Mainstreaming Nature-Based Solutions: Opportunities for Transformational change?
When the River Wye carries the landscape’s prime resource - its top soil - down to the sea, everybody loses. Nick Hooper explores how to attract mainstream investments to address the root causes of environmental degradation.
Nature-based solutions (NbS) – the use of natural processes and ecosystems to address environmental challenges – remain underfunded and underutilised, often sitting in the shadow of traditional grey infrastructure (such as dams, roads, and buildings).
Currently, most NbS projects rely heavily on public funding and/or generating income from payments for ecosystem services (PES), limiting their scale and impact.
In this blog post, we advocate for a fundamental shift in financing NbS, moving beyond PES to attract mainstream investment for large-scale landscape transformation projects.
Our core premise is that by designing and implementing more ambitious projects which deliver transformational change across a landscape, we can open the door to more diverse, substantive financing sources. These ambitious projects are not only more likely to attract investors but also provide systemic solutions that address the root causes of climate change, biodiversity loss, and societal challenges.
Our Framework to Assess Levels of Impact and Finance
As part of North Star Transition’s work for the Ofwat Innovation Fund Mainstreaming NbS Project, we have come across a variety of NbS projects at different scales and financed by varying sources.
To visualise both existing and potential NbS projects, we have created a tentative framework of four levels that maps financing scale against transformational impact opportunity. We hope that this framework helps those working in this space to understand where existing projects sit today and how such projects may unlock broader financial opportunities and evolve towards more transformational impact.[1]
Source: North Star Transition, January 2025
At present, most NbS projects operate at Levels 1 or 2. Whist these projects are necessary and important, they do not address the root causes of landscape degradation. As we propose in this blog, it is through aiming for projects at Level 4 that we can achieve transformational change across a landscape.
The Problem with the Status-Quo
The main current source of private financing for NbS projects are PES mechanisms (such as carbon credits or biodiversity offsets). However, these mechanisms are inherently limited:
they lead to fragmented, small-scale financing which cannot attract mainstream investment;
they are transactional and short-term;
they provide uncertain and insufficient financial returns for commercial finance; and
they place unfair risk on PES sellers. Many sellers enter into long-term agreements for the sale of credits or units without a clear understanding of the associated risks, such as the potential impacts of natural disasters (e.g., floods) or market fluctuations that could render the agreement economically unviable for the sellers.
Systemic Change over Siloed Solutions
Further, reliance on PES encourages siloed interventions that neglect the complexity and interconnectedness of natural systems. For instance, nutrient trading markets proposed in the Wye and Usk river catchments may reduce pollution initially, but they fail to address its root causes – unsustainable farming, poultry operations, and untreated sewage releases. To achieve lasting, systemic change at a landscape scale through NbS requires large-scale investments that can support systemic shifts in how farmers, water companies, and industries operate.
In our view, mainstreaming NbS within a system requires transforming the system itself – shifting it from a degenerative model to a regenerative one. In doing so, NbS projects could become integrated into every part of the system and operate on a level playing field with more traditional solutions (i.e. grey infrastructure).
Achieving this level of systemic change means scaling up to projects operating at Level 4, addressing root causes and driving widespread transformation. However, change at this scale comes with a significant price tag. For example, through our work in North Star Transition’s Wye-Usk Transition Lab, we estimated that transforming the Wye-Usk catchments would require over £1 billion. This is far beyond what PES alone can provide.
From PES to Investment in NbS
Therefore, to finance systemic change, we must move beyond the constraints of PES-driven models and attempt to attract other larger forms of investment (namely from mainstream financial institutions, such as banks, asset managers, pension funds, insurance, etc.).
Our view is that ambitious, large-scale projects – those that tackle root causes and deliver multiple societal and environmental benefits across a landscape – are in fact far more likely to capture the interest of financial institutions. Such institutions, which manage substantial pools of capital, are drawn to investments that offer sustained financial returns, with environmental impact being a secondary consideration.
How Do We Level Up?
Clearly, to mainstream NbS and achieve the systemic change envisaged by projects at Level 4, we need to rethink both the funding mechanisms and the stakeholders involved:
Recognise the limitations of current models: PES and public funding alone cannot attract the large-scale, systemic investments needed for transformative change. While important as building blocks, they are insufficient to scale NbS to the level required.
Engage mainstream financial institutions: To bring mainstream investors - such as banks, pension funds and insurance companies - into the NbS we must first understand: a) who they are and what drives their decision-making, and b) how they operate, including the financial products they are willing / able to trade in (debt / equity etc)
Overcome barriers: identify and address the risks and challenges preventing mainstream investors from engaging with NbS
Develop investible pipelines: design and create projects that are financially viable, transformational, and structured in a way that meets both the needs of the local community and mainstream investors. Most NbS proposals would fail this particular test.
As part of North Star Transition’s work with the Ofwat Innovation Fund Mainstreaming NbS Project, we produced a comprehensive literature review to assess the current financing landscape for NbS. Our review focused on the first two steps above: understanding the limitations of current models and identifying how we can begin to engage mainstream financial institutions. For a deeper dive into these topics, we encourage the reader to explore the relevant sections of our literature review once it is published.
The next phase of our involvement in the Ofwat Innovation Fund Mainstreaming NbS Project will address the latter two steps. We will focus on identifying the barriers preventing mainstream investors from entering the NbS space and charting possible pathways to overcome them.
Further information on the funding and finance workstream
Since October 2023, North Star Transition has been leading the funding and finance workstream of the. Alongside 22 partners, including water companies, River Trusts, and eNGOs, this five-year initiative seeks to bring together a diverse range of expertise to drive the mainstream adoption of NbS across multiple sectors. To find out more about the programme, check out the Mainstreaming Nature-based Solutions website.
Reader’s note: From PES to Investment in NbS
It is essential to distinguish between “investment in NbS” and “PES”, two terms often confused in environmental and financial discussions.
Investment in NbS refers to long-term financing mechanisms like debt, equity, or blended finance, which provide sustained capital and align with the success and profitability of the intervention. These mechanisms are familiar and appealing to mainstream financial institutions.
Payments for Ecosystem Services (PES), by contrast, involve one-off transactions where buyers pay for specific, measurable ecosystem services (e.g., carbon credits, biodiversity units, or water quality trading). PES is transactional, with no ongoing relationship between buyer and seller.
The key difference lies in the relationship and time horizon: investment in NbS fosters long-term partnerships and generates returns over time, while PES is limited in scope and insufficient to scale NbS to a systemic level.
In this post, we use “investment” in its financial sense. To unlock the vast resources of mainstream financial institutions, we must speak their language and utilise financial products they understand, enabling transformative investments that go beyond the capabilities of PES.
