and backed by the government, explains Fitton. “They’re robust.”

But a critical question is also: what is a responsible offsetter? “You can have a really good quality project, but if you’re just selling them to [polluters] carrying on business as usual, then the credibility of the market is gone,” says Fitton.

“It’s effectively a licence to carry on trashing the environment. And that’s where the real greenwashing risk is.

“So you not only have to have principles around the supply side, you have to have principles around who you’re selling to, and you have to be auditing those buyers.”

Finance Earth's Richard Fitton says today's market for nature-based solutions is similar to the renewable energy market of 20-30 years ago

Finance Earth investment director, Richard Fitton

Rain gardens and planter boxes – examples of green infrastructure – can absorb rain water and prevent flooding

Rain gardens and planter boxes can absorb rain water and prevent flooding

Temperate rainforests are home to pied flycatchers, a protected species

Planting trees in the Amazon restores the rainforest while earning carbon credits

Image credits, from top: BlackBoxGuild for Freepik, OpenPlanet/Silverback Films/Netflix, UN Climate Change - Kiara Worth, Blue Ventures, Aviva/Wildlife Trusts, Finance Earth, Natalie Blackburn, Plant Your Future. Additional stock imagery by Freepik.

Words by Laura Joffre. Design by Fanny Blanquier.

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