Investing less than 1% of world GDP in nature can tackle climate change

A total investment of $8.1 trillion in nature is required over the next three decades to successfully tackle the climate, biodiversity, and land degradation crises, according to the State of Finance for Nature report. This amounts to $536 billion a year by 2050.

The report finds that annual investments in nature-based solutions will have to triple by 2030 and increase four-fold by 2050 from the current investments of $133 billion (using 2020 as base year).

The report released on Thursday was produced by the World Economic Forum, UN Environment Programme (UNEP), and the Economics of Land Degradation (ELD) Initiative hosted by the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ), in collaboration with Vivid Economics.

It urges governments, financial institutions and businesses to overcome this investment gap by placing nature at the heart of economic decision-making in the future.

It stresses the need to rapidly accelerate capital flows to nature-based solutions by making nature central to public and private sector decision-making related to societal challenges, including tackling the climate and biodiversity crises.

The report favours unlocking the potential of nature-based solutions to close the finance gap by 2050.

Structural transformations are needed to close the $4.1 trillion finance gap between now and 2050, by building back more sustainably, by repurposing harmful agricultural and fossil fuel subsidies and by creating economic and regulatory incentives.

However, nature currently only accounts for 2.5 per cent of projected economic stimulus spending. Private capital will also have to be scaled up dramatically to close the investment gap.

Developing and scaling up revenue flows from ecosystem services and using blended finance models as a means to crowd in private capital are among the suite of solutions needed to make this happen, which also requires risk-sharing from private sector entities.

"The State of Finance for Nature report underlines the urgency and the criticality of increasing investment in nature," said Justin Adams, Head of the Tropical Forest Alliance at the World Economic Forum.

"It highlights how little is invested today, $133 billion represents only 0.1 per cent of global GDP and a tripling of this feels like a no-brainer given the enhanced resilience this would provide to the global and local economies. Studies show this is also good for business,some $10 trillion in business opportunity and 395 million new jobs could be created by investing in nature-positive solutions."

"Biodiversity loss is already costing the global economy 10 per cent of its output each year. If we do not sufficiently finance nature-based solutions, we will impact the capacities of countries to make progress on other vital areas such as education, health and employment. If we do not save nature now, we will not be able to achieve sustainable development," said UNEP Executive Director Inger Andersen.

"The report is a wake-up call for governments, financial institutions and businesses to invest in nature, including reforestation, regenerative agriculture, and restoration of our ocean," she said, adding countries and leaders of industry will have an opportunity to do so at the upcoming summits related to climate, biodiversity, land degradation and food systems, and in the context of the UN Decade on Ecosystem Restoration (2021-2030).

Forest-based solutions alone, including the management, conservation and restoration of forests, will require $203 billion in total annual expenditure globally, according to the report.

That is equivalent to just over $25 per year for every citizen in 2021.

The report calls for coupling investments in restoration action with financing conservation measures. This could result in forest and agro-forestry (the combination of food production and tree growing) area increases of approximately 300 million hectares by 2050, relative to 2020.

The report says the annual investment of the private sector in nature-based solutions was $18 billion in 2018. Private finance only accounts for 14 per cent, including capital mobilized through sustainable agricultural and forestry supply chains, private equity investments, biodiversity offsets financed by private sectors, philanthropic capital, private finance leveraged by multilateral organisations and forest and other land use-related carbon markets.

In climate finance, private sector investment accounts for most capital flows (56 per cent according to the Climate Policy Initiative).

The scaling up of private capital for nature-based solutions is one of the central challenges of the next few years with a specific focus on investing in nature to support sustainable economic growth.