A new global review has found that nature finance and biodiversity markets alone are not a silver bullet for closing conservation funding gaps, with governments and philanthropy set to remain essential for protecting and restoring nature.
Published today in Nature Reviews Biodiversity, the review examines the rapidly expanding field of biodiversity finance, including mechanisms designed to deliver returns directly linked with biodiversity conservation or restoration outcomes.
The study, led by Oxford University with collaborators from the United Kingdom, Australia and the Netherlands, highlights the commercial, ecological, and social risks that must be carefully managed to improve nature finance schemes.
Lead author Harrison Carter from the University of Oxford said the global economy is deeply dependent on nature, but current economic systems are also driving biodiversity decline.
“From food production to water security, economies depend on healthy ecosystems, but public and private global finance still overwhelmingly flows towards activities that erode them,” Mr Carter said.
“There is now growing international pressure to both reduce environmentally harmful investments and to find new ways to financially incentivise nature recovery.”
The review examined biodiversity credits, forest carbon credits, conservation bonds, loans and other private investment mechanisms intended to support conservation and restoration.
“Nature markets and other green finance mechanisms are often presented as a solution to the global biodiversity funding gap, but despite entrepreneurial ideas and occasional examples of success, the commercial reality is that most investments remain small, uncertain and dependent on government policy,” Mr Carter said.
“We highlight the commercial, ecological and social risks that underpin the reality of nature finance, alongside the ways these risks are deeply interconnected.
“Firstly, there are the commercial risks that investments fail to generate meaningful or stable returns, or that these are affected by wider market conditions. But we also highlight how financial structuring and grounded project design could help de-risk investments in nature.
“Secondly, we unpack the ecological integrity challenges within nature finance, where projects can overestimate or fail to deliver their promised biodiversity outcomes. We also highlight project-level social risks, including issues around equity in project design and serious governance failures.
“And thirdly, taking a commercially pragmatic perspective, we show how ecological and social failures at the project level can directly undermine commercial viability. Overcoming these issues requires deeper engagement between conservation science and finance in project design.”
Co-author Dr Benjamin Thompson from Monash University said biodiversity markets and finance are not a silver bullet to save nature and need strong safeguards if they are to genuinely benefit biodiversity.
“Strong scientific oversight, transparent measurement, and meaningful community involvement are essential if profit-seeking biodiversity finance mechanisms are to demonstrate reliable financial and environmental performance.
“This will also require far greater disclosure from those that implement them.”
Australian environmental economist and Biodiversity Councillor Professor Patrick O’Connor from Adelaide University, who was not part of the study, said, “Nature-focused financial products are developing rapidly, particularly in sustainable agriculture and forestry, where consumers will pay a premium for products that protect biodiversity.
“For these to expand and succeed in Australia, the government needs to establish strong standards and robust measurement frameworks, so that biodiversity gains can be counted and verified. This verification is essential to underpin investor confidence. Australians can also help drive demand through their superannuation choices.
“But nature markets will never replace the need for government investment, because many of the benefits of healthy ecosystems – including cleaner water, improved human health, tourism and more resilient ecosystems – are available to everyone and so are difficult to develop private, tradeable rights around.”