- Biodiversity financing plans should be about redirecting finance, not just adding new instruments while leaving harmful finance in place.
- Financial instruments such as green bonds and blended finance only work when nature restoration is viable in the real economy. That depends on public policy that supports change in sectors such as agriculture and construction, like through subsidy reform.
- A credible plan limits and prices negative impacts and ensures public investments in nature projects that cannot be served by private finance.
The Kunming-Montreal Global Biodiversity Framework (KM-GBF), agreed in 2022, set global targets to halt and reverse biodiversity loss. Each country that is party to the Convention on Biological Diversity must translate the targets into a National Biodiversity Strategy and Action Plan (NBSAP), the roadmap that sets out what a country will do to conserve and restore nature.
Countries are also encouraged to develop a National Biodiversity Financing Plan (NBFP), which is an accompanying strategy to finance the action plan. NBFPs map how resources, public and private, can be mobilised to deliver nature restoration. More than ninety countries, including the Netherlands, Finland, Belgium and Luxembourg are developing such plans.
As a bank and investor, we work to deploy private capital for Nature-based Solutions. From that position, we have insights on how public and private organisations can work together to fund nature and biodiversity. From that starting point, we offer seven focus points for effective and credible NBFPs.
1. Make subsidy reform the priority to shift private finance in the right direction
As long as the government pays out millions in subsidies that harm nature, directly or indirectly, through agricultural support or tax advantages for fossil energy, it undermines its own biodiversity goals. Money that now contributes to nature's decline should flow to activities that restore or protect it.
We need a full inventory of environmentally harmful subsidies, a timeline for reform, and a just transition policy for the sectors hit hardest. In a laudable development, countries such as the Netherlands and the United Kingdom have started mapping the harmful effects of their subsidies. This is good preparation for the next step: reform. Some subsidies can be redesigned to reward biodiversity recovery, for instance by expanding schemes for agricultural nature and landscape management for farmers. Other subsidies like the tax exemption for kerosene can be phased out.
Subsidy reform matters not only because it changes how public money is spent. It also affects what private finance sees as viable. Subsidies shape expected revenues of businesses and therefore influence lending and investment decisions. For example, whether a farmer uses a loan for a new milking machine or for equipment to process bio-based crops may partly depend on a stable subsidy income stream.
2. Prioritise real-economy reform over new financial instruments
The temptation in biodiversity finance is to reach for new instruments such as green bonds and nature credits. Those instruments are enablers, not drivers. A green bond only finances biodiversity recovery when the underlying projects and incentives hold up. As long as transitions to organic farming stall and nature-inclusive construction is not the norm, banks will struggle to systematically finance these transitions, even with innovative instruments. The priority should therefore be reform in the real economy, including implementation of the EU Nature Restoration Lawand clearer norms for nature-inclusive farming and building.
3. Match the instrument to the type of funding problem
Before choosing a financing solution, it is important to understand the type of funding problem involved. Attracting private finance only makes sense where a revenue model is possible, for example based on biobased materials, food or tourism. In those cases, instruments such as green bonds or blended finance can be deployed to good effect, because a private party supplies capital expecting repayment plus a return.
Where returns are too low or uncertain, public investment institutions can play a role. National investment institutions and public banks can support long-term investment in nature and nature-based solutions, especially where market-rate returns are largely absent. For that to happen, their mandates need to allow for such investment.
At the same time, it is essential to acknowledge that not every type of nature or ecosystem service that is valuable has a business model that allows for the attraction of private finance. For example, coastal dunes deliver ecosystem services such as flood protection and water filtration, that are hard to sell on markets because they benefit communities or society, rather than an individual buyer. For those cases, regulations are the obvious route: like bans or pricing mechanisms, such as a tax on pollution or a payment for ecosystem services. This is another way to ensure that polluters pay the bill.
4. Steer capital through fiscal measures such as a green projects scheme
Fiscal policy can be a powerful way to guide private capital towards nature-related investment. In the Netherlands, one example was Regeling groenprojecten, a tax incentive for green investments The scheme showed that households invest more in green projects like renewable energy or organic farming, if the threshold is low and the tax advantage is clear and stable.
Scrapping the scheme removed a proven and cost-effective mobilisation mechanism. The Draghi report stressed the importance of activating more of the EUR 1.39 trillion in European private savings for productive investment, and the scheme helped with exactly that: every public euro drew in around 32 euros of private investment adding up to about EUR 1.6 billion a year, a leverage few policy instruments can match. The result was EUR 263 to 300 million in avoided environmental costs for EUR 30 million of public spending, for instance through delivered roughly 575,000 tonnes of CO2 in emission reductions per year.
Fiscal measures on green investments of this kind can encourage lending to companies working on eco-tourism or forms of nature-inclusive agriculture, such as paludiculture (wet cultivation) and agroforestry, also in other countries. Policy stability is essential here. Investors need predictability, which means that governments need to show restraint in changing the terms midway.
5. Regulate the financial sector's negative impact; disclosure alone is not enough
Sustainable finance policy in Europe has relied heavily on transparency. The idea is that reporting requirements help market participants make better-informed choices, and that better information will lead markets to better social and environmental outcomes.
Transparency matters, but more is needed to redirect financial flows. Banks and asset managers will keep financing deforestation, industrial agriculture and fossil expansion for as long as no limits are placed on what may be financed.
Regulating the financial sector's negative impact deserves a clear place in any credible NBFP. Options include maximum exposure limits for financial institutions to activities carrying high biodiversity risks, a binding requirement to adopt deforestation-free policies and exploring binding credit guidance to phase out fossil fuel investments.
6. If a nature credits system is built, make it mandatory
Research shows that biodiversity offset markets often fall short: unclear standards, limited demand, low additionality, greenwashing risks and insufficient oversight and enforcement. Nature credits can only contribute effectively when they are part of a mandatory framework that creates demand with public oversight. The English Biodiversity Net Gain system offers a reference model. It creates structural demand for certified biodiversity units by requiring developers to demonstrate a measurable improvement in biodiversity as a condition for planning permission.
Without stable and predictable demand, banks will barely finance projects which derive cash flows from nature credits. One could adopt a net biodiversity gain (Netto Natuurwinst) standard as a requirement for spatial development, with a robust measurement framework and very strong public oversight. The design of such a system should draw from academic recommendations that hold nature markets to a scientifically credible bar. Still, governments should weigh whether other approaches such as taxes or subsidies may support private finance for nature restoration at lower societal costs than building an offset system from the ground up.
7. Ensure the benefits of blended finance flow back to society
Blended finance combines private and public money to fund projects that would otherwise be too risky. Some blended structures make nature-based solutions more financeable. For example, using public InvestEU sustainability guarantees, Triodos Bank can finance pioneering SME clients who would otherwise fail to meet credit conditions.
However, blended finance is not a silver bullet and carries a structural distribution problem. Too often, public money takes the first loss and lowers the risk for private investors, yet there is a risk that the returns flow only to the private party. Where public investment raises the value of land or ecosystem services, a part of those gains should return to society and the public sector. NBFPs should include a framework for the design of blended finance instruments that prescribe who receives which returns and under what conditions profits flow back to the public.
The opportunity
Every country writing a national biodiversity finance plan faces similar choices, with the clear opportunity to redesign incentives so that public and private finance each play the right role for biodiversity restoration An NBFP fails when it adds financial instruments while leaving the incentives that drive biodiversity loss untouched. It succeeds when it redirects finance already flowing through the system: this requires decisions about subsidy reform, regulation, fiscal policy and a good role division between public and private financiers.