European policy needs to remove support for the further erosion of nature through harmful subsidies and create more incentives for nature-based solutions if it is to build societies that are resilient to climate change, according to a new report from the European Investment Bank (EIB).
Investing in nature-based solutions. State-of-play and way forward for public and private financial measures in Europe takes stock of the current use of those solutions in the EU, lists challenges and stimuli for their increased uptake and presents the key lessons learnt from the Natural Capital Finance Facility, a joint EIB and European Commission financial instrument to promote biodiversity and climate action.
The study finds that market mechanisms required for scaling nature-based solutions with return-seeking private capital are not currently available in the EU.
‘The majority of nature’s benefits have no financial market value today. However, an enormous part of our economies is dependent on them. If we want nature-based solutions to become mainstream, we must increase transparency and measurability, and provide the enabling conditions for both the private and public sector to develop them. Knowledge and incentives are key for investment decisions.’
AMBROISE FAYOLLE
EIB vice-president in charge of climate action and the environment
Nature-based solutions are typically referred to as systems and processes that are inspired by nature or natural features and that help to achieve societal goals – like the mitigation of climate change and the adaptation to its consequences, good human health, food and water security or disaster prevention.
They add resource-efficient and impactful alternatives to traditional, engineered solutions while at the same time protecting people, wildlife and plants.
Examples include the reforestation or terracing of hillslopes to prevent floods and landslides to the renaturation of rivers, the installation of green roofs or climate-smart farming.
According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, nature-based solutions can provide more than a third of the climate change mitigation needed until 2030 to achieve the targets of the Paris Agreement.
In 2021, a study of the World Economic Forum found that investing just 1% of global GDP in nature-based solutions would do a great deal to tackle climate change and the biodiversity crisis.
Drawing on a database of more than 1 300 projects from across the EU, the report concludes that nature-based solutions rely almost entirely on public funding, with a mere 3% receiving substantial financing from the private sector.
Most projects are small in terms of transformed area as well as in investment costs: four out of five projects need less than €10 million, almost half even less than €1 million. Furthermore, the current rate at which nature-based solutions are being implemented is slow.
The report sees the highest investment potential for green solutions in the water management, urban, forestry and agricultural sectors. There are strong synergies with climate adaptation and mitigation.
The small individual investment size, the long timeframes for financial returns and risk profiles that differ from non nature-based investment options contribute to the modest uptake of nature-based solutions in Europe.
The lack of information on the benefits of those solutions and the lack of technical expertise to implement rather complex projects form another investment barrier.
In addition, there can be regulatory hurdles to creating the necessary forms of cooperation and co-financing.
The report presents a set of policy and financial recommendations that would help to scale nature-based solutions in the European Union.
It calls on local, national and European administrations to introduce regulation and incentives for private-sector involvement and innovative action by the public sector.
These could take the form of rewards for delivering nature-based solutions, but they would also have to come as rules stipulating mandatory action.
For instance, there could be legal requirements to consider nature-based, green solutions before resorting to human-engineered or grey infrastructure, which is often the default option.
The reform of the common agricultural policy (CAP) is a prime opportunity to fund nature-based solutions more directly and reduce practices that negatively impact ecosystems.
On the financial side the report points to the need to cater for the entire range of project maturities, stages, sizes and risks, with a focus on early-stage capacity building and financing.
This includes better availability of seed funding, loans on favourable terms, investment grants, subsidies and the development of de-risking mechanisms.
Financing techniques used in the innovation, infrastructure and impact financing ecosystems can be adapted for NBS.
Ideally, projects would be able to access a range of finance products specific to sectors and rooted in local conditions.
Projects should also benefit from multiple revenues derived from the co-benefits of nature-based solutions.
The public sector will have to play a key role in supporting early-stage investments. It will also be vital in enabling and incentivising institutional long-term investors like insurance companies to invest in nature-based solutions.
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