Are Investors Going Wild? Exploring Emerging Opportunities in Nature Finance (newsletter feature)
The unprecedented rate of global nature loss has investors paying significant attention to the potential risks - from collapsing food systems to intensified natural disasters and the emergence of novel diseases. Uptake by institutional investors in nature restoration or protection opportunities, however, remains nascent and relatively modest. There are various reasons: many nature-positive opportunities are still at an early stage, pipelines remain thin and data, regulations and governance systems are still developing.
A new investor briefing, produced by Chronos last month for the UN-supported Principles for Responsible Investment (PRI), took a deep dive into this issue.
The briefing - Nature-Related Investment Opportunities- finds that while private sector finance for nature remains relatively moderate it is growing at pace, rising elevenfold between 2020 and 2024.
It highlights a range of new ways for both public and private equity markets to invest in instruments that deliver both strong financial returns and meaningful environmental impact.
These include farmland and forestry assets, nature-linked bonds and funds that take advantage of emerging regulations and policies. Examples include: (a) the BNP Paribas Future Forest Fund, a timber fund launched in November 2024 that now manages over 8,500 hectares of sustainably managed timberland and forests across the US, and (b) Tikehau Capital, a private equity firm with an investment strategy to scale regenerative agriculture practices, that predicts a 20% gross IRR (internal rate of return) over 5‑7 years.
There are multiple drivers of growth
The briefing highlights several factors driving this growth. These include:
Rising investor recognition of the material risks of nature loss and the business case for action.
Expansion and innovation in nature-related financial instruments (these are explored further below).
The significant progress that voluntary standards such as TNFD (Taskforce on Nature-related Financial Disclosures) have made in providing consistent frameworks for measurement and accountability. And
The adoption of new regulations, market standards and national guidance across the world - much of which has been catalysed by the signing of the Global Biodiversity Framework (GBF). Adopted by 196 countries in 2022 to halt and reverse nature loss by 2030, we are now seeing governments develop GBF-aligned policies, which has significantly enhanced investor interest in nature-related financial instruments. Examples include the EU Nature Restoration Law and the UK’s Biodiversity Net Gain (BNG) rules.
In the UK, for example, the BNG has created regulated biodiversity credit markets that funds like Nattergal, a $52m fund dedicated to rewilding, are able to benefit from. Nattergal is recovering nature in areas such as Boothby Wetland in Lincolnshire a 617-hectare former arable farm that is being rewilded using beavers to ‘re-wiggle’ rivers and following principles established by the Knepp estate in Sussex.
Spotlighting nature-positive investing trends
With nature finance experiencing a surge in investor action and investment, the report highlights examples emerging products and innovations. They include
Blended finance approaches: that combine public or philanthropic capital with private investment, helping to de-risk early-stage or higher-risk projects. One illustration is Mirova’s Sustainable Land Use fund, which focuses on planted forests, agroforestry and regenerative agriculture and has attracted a diverse array of investors including Allianz France, DEFRA and the Coca-Cola Foundation.
Outcome-based bonds: that link investor returns with environmental outcomes and, typically, provide investors with a success payment funded by concessional or donor capital if agreed targets are met. An example is the World Bank’s $225m Amazon Reforestation-Linked Outcome Bond where investors’ financial return is linked to the amount of carbon removed from the atmosphere. In this case it is specifically linked to the reforestation activities of Mombak, a Brazilian based company, which uses these funds to acquire land and/or partner with landowners to reforest with native tree species.
Debt-for-nature swaps: which provide sovereign debt relief in return for conservation commitments. This is a reasonably well-established market, illustrated by Ecuador’s Galápagos debt‑for‑nature swap. In 2023, Ecuador, supported by L&G, converted $1.63bn of sovereign debt into a $656m marine‑linked bond, generating $323m in conservation funding over 18.5 years for the Galápagos Marine Reserve and other areas.
However important barriers remain
Despite the growing interest, investors’ ability to scale nature-positive investments is limited by market maturity. Many opportunities are still early stage, pipelines remain thin and data, regulations and governance systems are still developing.
Our research suggests that many of the barriers to further investment (see the image below) are transitional and reflect the relative novelty of nature-positive investments, and will be addressed through standardisation, policy alignment, novel mechanisms for blended finance, and robust monitoring.
No longer a niche
We’ve experienced this growing market first hand at Chronos. In recent times we’ve developed and piloted a knowledge tool, aligned with the TNFD LEAP assessment, for a multilateral development bank to enable national development banks to better take biodiversity opportunities into account; and worked with the World Wildlife Fund on first-of-its kind guidance to help companies integrate nature into climate transition plans.
Whilst many of the world’s largest investment institutions are exploring how to effectively access nature-related opportunities however, we observe that the market is yet to mature, is evolving and is uncertain.
As more countries adopt comprehensive nature-related strategies and policies, the market will continue to develop. In the meantime, investors should be building their capacity and expertise on nature so that they are well positioned to identify opportunities and ensure that nature related risks and opportunities are effectively incorporated into their investment practices and processes.
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Read more about our nature-related services, or get in touch with our Nature & Biodiversity team via: gemma@chronossustainability.com
