What are nature-based solutions?

What are “nature-based solutions”? What problems are they solving?

Allison Mansbach and Will Parsons: Nature-based solutions (NbS) cover a range of actions and interventions that use ecosystems and natural processes to solve environmental and social problems.

The beauty of nature-based solutions is that that they deliver many different benefits at the same time. The focus has often been on biodiversity loss and climate change, but NbS can also address many related challenges, such as water pollution, air pollution, soil depletion, health and wellbeing issues and social inequalities. For example:

• Wetlands can sequester carbon and reduce the impacts of flooding, while also filtering up to 90% of nitrogen pollution from agriculture and sewage, 60% of heavy metals from road pollution, and 90% of sediment run-off
• Using nitrogen-fixing legumes such as peas and broad beans in crop rotations can reduce dependencies on chemical fertilisers, and therefore nutrient run-off – legumes can fix up to 400kg of nitrogen per hectare per year

These multi-faceted benefits make NbS a powerful tool for tackling complex, interconnected issues. Although NbS can theoretically include any action involving nature, it is essential that solutions are designed together with local communities to ensure they deliver impactful benefits and meet community needs.

When did this term first appear, and why has it become more widespread?

AM & WP: Many communities around the world have long recognised that humans fundamentally depend on and are part of nature, and the intrinsic value of nature is a fundamental part of many indigenous and traditional knowledge systems. However, the term “nature-based solutions” began to appear and be used more broadly over the last decade, with the recognition that “grey” or engineered infrastructure does not always provide the most effective solutions and that nature can provide a range of readily available solutions instead.

Organisations like the World Bank and the International Union for Conservation of Nature began using the term around the late 2000s to highlight the importance of preserving and restoring natural systems to combat environmental decline and climate change. The term has since gained momentum as it aligns conservation efforts with broader societal and economic goals.

Analysis by the Green Finance Institute suggests that nature degradation could lead to a 12% loss to the UK’s GDP

The rise of NbS as a mainstream concept reflects a growing awareness among governments, businesses and wider society about the interconnected relationship between nature, the economy and livelihoods, and the fundamental risks that nature loss poses to economic health. Analysis by the Green Finance Institute suggests that nature degradation could lead to an estimated 12% loss to the UK’s GDP, greater than the impact of the Covid-19 pandemic.

There is also growing clarity around how businesses can address their environmental impacts. Emerging global frameworks such as the Taskforce for Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN) aim to guide businesses and policymakers in integrating nature into their decision-making. Regulatory pressure is also increasing, with greater legal requirements for businesses to report on their environmental impacts and exposure to related risks – examples include the EU’s Corporate Sustainability Reporting Directive and the UK’s Sustainability Disclosure Requirements.

Who is financing nature-based solutions, and why?

AM & WP: Nature-based solutions are being financed by a range of organisations, including institutional investors, insurance companies, asset managers, philanthropic foundations, local authorities and corporations. Aviva, for example, has made substantial commitments as part of its sustainability and net zero strategy – it has pledged £100m for NbS projects in the UK and Ireland by 2030. In 2023, Aviva donated £38m to support the restoration of Britain’s lost rainforests, and invested a further £10m into woodland creation and peatland restoration projects for carbon sequestration over five years. Similarly, Gresham House recently launched a $380m biodiversity fund dedicated to the creation of “habitat banks” in light of Biodiversity Net Gain  requirements. (Biodiversity Net Gain, or BNG, requires developers in England to counteract and ameliorate the impacts that projects such as housing developments have on biodiversity, either by improving the habitat on-site or funding habitat creation off-site. Habitat banks are areas of land where habitat restoration is carried out to meet developers' off-site BNG requirements. To help deliver the requisite minimum 10% uplift in biodiversity, developers can choose to buy BNG ‘units’ from a habitat bank.)

Other asset managers like Abrdn are incorporating nature-positive investments into their portfolios, reflecting the growing demand for sustainable finance. Oxygen Conservation, Nattergal, and Highlands Rewilding are notable examples of private companies investing in large-scale land restoration and conservation projects in the UK. Additionally, private estates such as Knepp, in southern England, are leading rewilding efforts that not only restore ecosystems, but also generate revenue through eco-tourism and sustainable land management.

In addition, large multinationals like Mars, Cargill and Walmart are funding nature-based solutions through philanthropic partnerships, such as the Fisheries Improvement Fund (developed by WWF and Finance Earth).

Local authorities, such as Plymouth City Council, and water companies are also increasingly investing in nature-based solutions to manage flood risks, improve water quality, enhance biodiversity and deliver community benefits.

How is such financing typically structured?

AM & WP: Financing for NbS varies depending on the type of project and organisation providing the finance. Ultimately there is no “one size fits all” and the type of finance will need to be structured based on how suitable it is for the specific project. Since many nature markets are nascent, financing for NbS is often “blended”, combining philanthropic or public funding with private investment.

