Aggregation: Unlocking Finance for Nature
The UK’s chalk streams are emblematic of nature’s collapse that we are witnessing all around us. But where will the finance come from to restore nature and to protect against climate, social and health catastrophes? Jerome Tagger reports on North Star Transition’s investigations into the feasibility of investing in nature at landscape scale.
There is an urgent need for large-scale funding of nature-based solutions across many landscapes if the UK is to achieve net zero, environmental, social and health transformations. At present, investment is largely piecemeal, tends to be project-based and scattered rather than place-based and connected and therefore the scope for the systemic change needed is limited.
This report reflects the work that North Star Transition did in 2023, assessing the views of financial sector participants: we explored what they need in order to invest in nature-based solutions, at scale, across a landscape.
We started with two key questions: what do investors want and what do the assets they will invest in look like? We approached this project by asking financial institutions these questions directly, through bilateral conversations and via a facilitated workshop. We believe large-scale landscape funding has a greater chance of success if financial institutions co-create the funding instruments needed.
Our dialogue revealed preferences around revenue streams, costs, risks, financial and operational structure and appropriate governance:
Revenues, Costs and Risks: These are the core considerations for investment committees around which clarity is essential. Four revenue streams were identified; carbon and biodiversity credits, payments for renewable energy, value add from flood management and improved resilience through regenerative agriculture. The risks – from governance to operations - were multiple and some are known, while others are unknown, some are quantifiable and others unquantifiable.
Financial Structure: We tested three models with participants; project finance based, counterparty based or a platform driven hybrid. We summarise the pros and cons of each.
Organisational Structure and Governance: Our dialogue revealed a tension between the need for a well-known entity with a strong credit rating, possibly with equity involvement, to stand behind any project, and the importance of a place-based organisation with strong local ties and a focus on social impact and the public good. The report proposes ideas to resolve those tensions.
The ideas discussed were well received, with general support for a number of foundational principles:
the overall vision
the general risk-sharing structure
the landscape scale
the ticket size (e.g. minimum investment at a scale suitable for institutional investors)
the community involvement
the collaborative approach with other organisations already in the area
the visual presentation; constructing a design model to draw feedback worked well as a way to engage finance professionals.
This work has established that high-quality, well-structured projects, which address aspects across finance and a fair sharing of the benefits of the monetisation with local communities, are credible tools for investment. However, further work needs to be done to make a landscape-scale transformation into an investable proposition.
Using the intelligence gained from the dialogue, the next step is to address the issues raised through this initial engagement. The process should involve co-production with potential investors with the overall goal to develop an investment structure or vehicle, which can be deployed across a landscape and then replicated across other landscapes.
It is clear that there is an appetite within mainstream financial institutions to participate in the development of the tools and products needed to enable landscape transformation. This is an opportunity not to be missed, since financial institutions are rather more likely to regard as credible the initiatives they have co-developed. Such an “outside-in” innovation process contrasts with the “inside-out" process that is at the heart of many existing landscape finance initiatives.
In 2024, North Star Transition is continuing the development process for landscape finance with institutions that are already engaged in the process and new participants as well.
North Star Transition is very appreciative of the support it received from the Environment Agency for this work.
