The role of public and private sectors in mainstreaming NBS

There is unprecedented political momentum and window of opportunities for scaling up Nature-Based Solutions, with research and practice increasingly providing solid foundations for implementation, and with increasing funding opportunities. For example, the European Union (EU) Biodiversity Strategy outlines ambition to unlock at least €20 billion a year for spending on nature, the European Investment Bank’s Natural Capital Financing Facility allocated €250 billion to the EU Green Deal. However, to realize their full potential, NBS must be mainstreamed into local, national, and international governance regimes, including regulatory and financial procedures, as well as into risk management, land use, and spatial planning strategies.

One of the ambitions of the PHUSICOS (WP5 on Policy Innovation) Policy Business Forum (PBF) is to better understand the current state of NBS financing and identify the reforms necessary in the public and private sectors to accelerate NBS upscaling and green transformation. The Forum aims at proposing new ideas for governance, policy and financing structures that can lead to greater success on the acceptance and implementation of NBS. The members – NBS experts and other knowledgeable stakeholders – are involved in the forum deliberations in various ways, including interviews, surveys, web meetings/e-consultations, and workshops. The second PBF e-workshop was held on the 19th of April 2021. During the workshop, participants discussed the policy and finance reforms that are necessary to drive NBS transformative action. The results of the workshop are summarised in the Synthesis. During the discussions, three NBS financing models emerged: private, blended and public. We use these models to summarise some key messages of the workshop.

Private financing: NBS fully financed by private sector

Participants agreed that private firms are most likely to prioritize NBS investment if the direct benefits to the enterprise, itself, outweigh the investment costs. Private individuals or entrepreneurs might then fully finance NBS, most commonly with their own capital or with credit from a private or public bank such as the European Bank for Reconstruction and Development (EBRD) or the European Investment Bank (EIB).  As noted by participants, the key barriers to private financing include a lack of information on the NBS effectiveness, unfavorable regulations, lack of awareness on behalf of the enterprise, and path dependency or difficulties in shifting norms and culture from traditional grey solutions to nature-based solutions. Uncertainty in the effectiveness of the NBS is another formidable barrier for private investment in NBS infrastructure, which might be overcome by deploying innovative financial instruments to de-risk projects (e.g., risk underwriting, provision of guarantees, and technical assistance).  The idea of an NBS project preparation facility – perhaps at the local or national scale – that would assist private and public investors was brought up by the PBF discussants, together with a user-friendly benefit and co-benefit catalogue for the private sector.

Blended financing: NBS partly financed by private sector

For many NBS investments it is difficult for private investors to capture revenues that generate a sufficient return on their investment, which is limiting interest from traditional financial institutions. The participants noted a number of promising co-financing options that provide incentives to private investors, including subsidies and tax rebates for NBS investments. Alternatively, participants pointed out that NBS projects can be co-developed and co-financed as public-private partnerships (PPPs), which can include the public sector, financial institutions, and private enterprises.

Public financing: NBS fully financed by the public sector (yet involving the private sector)

According to the Naturvation project findings, almost 75% of nature-based solutions are funded from public sources (public budget/direct funding or subsidies). Indeed, most NBS investments are public goods in the sense that i) it is costly or impossible to exclude anyone from their use (non-excludability) and ii) the benefits of the NBS do not decrease if one person makes use of it (non-rivalrous). Typically public investment in NBS yields benefits to multiple sectors and beneficiaries.

A number of themes emerging from the PBF discussions span across the three financing models. These include the potential for public-private partnerships (PPP), payment for ecosystem services (PES), the importance and challenge of assessing NBS value to investors and society, and the potential for innovative financing instruments. Finally, it was recognized that NBS can play a critical role in ensuring that the post-COVID 19 recovery fund (estimated € 1.8 trillion), as well as the implementation of the EU Recovery and Resilience Facility are green, healthy, just and equitable. Participants emphasized that clear quantitative targets for NBS investments and evaluation tools to track performance of recovery packages are hence needed to genuinely foster a green transition.

News item prepared by Anna Scolobig (University of Geneva), JoAnne Linnerooth-Bayer (International Institute for Applied Systems Analysis) and Juliette Martin (International Institute for Applied Systems Analysis)

More information: The synthesis of the results of the first PBF workshop is available at the link
https://phusicos.eu/news/catalysing-policy-innovation-for-nbs/

To be involved in the future activities of the Policy Business Forum please contact: Anna.Scolobig@unige.ch