How could nature markets provide new finance for biodiversity?
Well-designed nature markets could help mobilise private capital to support projects that deliver verifiable, durable improvements in ecosystem health. Yet success is far from guaranteed, as shown by voluntary carbon markets suffering from inflated claims, poor outcomes and loss of trust.
The Commission’s ‘Roadmap towards nature credits’ of 7 July has the intention of building a regulatory framework for Europe and biodiversity-rich regions. Our Policy Brief sets priorities for developing both supply and demand within this system. The first is to establish consistent standards on what a nature credit or share represents, how it is measured and whether it delivers additional ecological benefits. The EU should also encourage the development and application of outcome-based metrics, and find ways to reduce transaction costs, which commonly amount to 40% of the sale price of nature projects.
A promising new approach published by Bruegel/CEPR is nature shares. Investors would purchase shares in government conservation and restoration projects and receive nature dividends in the form of quantified ecological benefits – such as carbon sequestration or biodiversity improvements – delivered over time.
Such nature-positive assets do not generally deliver significant financial returns, but they can reduce the biodiversity and climate risks to businesses, and balance investment portfolios as alternatives to shares in green companies. The ultimate size of this market will depend on tax incentives or regulation that favour the holding of these nature-positive assets.
Therefore, the EU and national governments should not reduce public funding for nature on the assumption that private finance will replace it. The total volume of worldwide transactions in nature credits was under $1 million in 2024 – far from the $200 billion annual target set under the Kunming-Montreal Global Biodiversity Framework.
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Authors
Heather Grabbe
Bruegel Senior Fellow
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