Lenders Can Put Nature-Based Opportunities on the Table Through Cross-Sector Collaboration
James MacPherson Co-Founder BRAE
Nature is a big opportunity for the lending market. Direct investments in nature natural capital and enabling technology, infrastructure, and materials require a staggering $1.2 trillion in annual private sector investment.
Lenders can play a key role in providing this1. There are challenges in making nature opportunities a reality: risk-return profiles are atypical, and there are spatial and temporal mismatches between investments and economic benefits. But these are challenges that collaborative innovation can help solve.
In a recent collaboration with World Business Council for Sustainable Development2, BRAE highlighted that markets for sustainable products and services are underdeveloped. This is symptomatic of a commercial ecosystem that encourages lenders to focus on ‘downstream’ functions like disclosure frameworks, taxonomies, and investment platforms. Meanwhile, ‘upstream functions’ like industrial strategies and investment plans tend to be developed by governments in isolation from business, finance and civil society stakeholders who are critical to success.
This gearing is particularly problematic when considering nature innovation and investment: Nature markets are less mature relative to climate and need urgent and proactive development if we are to meet climate goals and reverse the tide of catastrophic biodiversity collapse that is currently unfolding globally3.
Recent discussions with financial innovators and land stewards have revealed a number of focus areas that could unlock nature opportunities for the lending market. These are not exhaustive, but should serve as prompts for deeper engagement.
1. https://www.bcg.com/publications/2024/nature-is-the-next-opportunity-for-banking
2. https://www.wbcsd.org/wp-content/uploads/2025/03/Evidence-Base-A-New-Era-of-Public-Private-Collaboration-to-Transform-Sustainability-Markets.pdf 3. https://www.theguardian.com/environment/2024/oct/10/collapsing-wildlife-populations-points-no-return-living-planet-report-wwf-zsl-warns
Evolve engagement across the lending value chain to develop new nature-related products and services
Effective dialogue between financiers and their portfolio companies is critically important to influence change in the business community, and to help with risk management. If we take things a step further and move towards product and service innovation, nature-related commercial opportunities can be identified with wins for nature, society and business.
Some leading institutions are moving in this direction. Banco Do Brasil, supported by US$500m from the World Bank4, are now offering their clients access to nature markets, broadening access to nature-based carbon credits (such as from afforestation or regenerative agriculture) for SMEs. Other large lenders around the world are offering advisory services linked to emerging nature markets, such as Lloyds Bank in the UK who are helping businesses engage in nature-based carbon removal projects and procurement5.
Moving beyond this and driving the next wave of opportunities will require public and third sector engagement in innovation processes. Opportunities for lenders include nature positive materials, infrastructure and business models. These markets are nascent however and will require supportive policy such as subsidies for nature-positive activities and the removal of harmful subsidies. They will also require innovative financing, such as the use public money to de-risk and shift risk-return profiles for nature funding and new structures to pool investment. The private sector alone cannot provide these things, and government can’t act without clear demand signals and engagement from lenders.
Fertilise new place-based financing structures through cross-sector collaboration
Innovative mechanisms for transacting environmental services at landscape levels such as Landscape Enterprise Networks have been developing at pace and provide potential entry points for lenders into nature markets. These collaborative initiatives facilitate markets for ecosystem services like carbon sequestration, flood management and soil improvement at landscape levels, linking service providers and beneficiaries. Promising demonstrators are being delivered worldwide, from the City of Cape Town to the Fens of East Anglia in the UK.
But progress is slow due to weak demand from businesses. Many financial institutions are now keen to deploy capital to nature-related landscape initiatives and there are myriad land management experts and innovators ready to support implementation on the ground. But incentives for business to invest in nature at scale are underdeveloped, so the market is sluggish despite the abundant capabilities of those working in the field.
This issue stems in part from a lack of strategic alignment between policymakers and the private sector. By focusing on strategic alignment across the public, private and third sectors, starting with developing a slate of shared outcomes, lenders can catalyse demand and improve project bankability. National Biodiversity Strategies and Action Plans (NBSAPs), now being updated globally in line with the Kunming-Montreal Global Biodiversity Framework, offer a timely entry point for the loan market to align public and private agendas.
There is an opportunity for nature to capitalise on existing momentum for climate transition planning. Jurisdictions globally are turning towards sectoral decarbonisation roadmaps and the UK’s Transition Finance Council is looking at developing an internationally scalable framework for this. Informed by global and national pathways, the roadmaps will aim to capture key milestones and needs in respect of technology, policy and investment.
Given that nature is essential in meeting climate goals, integrating nature into climate transition planning should provide quick wins and routes to nature market development. These broader scope sectoral plans could be co-created using public-private engagement mechanisms that foster alignment around shared goals and create a constructive feedback loop between policy, finance and real economy delivery. We have the foundational thinking required to do this now6, but need to move into active co-design and delivery.
Adopt a progressive stance on (prudential) policy advocacy for nature
In the current political and economic context, flows of catalytic capital from both public and philanthropic sources are strained. Scaling nature finance will require creative approaches to risk-sharing and market incentivisation. Macroprudential frameworks, while beginning to receive attention7, are often overlooked by the business and nature community leading to missed opportunities.
It now seems inevitable that supply shocks linked to nature degradation, likely compounded by contemporary forces like protectionism and geopolitical conflict, will cause future inflationary pressures and trigger monetary responses. It is essential that prudential policies evolve in a way that supports long-term economic resilience, not just short-term stability. The lending market can advocate for alignment and participate in co-designing enabling regulation.
This is an emerging arena, and innovative (sometimes radical) proposals abound. For example, it has recently been proposed that mechanisms like the European Central Bank’s Targeted Longer-Term Refinancing Operations (TLTROs), currently channelling over €1.3 trillion to banks, could be repurposed to support green and nature-positive lending in line with EU environmental policy8. This, says Positive Money Europe, would reward innovation while maintaining a level playing field.
Economists will of course have strong opinions about such proposals. I am a business and nature expert and natural scientist by training, so I will leave it to others to weigh in on the technicalities of innovation in macroprudential regulation. But I do know for sure that we need to start putting new ideas on the table (fast) and working through them as a community if we are to conserve and restore the fundamental (natural) underpinnings of economic activity in time.
These few examples indicate the latent potential for innovation that can be unlocked when we bring the right people together. We need more spaces that bring together technical specialists with creative problem solvers and innovators across sectors. These ways of working remain fringe activities at present, but our research with WBCSD provided clear evidence that mainstream actors across sectors globally can see the need for them. Loan market participants have served a critical role in the evolution of green financing instruments such as sustainability-linked loans in the past. There is a clear role for them again here.
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