What part can the new Natural Environment Investment Readiness Fund play in accelerating Green Finance?
Green Finance does what the name suggests, looks to provide finance for ‘green’ projects and activities, looking to improve and protect our environment. There is an inherent tension between the short-term attributes of financing and the long-term attributes of green outcomes. As recent studies such as the Dasgupta Review highlight, nature needs to be considered as an asset. An asset that has both an intrinsic value and value as an economic good.
“Nature is therefore an asset, just as produced capital (roads, buildings and factories) and human
capital (health, knowledge and skills) are assets. Like education and health, however, Nature is
more than an economic good: many value its very existence and recognise its intrinsic worth too.”
As with any economic good, nature provides utility to society and should have a price that reflects this value, as with the Natural Capital approach. Therefore funding opportunities such as the Environment Agency’s new Natural Environment Investment Readiness Fund is an opportunity to demonstrate the value that the natural environment can bring. To achieve the scale of protection and restoration that nature requires, private investment is pivotal and needs to be well defined.
If nature is to be treated as an asset, then it needs to be considered an asset that provides a flow of benefits rather than a single use. The outcomes can be improved by targeting an increase in the capacity of nature, therefore if the value of the environment is maintained, funding can continue. If financing takes a short-term approach, then it will only restore the environment to a pre-determined level of acceptability and therefore it will never exceed this level. It is this type of evergreen funding that needs to be mainstreamed if environmental and climate recovery is to reach the pace and level required. It is time for the finance industry to catch up and recognise the benefits that investing in nature can bring.
This fund provides grants (of up to £100,000) to help fund nature projects that seek to tackle climate change, create and restore habitats, or improve water quality. The aim of the fund is to encourage private sector investments into nature through demonstrated examples of investable returns. The project will need to be scalable and replicable so similar approaches can be taken in future to encourage private sector funding. The fund is open for applications until the 26th March.
The Natural Environment Investment Readiness Fund aims to create a pipeline of projects that are properly ready for the private sector to invest in, and some of the projects that could be eligible for the fund include:
The creation of new woodlands and the restoration of peatlands, providing habitats for wildlife, green spaces for the public and carbon sequestration to help the UK to achieve its net zero target. This would generate carbon units which can be sold to businesses that want to offset emissions.
The creation of new coastal wetlands, which benefit wildlife and reduce tidal flooding, while also attracting investment from developers needing to deliver biodiversity net gain and even delivering revenue through eco-tourism.
The restoration of river catchments, helping to both improve water quality and reduce flood risk. As well as benefitting nature and people, these environmental benefits could deliver financial incentives to water companies (with reduced costs for water treatment) and encourage them to invest.
This fund provides an opportunity to demonstrate that clear returns can be found from investment in the natural environment. Successful existing projects and financial products can also provide inspiration and highlight the benefits of investing in nature to help make a business case to attract further investment. For example, the Anglian Water green bonds which have funded 850 capital investment projects, totalling £811 million. This has been done through 5 bonds (soon to be 6) and are expected to save or avoid 160,736 tonnes of carbon – a 61% reduction from the baseline. The latest sterling green bond will mature in 2025 with a return to investors of 1.625%. The Natural Environment Investment Readiness Fund provides an opportunity to pinpoint and demonstrate similar returns from investing in nature as part of the Green Finance revolution.
We’ve been struck by the need for more practical examples like this, with the insights and impact data to go with them. Please watch this space as we will shortly be launching a knowledge hub at http://www.accelerategreenfinance.com. And you can read about our advisory services in Green Finance here.