If you’ve been paying attention to the news lately, it’s likely you’ve heard the terms ‘nature finance’ or ‘sustainable finance’. From Mark Carney’s famous Tragedy of the Horizon speech to discussions at the World Economic Forum, to policy meetings at Canada’s biggest banks, the finance world is becoming very interested in how it can align capital flows with nature-positive outcomes.
That sounds like some impressive word salad. What does it actually mean? Businesses and financial institutions are realizing that protecting nature is valuable - for the air we breathe and the water we drink, but also for our financial wellbeing. Through the development of innovative financial products, markets are able to put a price on nature-positive activities, giving investors the opportunity to make a return on nature that goes beyond philanthropy and good feelings.
FSC is just one organization looking to innovative financial mechanisms to address deforestation and the climate crisis. Subhra Bhattacharjee, Global Director General of the Forest Stewardship Council says, “We need to address the economics of responsible forest management. That means getting forest finance to forest owners, managers and communities so they have an incentive to not only keep the forest standing, but to manage it so that it’s a healthy forest.”
Why nature finance matters
Over 55% of global GDP is dependent on nature, making investments in this area crucial for long-term economic resilience. The UN Environment Program (UNEP) notes that aligning global capital flows with nature enhances resilience and drives progress towards a more sustainable future.
In the past, only the extractive value of natural resources was quantified – the substantial benefits that intact ecosystems provide to economies and human wellbeing was not, leaving the true value of nature and biodiversity hidden.
Today, this is changing, with increasingly sophisticated tools and approaches being developed to accurately value the ecosystem services nature provides, from clean air and water, to regulating global temperatures, to cultural and recreational benefits. This allows investment in these services that incentivizes and rewards conservation and restoration efforts.
Nature finance in practice
There are many products and processes that can be described as nature finance. For some institutions, this can simply mean factoring biodiversity and climate risk into their decision-making, to help prevent losses. This is very common in the insurance world, and increasingly so in commercial banking.
But it’s not just about loss prevention - nature can add value to the bottom line as well. Nature finance products can include things like conservation finance trusts, biodiversity and carbon credits, impact investment funds and bonds, and payments for ecosystem services. Increasingly, financial institutions and investors are choosing nature-positive funds to diversify portfolios and balance risk, with studies showing that many of these investments outperform the market.
The growth and increasing sophistication of nature finance products is underpinned by international agreements and frameworks that provide structure and credibility, such as the European Union Sustainable Finance Taxonomy, the Taskforce on Climate-related Financial Disclosures (TCFD), and others. Canada is the process of developing its own Sustainable Investment Guidelines that will help mobilize finance towards clean growth opportunities, including investments in intact ecosystems.
Nature finance for forests
Forests are a particularly exciting candidate for nature finance, in no small part because their value to global wellbeing is so significant and because much work has already taken place to quantify the benefits that forests provide.
This was highlighted at the most recent global climate summit, COP 30, where a new fund known as the Tropical Forests Forever Facility (TFFF) was established, immediately attracting almost $US7 billion in investments from governments, philanthropy, and private capital, “demonstrating an unambiguous demand for a mechanism that will contribute to making forests more valuable standing than destroyed.”[1] In addition to paying countries for preserving forests, the facility will direct revenue to Indigenous people and local communities who will receive at least 20% of all funds.
Private capital for nature-positive investments is also growing. European banking giant BNP Paribas launched its Future Forest Fund in response to growing investor demand for sustainable, profitable asset classes. The bank only includes FSC-certified forests in the fund, for their ability to deliver both stable returns and rigorous, trusted sustainability approaches that promote investor confidence and support regulatory compliance.
Other firms including Domini Impact Investments, Mirova and public-private partnerships are also working with FSC as the most trusted name in sustainable forestry, to develop funds that meet the needs of modern investors.
From global funds like the TFFF to the venture capital firms financing innovative nature-based solutions, to new investment vehicles operated by major financial institutions, the interest and investment in protecting nature and biodiversity is growing at pace.
FSC’s nature finance solutions
For forest companies and businesses reliant on forest products, the surge in nature finance presents exciting opportunities, particularly as FSC certification is already a globally-recognized standard for sustainable operations and conservation practices.
FSC has developed its own nature finance solution, Verified Impact. Verified Impact allows forest managers to capture high-quality nature and climate data from FSC-certified forests, helping them demonstrate their positive impact from forests’ ecosystem services and obtain additional income for their efforts.
Through Verified Impact, FSC-certified forests can be matched with project sponsors who will provide funding for restoration and conservation work for any of seven categories of ecosystem services (such as biodiversity conservation or water services). This allows the ‘hidden’ value of forests to be priced by the market, giving forest stewards and forest management companies an additional source of income beyond harvesting.
For sponsors, Verified Impact offers a means of making proven sustainability claims, helping them to enhance their brand reputation, meet reporting standards, communicate their commitments effectively, and reinforce their long-term sustainability strategies with quantifiable outcomes.
Additionally, FSC Canada is investigating the potential of nature finance as part of its Forests as Climate Solutions program. This research, funded by Environment and Climate Change Canada, aims to advance nature finance solutions that benefit communities and support certificate holders to implement climate-smart forestry practices.
Climate and nature finance is a priority for FSC International, from supporting sustainable supply chains to adopting innovative solutions that reward forest managers for work they’re already doing, we are proud to be a leading voice for nature, in Canada and beyond.
FSC is welcoming interest from forest managers and potential sponsors interested in learning more about Verified Impact. Please contact Vivian Peachey, Director of Climate and Landscape Solutions.