• Impact 101: What is blended finance?

For instance, Highlands Rewilding has used a crowdfunding campaign to engage local Scottish communities and investors in their rewilding efforts. Organisations like Nattergal attract investments from high-net-worth individuals who are interested in supporting sustainable land management and biodiversity projects. Aviva’s investments have been made from the balance sheet, on the basis that they will develop nature markets and help Aviva achieve its net zero target.

Projects may also be financed by the sale of credits or ‘units’.  In 2023, Finance Earth worked with Surrey Wildlife Trust to secure a £1m commitment from Shepperton Studios, a Surrey-based film studio, to purchase biodiversity units in order to meet its Biodiversity Net Gain obligations. This enabled Surrey Wildlife Trust to carry out extensive grassland restoration.

There are also examples of debt finance enabling NbS. For example, we worked with the RSPB (the Royal Society for the Protection of Birds) to secure a loan for the creation of habitat in south Devon to support the cirl bunting, a farmland bird threatened by agricultural intensification. This loan is being repaid through contributions from the local council to deliver compensatory habitat for housing development.

What are the particular challenges of financing nature-based solutions?

AM & WP: Financing nature-based solutions faces several challenges, primarily due to uncertain revenue streams and evolving business models.  While there are a few established codes such as the Woodland Carbon Code or Peatland Code in the UK, there remains a general lack of agreed standards and methodologies for other potential markets and ecosystem services. This creates uncertainty for potential buyers around what benefits they are purchasing and what they can claim. Several codes are under development, like the Saltmarsh Code – some of the funding commitments from Aviva will support the piloting of this code.

There is also a limited pipeline of investment-ready projects. Despite growing interest from the private sector, there’s often a mismatch between available capital and projects that can deliver measurable outcomes and returns. Many NbS initiatives are not yet at a stage where they can adequately quantify their impacts or potential revenues, which is essential for attracting investment. This gap is exacerbated by the immaturity of the market and a shortage of skills, knowledge and expertise necessary for project development. (Finance Earth’s UK Nature Accelerator aims to address these issues by providing technical assistance and guidance for project developers.) Another positive step has been the UK government’s Natural Environment Investment Readiness Fund (NEIRF) grant programme, which has been critical in supporting UK nature projects towards securing investment.

There is a limited pipeline of investment-ready projects. Many NbS initiatives can not yet adequately quantify their impacts or potential revenues

Policy uncertainty also poses a challenge. Stable regulatory frameworks and supportive environmental policies are essential for creating robust nature markets at scale. Some helpful initiatives have included the UK government’s Nature Markets Framework and BSI’s Nature Investment Standards Programme. Nonetheless, inconsistency in policy has stalled progress in some areas. This has included mixed messages about nutrient neutrality rules in the UK, providing uncertainty around emerging markets and initiatives for trading nutrient credits.

Concerns about greenwashing and the integrity of nature projects further complicate the landscape. Government initiatives like the UK's Nature Markets Framework can help address these concerns. Recognising a gap in current policy and guidance, Finance Earth worked with leading environmental NGOs to publish the Nature Markets Principles, aimed at ensuring accountability and mitigating risks associated with over-claiming by businesses.

Where are the biggest opportunities in this field right now?

AM & WP: The biggest opportunities currently stem from the surge in corporate interest to address operational impacts and dependencies on natural resources. Companies across various sectors – particularly in food, agriculture, forestry and fisheries – are increasingly recognising the urgency of implementing sustainable practices within their supply chains. This shift is driven by a growing awareness of the massive economic and reputational risks posed by environmental degradation, which can directly affect their operations. As a result, businesses are seeking to support initiatives that enhance the sustainability of their supply chains, leading to increased investment in nature-based solutions projects that enhance biodiversity, improve soil health and protect terrestrial and marine ecosystems. Water companies and other industries heavily reliant on natural resources are also exploring partnerships and funding opportunities to mitigate their environmental impacts, creating fertile ground for developing new financing mechanisms that align corporate goals with environmental outcomes.

Established nature markets in the UK also present significant opportunities for nature-based solutions finance. The two government-backed carbon codes (the Woodland Carbon Code and the Peatland Code) are catalysing demand for investment in nature restoration projects. These frameworks offer robust, science-based market infrastructure for monitoring, reporting and verifying CO₂ emissions, ensuring that investments are both effective and accountable. The track record of transactions within these markets further enhances investor confidence, making it easier for businesses to engage in nature-based solutions.

While there is growing interest in investing in nature-based solutions, strong regulatory frameworks will be required to drive and sustain long-term, meaningful action at scale.

• Allison Mansbach coordinates communications, marketing and operations at Finance Earth; Will Parsons is an associate at Finance Earth. Finance Earth offers financial advisory and fund management services to enable investment into conservation, climate and communities.