Developments and advances in ecological finance: key points to focus on in 2025
In a bid to ensure that 2025 marks meaningful progress in aligning private financial flows with global nature goals, the focus on private finance for nature has never been more significant. This shift is evident in the impressive growth witnessed in recent years, with private finance for nature reaching an astounding USD 102 billion in 2024, up from USD 9.4 billion in 2020.
While government funding still dominates the sector, the share and impact of private finance are on the rise. Investments in nature-based solutions (NbS) with water-related objectives have doubled from about $25 billion in 2016 to $49 billion in 2023, signalling a growing engagement of the private sector alongside public funds.
However, the nature economy remains fragmented, with inconsistent frameworks and data gaps hindering investment confidence. Despite this, major institutional investors with combined assets under management (AUM) of $17.7 trillion have signed on to frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD), demonstrating a serious intent to mobilize capital towards nature-positive opportunities.
One area that is gaining prominence is the insurance sector and risk management. While direct information on insurance sector specifics was limited, the framing of nature as a means to mitigate physical risks such as flooding, landslides, and water security, and the insurance industry's growing interest in climate risk, suggests that insurance-linked finance and risk transfer mechanisms are increasingly recognized as critical tools to de-risk investments in nature.
Looking ahead, AI advancements are expected to enhance data quality, monitoring, and predictive analytics in environmental finance, thus improving investment decision-making and risk assessment in NbS and conservation finance. Innovative financial instruments and insurance solutions will also be used to lower barriers for private investors, such as blended finance models, guarantees, and catastrophe bonds that help manage ecological investment risks and enhance returns.
The nature finance space is progressively recognizing Indigenous Peoples' rights and knowledge as essential for successful conservation and sustainability outcomes. Indigenous leadership and stewardship are gaining more prominence in guiding investment towards financing intact nature, ensuring that capital flows support both biodiversity protection and local communities.
There is a growing emphasis on protecting intact ecosystems through private finance, shifting the narrative from nature as a cost to nature as capital with immediate business value and co-benefits like carbon sequestration, biodiversity, and water security. Intact ecosystems are increasingly seen as vital assets for natural climate solutions, attracting innovative financing models aimed at preservation and sustainable management.
Private equity and institutional investors remain cautiously optimistic, poised to mobilize significant capital for nature-positive business models. Market clarity and standardized reporting frameworks like TNFD will be key to unlocking this funding at scale.
In conclusion, private finance for nature is scaling rapidly and evolving from a niche activity into a mainstream investment theme. The insurance sector’s role in risk transfer and de-risking, AI-driven innovations for better data, stronger Indigenous leadership, targeted funding for intact ecosystems, and expanding private equity involvement are all factors driving this transformation. Continued progress will depend on improving market transparency, creating investment-grade opportunities, and integrating diverse stakeholder leadership to ensure that private capital flows effectively contribute to global nature and climate goals.
- The private sector is increasingly investing in nature-based solutions (NbS), with water-related objectives doubling from $25 billion in 2016 to $49 billion in 2023.
- Major institutional investors, with combined assets under management (AUM) of $17.7 trillion, have pledged to mobilize capital towards nature-positive opportunities, like the Taskforce on Nature-related Financial Disclosures (TNFD).
- The insurance sector is gaining prominence, using insurance-linked finance and risk transfer mechanisms to de-risk investments in nature, given its role in mitigating physical risks such as flooding and landslides.
- AI advancements in environmental finance are expected to improve investment decision-making and risk assessment, while innovative financial instruments and insurance solutions will help lower barriers for private investors.
- Private equity and institutional investors are poised to invest significantly in nature-positive business models, but require market clarity and standardized reporting frameworks like TNFD to unlock funding at scale.
