Cross-cutting: Financing and economic incentives for nature-based solutions
Financing NBS requires a strategic and multi-phased approach to ensure long-term success. As NBS often take time to establish and have the envisaged effect, financing mechanisms should consider this.
Specific Advice
To effectively finance NBS, the following advice can be useful:
Establish the objectives of the financial mechanism
When developing financial mechanisms for NBS, begin by defining the specific objectives you want to achieve, including the desired outcomes and timeline. This will guide the development process. Consider whether the mechanism should target specific NBS, such as dedicated funding for green roofs, or be designed to accommodate a broader range of NBS. The decision may depend on existing programs and regulatory frameworks; for example, mechanisms at the building scale (such as green roofs, green walls, or rain gardens) may integrate more smoothly within current building regulations. Finally, ensure that the chosen financial mechanism is evaluated periodically to determine whether it achieves the intended objectives and contributes effectively to the defined aims.
Develop financing mechanisms that consider the whole life cycle of an NBS project
NBS, such as ecosystem restoration and green infrastructure development, often require years, if not decades, to reach full maturity and provide anticipated benefits, including flood control, carbon sequestration, and biodiversity restoration. Short-term funding mechanisms can significantly hinder these projects by restricting essential follow-up and long-term monitoring. Therefore, financing strategies must prioritize sustained investment and dedicated maintenance funds to maximize the effectiveness and longevity of these solutions.
Comprehensive financing mechanisms should support every phase of NBS—from research and planning through to design, implementation, and ongoing monitoring and maintenance. Allocating resources for post-implementation monitoring, maintenance, and adaptive management ensures that projects can adapt to evolving environmental and community conditions. These phases are as critical as planning and implementation in securing long-term success.
Leverage timing for rebuilding and recovery
When communities are rebuilding after natural disasters (e.g., landslides, floods, etc.), these moments present timely opportunities to introduce NBS into the recovery process. There is often an influx of emergency or recovery funding, and integrating NBS into rebuilding efforts can provide more sustainable and resilient outcomes. By taking advantage of these rebuilding windows, funding for NBS becomes more viable and attractive as part of a holistic recovery strategy. In general, aligning NBS projects with other planned building projects can help finance NBS and cut costs.
Diversify funding sources
To truly mainstream and upscale NBS, a concerted effort should be made to diversify funding sources and create innovative financing structures that engage both the public and private sectors. Internationally, NBS are largely financed by public funds (European Investment Bank, 2023; Engelbrecht Hansen et al., 2023). There is still a need for more impactful funding structures for NBS in the Nordic countries, according to our findings and previous studies (Barkved et al., 2024; Sandin et al., 2022).
Innovative models, such as green bonds or environmental impact bonds can offer valuable insights and could be tailored for use in the Nordics. Public funds can play a key role in de-risking private investment in NBS, particularly in contexts where there is scepticism about the effectiveness of nature-based approaches. Risk-sharing mechanisms, like guarantees or performance-based payments, can encourage more private sector participation (Sandin et al., 2022).
Engaging the private sector is crucial, as the majority NBS investments are currently done through public funds (Engelbrecht Hansen et al., 2023). This can for example be achieved by emphasising clear economic returns, promoting green financing instruments, and linking NBS to corporate sustainability or environmental, social, and governance goals. Public-private partnerships are also effective in aligning shared interests, such as co-financing green infrastructure between urban developers and local governments. Furthermore, cross-sectoral business models, like payments for ecosystem services, can pool resources from various beneficiaries (e.g., farmers, utilities) to support ecosystem restoration (Jian, 2023). By diversifying funding sources in these ways, NBS can become more financially sustainable and scalable.
Good to Know
To avoid being overwhelmed when developing financing mechanisms for NBS, it is often better to start small and simple. I.e., developing a financing program for one type of NBS that can be based on reduction of an already existing fee, then creating a full comprehensive financing program. Financing programs should be evaluated and can be adjusted and expanded over time.
NBS projects often need adaptive management as ecosystems change over time. Flexibility in funding structures can allow for the necessary adjustments during the project's lifecycle. Mechanisms like adaptive financing allow resources to be shifted or added as new challenges or opportunities arise, ensuring that the project remains effective.
Context
The planning of NBS projects often stalls because of a lack of funding, and this has been identified as a common barrier. Policy mechanisms that enable financing flows to NBS are, therefore, a necessary tool to promote NBS implementation. These exist in several configurations, such as government funding programs for municipalities, EU grants, and support from nature restoration or protection funds. Another challenge is evaluating the success of a funding scheme when funding cycles sometimes follow timeframes that are too short for NBS to deliver their full potential within the cycle.
Learn more
A vast number of resources have been published by organisations and research projects to provide inspiration and information about financing mechanisms that can support NBS, some of which are linked here:
Network Nature developed a factsheet for exploring opportunities for NBS through municipal funding
: https://networknature.eu/sites/default/files/uploads/networknature-nbs-factsheet-4.pdfGuide to Biodiversity Financing for Cities and Regions
, published by ICLEI:https://e-library.iclei.org/uploads/Biodiversity-Finance-Guide_final.pdf.
Biodiversity finance decision-making tree
, published by ICLEI:https://interactbio.iclei.org/wp-content/uploads/Biodiversity-Finance-Decision-making-Tree.pdf.
UNA Biodiversity Finance Handbook
published by ICLEI Africa:https://e-library.iclei.org/uploads/UNA-Resilience_Handbook_FINAL(2).pdf.
Financing and Business Models Guidebook
published by the Connecting Nature project: https://connectingnature.oppla.eu/sites/default/files/uploads/finance-1.pdfApproaches to financing nature-based solutions in cities
published by the Grow Green project: https://growgreenproject.eu/approaches-financing-nature-based-solutions-cities/NBS Business Models search engine
, published by the Grow Green project:https://growgreenproject.eu/nbs-business-models-search-engine/
Business Model Catalogue: Taking action for urban nature
, published by the Naturvation project:https://www.naturvation.eu/sites/default/files/results/content/files/business_model_catalogue.pdf
Business Models & Financing Strategies
published by UNaLab:https://unalab.eu/en/documents/d63-business-models-and-financing-strategies
The Connecting Nature Resource Centre
includes several resources for financing and business models: https://connectingnature.oppla.eu/Nature-based Solutions Sustainable Financing Inventory
(with fact sheets for each financing mechanism), published by the Ponderful project: https://www.ecologic.eu/19473International Obligations
Kunming-Montreal Global Biodiversity Framework “
Ensure the full integration of biodiversity and its multiple values into policies, regulations, planning and development processes, poverty eradication strategies, strategic environmental assessments, environmental impact assessments and, as appropriate, national accounting, within and across all levels of government and across all sectors, in particular those with significant impacts on biodiversity, progressively aligning all relevant public and private activities, fiscal and financial flows with the goals and targets of this framework.”SDG 15, Life on Land, Target 15.A “
Increase financial resources to conserve and sustainably use ecosystem and biodiversity. Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems.”