The United Nations Environment Programme (UNEP) defines nature-based solutions (NbS) as actions to protect, sustainably manage, and restore natural and modified ecosystems that address societal challenges effectively and adaptively, simultaneously benefiting people and nature. UNEP publishes “The State of Finance for Nature”, an annual report tracking global finance flows to NbS and compares them to the finance projections needed to maximize the potential of NbS to help tackle climate, biodiversity and degradation challenges based on the Rio Convention targets. In 2023, UNEP reported that the finance flows to NbS need to almost triple from current levels of $200 billion in 2022 to reach $542 billion per year by 2030. Within 2022’s NbS finance flows, just 18% come from private finance with the majority of current funding from the public sector.
Within the three NbS categories of protection, sustainable land management, and restoration, restoration is projected to require the highest levels of investment at over $177 billion per year by 2030, due to restoration’s relatively high cost and the global extent of degradation.
Restoration encompasses a wide range of activities: agroforestry, silvopasture, reforestation, mixed species plantations, riverbank restoration, natural regeneration, assisted natural regeneration, and farmer-managed natural regeneration. The World Bank’s Scaling Up Ecosystem Restoration Finance report highlights how ecosystem restoration is not currently a distinct category within many sustainable finance taxonomies and reporting frameworks. The report argues “there is a need for financing approaches, standards, and best practices to be developed for each category of restoration activities. Projects and businesses operating in each category can then be aggregated together within a given geography to increase the size of investment, diversify risk, and reduce the cost of capital.”
The message is clear: there is an imminent need for greater private finance into NbS, specifically mechanisms to finance ecosystem restoration. However, the mechanisms to funnel private financing into restoration are unclear.
Zooming in from the global to the local perspective, in Colorado’s Yampa Valley, wetland and riparian systems in lower elevation areas are predominately owned by private landowners, often used for agriculture. How can private resources and capital be aggregated to catalyze wet meadow restoration in the Yampa Valley? The Colorado Cattlemen’s Agricultural Land Trust (CCALT) is grappling with this question through its Additive Conservation program which seeks to restore and enhance working lands while also increasing opportunities for land stewards to access ecosystem service markets. While conservation finance models have matured for larger scale NbS projects, tools for addressing smaller scale restoration through private finance, such as the restoration of wet meadows through low-tech processed based restoration are largely lagging behind an enormous demand.
NbS wet meadow restoration rock structures are relatively low-cost restoration techniques and prevent future erosion within the watershed, increasing resilience. A host of ecosystem services are enhanced: hydrologic function, vegetation and biodiversity, soil quality, and erosion control. However, these services are challenging to measure and do not fall neatly into current credit buckets like carbon/climate or biodiversity/protection. Increasingly in many carbon credit projects, biodiversity benefits can be categorized as a co-benefit. Whereas in the case of wet meadow restoration, hydrologic function and erosion control benefits would take center stage and carbon storage would be a potential co-benefit as erosion control protects and maintains the carbon that is already captured in the grasslands ecosystems. CCALT believes these additive conservation benefits, when stacked on property perpetually protected by conservation easements and incentivized by private finance, can generate additional revenue to land stewards and catalyze the restoration of working lands, watershed function, and critical habitat.
Current nature finance tools are not designed for ecosystem restoration as an additive conservation measure. Existing regulation incentivizes carbon credit offsets as companies work towards net-zero commitments as well as sustainable supply chains with impending supply chain disclosure legislation.
A credit encompassing ecosystem services derived from additive conservation would likely not be used in an offset context (i.e., wetland development market). The risk of greenwashing is reduced when offsetting is not the goal; for example, with biodiversity measurement challenges and biodiversity variability across ecosystems, it can be problematic to buy a biodiversity offset in one location to justify negative impact on biodiversity in another location. However, without an incentive to acquire development permits what will motivate private sector financing to engage with ecosystem restoration? Companies increasingly view environmental sustainability initiatives to increase brand-image to attract both customers and employees. To create stronger incentives for ecosystem services, regulation could mandate businesses to participate in PES markets. For example, in 2014, India’s Companies Act mandated for companies of a certain scale to spend 2% of their average net profit for the past three years on corporate social responsibility. Could local government mandate that 1% of profits for businesses of a medium/large size purchase Yampa Valley environmental credits to account for their free use of local ecosystem services? How can regulation set the stage to launch local PES markets?