3. Nature-based Markets
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Marco, ESG lead for large company
“My company is developing its approach to natural capital assets and has asked me to explore the potential for the development of a £50m portfolio. I’m interested in how we can use our own resources to improve our environmental bottom line.”
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Jenny, family office investment manager
“My clients are looking at diversifying their portfolio into more sustainable assets, offering longer term returns and benefiting their country’s environment. They have heard a lot about green finance and natural capital, but they are nervous about ‘greenwashing’.”
Nature markets, including carbon and biodiversity markets, present promising opportunities for funding ecosystem restoration across Europe.
While statutory carbon markets are mainly driven by regulatory requirements, voluntary markets for both carbon and biodiversity are steadily growing. These markets offer you the opportunity to be part of large-scale forest restoration and conservation efforts, driving positive impacts on nature and creating lasting ecological benefits.
Here, we show how existing mechanisms can attract private investment into nature conservation and highlight opportunities to scale these efforts across Europe. For businesses we show risks, barriers, opportunities, and willingness to invest, and offer insights to help you navigate biodiversity and carbon markets effectively.
2.1 Voluntary Carbon Markets
Forests will be important for the EU to succeed with its ambitious target of climate neutrality by 2050. The European Commission wants forests and other land-based CO2 capture to reach 310 Mt/year by 2030, up from 225 Mt/year under a business-as-usual scenario. So-called ‘carbon-farming’ strategies, i.e. increasing CO2 storage (and partly other ecosystem services) in crops, forests and soils are key instruments here, but tend to only become viable at incremental management costs (Chiti et al., 2024).
2.2 Voluntary Biodiversity Markets
The term biodiversity credits has been used since the 1990s to refer to a subset of biodiversity offsets (cf. Section 2.3) that are being traded in a marketplace. Yet a new type of demand for non-compensatory biodiversity credits has recently emerged – called for at CBD COP15 and launched at COP16: these would not directly be linked to a loss of biodiversity elsewhere but rather be bought by companies with the ambition to create nature-positive outcomes. Here an innovative voluntary, non-compensatory market segment going beyond the (often legally mandated) biodiversity offsets, has been created.
2.3 Additionality and Conditionality
For conservation funding to truly benefit nature, markets must encourage outcomes that wouldn’t happen without that support – this is called “additionality”.
2.4 Permanence and Leakages
Two other issues are important to consider in relation to investments in nature markets, namely permanence and leakage.