Public-private collaboration will support the growth of nature markets

Dec 9, 2022

By: Emma Howard Boyd

Chair, Green Finance Institute


The UK  is one of the world’s most nature-depleted countries, posing a significant risk to our economy and society. There is a significant gap to addressing this risk – demonstrated by a central estimate of a £56 billion funding gap in the UK over the next decade to deliver our key nature goals. This means we need to deliver around £5.6 billion a year until 2030. To fill this gap, we cannot rely on public interventions alone – private finance must play a critical role, and we certainly cannot allow the natural environment to carry the risk of not securing this finance any longer.

However, it’s not just the natural environment that will suffer if this finance gap isn’t addressed.

In May, the Bank of England published its first climate stress tests, which found that UK banks and insurers will end up taking on nearly £340 billion worth of climate-related losses by 2050, unless action is taken to curb rising temperatures and sea levels. But, around the world, just 5 percent of climate finance goes towards resilience. Almost no resilience funding comes from the private sector, demonstrating that business and financial institutions are failing to respond to the risks they are facing.

Net-zero and resilience are inextricably linked, and to reach net-zero and bolster our resilience to the effects of climate change, we require investment into nature. Healthy soils, natural flood management, and urban greening are just a few nature-based solutions that can make our economy and society more resilient. However, the private sector will never be able to finance this transformation at the scale that is needed without a supportive policy environment.

Regulation is part of the answer to incentivising the movement of private capital into nature-based solutions for adaptation, as well as mitigation. Critically, environmental regulation must work in lockstep with financial and economic regulation to ensure incentives and penalties are driving the change that we need to see across the economy.

The Government is soon expected to publish an update to the Green Finance Strategy. This strategy is fundamentally an opportunity to catalyse the radical collaboration between public and private sector that is urgently needed to finance nature. There are four key elements that this strategy can feature to incentivise and scale private investment in to nature:


1) To understand the impacts of nature, we need a review of the economics of resilience, including where investment into nature can provide cost-effective resilience, considering:
    • the cost and benefits of resilient investment both nationally and by economic sector;
    • what trajectory that investment should follow; and
    • the appropriate balance between public and private investment.

Robust, consistent, and trusted government data will be a critical lever to establish an ambition for nature investment. Establishing the value of nature beyond costs and savings, but also in terms of benefits to the economy and wider society can help construct a holistic view of the importance and necessity of nature.


2) Fundamentally, the public sector has a foundational role in setting direction by sending signals to the market. The UK being the first G20 country to require the largest companies to disclose climate-related risks and opportunities, in line with the Taskforce on Climate-related Financial Disclosures recommendations, is a good example of this. Enshrining these requirements into law increases the quantity and quality of climate-related reporting in the UK, giving investors and businesses the right information to better understand their climate impacts and enable the movement of money into climate-positive investments.

Similarly, once the framework is complete, if businesses were required to disclose nature-related risks and opportunities, in line with the Taskforce for Nature-Related Financial Disclosures recommendations, further investment could be mobilized towards nature-positive investments. This would contribute to making the UK financial system the greenest in the world and send an important signal about priorities to the market.


3) Use public finance to de-risk and crowd in private investment. Government funding that helps to catalyse private investment is crucial to fill the national and global funding gap for nature. Investing public capital in blended finance transactions de-risks a venture, making it more attractive to private investors.

Recent acknowledgement from the UK government of the importance of blended finance through the Big Nature Impact Fund is the exact kind of public-private collaboration for nature that can unlock significant private investment into nature projects to restore nature, support economic growth, and advance the UK’s net zero ambitions. The initial public sector seed finance will demonstrate investment opportunities which are key to developing and scaling high integrity nature markets in the City of London and financial centres around the world.


4) The private sector will be incentivised to alter their business models through specific high-impact incentives to encourage private investment into nature. For example, through the Natural Environment Investment Readiness Fund, DEFRA, the Environment Agency, Natural England, and the GFI have selected projects to provide grants of up to £100,000. These will help develop projects to the stage where they can demonstrate a return on investment. One of the pilot schemes is the Wyre Catchment Natural Flood Management project, which seeks to reduce flood risk to downstream communities. It uses a new financial model which will see the upfront investment repaid through contracts with organisations that benefit from improvements, including water and re-insurance companies.
It is also the first environmental project eligible for Social Investment Tax Relief, which was brought in by the government in 2014, to encourage investment in social enterprises. The use of Social Investment Tax Relief was successful in helping to incentivise private investment in the Wyre project. A similar Environmental Investment Tax Relief and other high-impact incentives to crowd in private finance to nature-based solutions should be explored in the Green Finance Strategy 2.0. Once we have established the financial models that work, we can scale them up at pace.

There is an immense opportunity to reduce nature-related risk for business and generate financial, social, and environmental benefits through partnership and radical collaboration between the public-and private sector Through seed finance, generating data, and introducing the right incentives, the public sector can send signals to the private sector about the direction of travel. This will allow us to channel our joint efforts towards supporting the growth of nature markets, which we at the GFI and others look forward to doing.