Harnessing Private Capital for Nature's Regeneration
Capital Market Strategies for Conserving Biodiversity: A Financial Perspective
Markets can play a crucial role in rejuvenating the natural world, provided they're provided the knowledge and right tools to recognize the true worth of nature and its services.
The global economy has seen dramatic growth, while the natural world has witnessed an alarming decline. Over the last century, we have lost over half of the world's coral reefs, countless species have gone extinct, and hydrological systems have become contaminated. This dire state of affairs is no coincidence, and it's time for a change.
Living nature plays a pivotal role in sustaining our economic systems. Forests sequester carbon, filter water, promote decomposition, and support biodiversity—yet the value of these essential services remains unrecognized by markets. Fortunately, private capital can be leveraged in a restorative manner, offering tremendous potential for nature regeneration.
The Power of Private Capital
Private capital holders can realize the vital role of nature in our economy and their businesses, encouraging them to protect and restore nature assets while reaping monetary benefits. This shift will not only help fill the funding gap left by governments, NGOs, and philanthropists but also foster a new, regenerative kind of capital market.
Private investors are driven by returns on investment. To attract these critical stakeholders, we need to adopt holistic approaches to nature regeneration that also yield financial gains. A new capital market will reward nature's restoration while providing hard returns that resonate with investors.
Existing markets that revolve around wood, fish, and oil are purely extractive, focusing on raw materials but neglecting the far greater value provided by intact, living ecosystems. For example, the global timber market generates over $1.5 trillion annually. Yet the true worth of standing forests, due to their carbon sequestration, water filtration, and support of biodiversity, far exceeds that of their processed counterparts. Markets must learn to recognize and value nature's "regulating" services.
Adopting a System's Approach
We can create a market for regenerative nature by translating the value of ecosystem services into a language markets comprehend. Tracing the condition of natural assets with reliable, verifiable data will foster trust in these markets, thereby driving much-needed private investments in nature restoration.
A recent deal struck between Laconic and the Commonwealth of the Bahamas represents a pioneering "nature-positive" market, offering a framework for the development of carbon and nature markets 2.0. Laconic will issue Sovereign Carbon Securities (SCS), consisting of a comprehensive set of Nationally Determined Contributions commitments encompassing the restoration of 150,000 square kilometers of seagrass meadows. These securities will be traded under Article 6.2 of the Paris Accord to "carbon deficit" countries and corporations seeking offsets or to investors looking to invest in long-term carbon sequestration.
The success of this project hinges on its "micro-foundations" or principles that support its implementation, like avoiding the sale of underlying assets, ensuring the involvement of local and Indigenous communities, and using the revenue generated for the long-term protection and restoration of natural assets.
Technological advancements such as remote sensing, AI, and immutable ledgers enable us to assess ecosystem health, carbon sequestration, and biodiversity accurately. Collectively, these technologies empower us to measure the true value of environmental services with precision and enhance trust in nature markets, paving the way for increased private investment.
Embracing a Regenerative Future
Change is imminent. As markets adapt their mindsets and behaviors, the speed and scale of capital flows will become potent forces for ecosystem restoration. By translating the value of nature services into a language markets comprehend, we will shift the focus of capital from extraction to regeneration. Ultimately, this transformation will ensure shared prosperity and a thriving natural world.
[1] Value of Ecosystem Services, National Academies of Sciences, Engineering, and Medicine[2] Regenerative Agriculture: A New Era, Rodale Institute[3] Nature-Based Solutions for Climate Resilience, The Nature Conservancy[4] Investing in Green Bonds, Climate Bonds Initiative[5] Nature-Based Climate Solutions, RESTORE
About the author:
- Ralph Chami is a financial economist with over 35 years of experience, including 25 years at the International Monetary Fund (IMF), where he served as Assistant Director. He is also the co-founder and CEO of Blue Green Future, an organization dedicated to integrating natural capital into economic systems.*
- Ralph Chami, a financial economist with 35 years of experience, suggests that markets can aid in rejuvenating the natural world by recognizing the value of ecosystem services.
- Over the last century, the global economy has grown significantly while the natural world has declined drastically, losing over half of the world's coral reefs, countless species, and experiencing contaminated hydrological systems.
- Ecosystems play a crucial role in sustaining our economic systems, providing services like carbon sequestration, water filtration, decomposition, and biodiversity support.
- Private capital can be leveraged for nature regeneration, encouraging investors to protect and restore nature assets for monetary gains.
- Markets must learn to recognize and value nature's "regulating" services, such as carbon sequestration and water filtration, beyond their raw material counterparts.
- A new capital market can be created by translating the value of ecosystem services into a language markets understand, leveraging technology like remote sensing, AI, and immutable ledgers.
- The involvement of local and Indigenous communities, long-term protection and restoration of natural assets, and the use of revenue generated from nature markets are crucial for their success.
- The recent deal between Laconic and the Commonwealth of the Bahamas showcases a "nature-positive" market, offering a blueprint for the development of carbon and nature markets 2.0.
- As markets adapt and private investments in nature restoration increase, we'll shift the focus of capital from extraction to regeneration, ensuring shared prosperity and a thriving natural world.
