Increasing funding for nature-based solutions: 3 things we wish investors knew and 3 things we wish scientists knew
Written by: Tessa Maurer, Director of Science Strategy
Blue Forest is a highly interdisciplinary organization. Our work in conservation finance depends on collaboration from professionals across many different sectors—finance, research science, land management, and project development to name a few—who may not always have a common language or approach to their work. However, in order to scale up the resources available for forest restoration, it is critical that all partners step out of their business as usual approach and adapt to the unique challenges of supporting nature-based solutions (NbS). Here, we discuss things that two key groups, scientists and investors, should understand about working in this space.
3 Things Investors Should Know:
- Repayment timelines in nature-based solutions may be longer than traditional projects. Most changes in the natural world happen on a much longer time horizon than many investors are used to. Five- to ten-year investment hold periods are difficult to achieve with NbS projects because even once a restoration project has finished, landscapes may not reach full function until decades later or may require multiple, ongoing interventions. It is critical to consider this reality if you are interested in incorporating high impact nature-based projects into a portfolio.
- For investors: expect to see more investment opportunities that match the tenor of the benefit. This implies more fixed income, longer duration assets will be created by financing ecological restoration.
- The ROI of nature-based solutions increases at scale. Spatial scale can have a major impact on whether the benefits (and thus value) of a project are realized, with many impacts only accruing once resilience has been achieved at a landscape scale. (“Landscape scale” differs by ecosystem and ecosystem service, but can relate to natural features like a watershed or mountain range.) In order to realize the full benefit of NbS projects, investors should consider committing to ongoing investments in a landscape, rather than just an individual project. This requires a long-term perspective where each investment is not just about the return on that project but about setting the stage for subsequent investments that ultimately create large-scale change and value.
- For investors: greater benefit at greater scale implies needing different types of capital as restoration projects grow and achieve scale. Initial projects might focus on raising catalytic or concessional capital before having the scale and scope to generate commercial, risk-adjusted returns at a scale that works for institutional investors.
- Each landscape is different, but there are common metrics for measuring impact. Investors tend to be used to commodities and other easily traded products, but with limited exceptions, outcomes and impacts of NbS projects are much more localized and exist outside of traditional markets. This is particularly true for forest restoration projects that consider holistic ecosystem and community needs. Though it requires more upfront effort, projects should be vetted comprehensively to ensure they are high quality and will create meaningful impact. Luckily, the impact metrics themselves—fire risk reduction, water volume recharged, asset value protected—are usually broadly relevant, so environmental and financial outcomes can be compared across projects.
- For investors: bundling restoration projects with similar cash flows, impact metrics, and benefits into a combined vehicle can be more efficient for all groups and allow more investors to participate at earlier stages of project development.
3 Things Scientists Should Know:
- Science must be actionable, not perfect. Understanding the relationships and processes within landscape ecology is critical for supporting the right kind of NbS management actions and assessing their impact. However, the threshold for taking action is often not the same as in the research world: it is sufficient in many cases to understand the size and trend of an impact, rather than having a statistically significant relationship or detailed process understanding. This means that research results can be valuable even if the levels of uncertainty around an outcome do not reach the thresholds of statistical significance typically sought after in peer-reviewed literature.
- For scientists: whether results are actionable depends on understanding the certainty of the results – but precision is less important than 1) the magnitude of the uncertainty relative to the expected outcome (e.g. is the uncertainty high enough to change the impact from positive to negative?) and 2) the implications if an expected outcome does not materialize. Incorporating these as discussion points can greatly increase the usefulness of research findings.
- Clear impact metrics facilitate understanding and confidence. When working on conservation finance projects, there is often a huge range in the various partners’ scientific understanding. Projects are most successful when information is presented in a way that all partners can understand. This means developing impact metrics that are transparent and straightforward. At very least, this means being able to describe metrics in intuitive language (e.g., “NDVI is a measure of how green the vegetation is”), but ideally, research activities should aim to develop straightforward, easily measurable impact metrics. Notably, composite metrics like Wildfire Hazard Potential are not always more helpful, because the assumptions and inputs are not immediately apparent.
- For scientists: aim for the simplest possible metric to describe an outcome or phenomenon, ideally one that makes explicit the key assumptions behind it. For example, acre-feet of water is an intuitive volumetric measurement, but board-feet of timber is not.
- Place-based and stakeholder-informed research is key. There is an urgent need to better constrain the uncertainties around NbS landscape interventions. Neither project developers nor investors are consistently confident in NbS projects because the variation in outcomes and what drives it is not well understood. However, making advancements on these questions is often in conflict with a long-standing prejudice in Western science against case studies and “non-generalizable” results. In many regions, there are not yet enough comparable NbS projects to drive comparative studies or generate enough data for detailed modeling. Remote sensing data, while helpful, cannot always capture detailed process understanding. All told, this may make NbS an unappealing topic for researchers because it is, currently, an inherently place-based endeavor. Yet it will be impossible to reach a point where we have broad-scale understanding if we do not invest first in place-based research. Similarly, increasing the adoption of NbS requires an understanding not just of the ecological outcomes of the work but also its financial, social, and cultural impacts. Achieving this requires deep and early engagement with local partners, communities, and stakeholders to ensure that the research questions and experiment structure are relevant. Examples range from ensuring that modeling scenarios are realistic in practice to being able to assess the logistical and financial impacts of a project on certain stakeholders.
- For scientists: scientists can promote place-based and stakeholder engaged work by considering these topics for themselves and their students, publishing place-based work outside of case study journals, and de-emphasizing metrics like number of publications during hiring and tenure processes. Incorporating qualitative research methods into curricula for students can help create scientists that are equipped for community-engaged research work.
Increasing adoption of forest management and nature-based solutions requires a shift in the approach and mindset of all partners. As Blue Forest continues to build collaborative projects and partnerships, we hope that all professionals in this field can help promote new perspectives that facilitate interdisciplinary knowledge-sharing to increase pace and scale of landscape restoration. Specifically, this requires investors to embrace long-term, landscape level thinking and new metrics for success and requires scientists to focus on actionable, place-based research that is rooted in the needs and input of communities and stakeholders.