Embedding NbS within infrastructure projects

Lea Jordan-Tank explores how the barriers that block investment into Nature-based Solutions can be tackled. The most effective path forward could be embedding solutions into commercially viable business models.

Off the coast of Taiwan, companies like Ørsted are cultivating reef aquacultures at the base of offshore wind turbines. Oysters, kelp, and mussels filter water, restore biodiversity, and reinforce coastal protection around energy infrastructure.

At the Port of Rotterdam, wetlands, reefs, and floating islands buffer storm surges and improve air and water quality at one of Europe’s busiest trade gateways.

In Newcastle, green roofs, rain gardens, and permeable materials regulate temperature and manage water flows across an urban development.

These are infrastructure systems that depend on nature to function.

Nature-based Solutions (NbS) has struggled to scale when treated as its own investment category. It becomes more viable when embedded within systems that already generate value.

This is the shift we explore here, away from how to finance NbS in isolation, and focused on how to build it into the way projects work.

In a recent piece, Nick Hooper outlined how NbS, using ecological processes to respond to landscape management challenges, struggle to achieve economies of scale due to both the structures used for its financing and the framing of NbS as a stand-alone, siloed investment avenue.

Whilst Nick’s blog focussed on what the blockers were, this blog explores how to tackle those problems to unlock investment for NbS.

We argue that embedding NbS into commercially viable business models is the most effective path forward. This approach helps NbS scale, reduces risk, and grounds its business case in real operations rather than in isolation.

This blog will focus on making the case for embedding NbS within business, but first, we will take a refreshed look at the current barriers to finance.

This blog is a product of our ongoing engagement in Mainstreaming Nature-based Solutions, a programme funded by the Ofwat Innovation Fund.

Barriers to investment in large scale NbS

Institutional finance has largely avoided NbS because it does not meet standard requirements for revenue-generating, large-scale investments. NbS projects achieve lower rates of return than institutional investors desire; indeed, many benefits they are targeting are non-financial.

NbS also takes longer to generate returns than most financial institutions are prepared to finance. Because of the significant upfront costs of an NbS investment, projects are often only viable if they achieve economies of scale. However, only 10% of NbS projects achieve more than $100m in financing. Coupled with insufficient short-term return, investors are not willing to incur such large costs upfront.

More fundamentally, NbS is, as the name implies, reliant on nature to succeed. There are uncertainties about how natural assets will develop, increasing the risk to the investment. Other types of risks a project may face are operational (e.g. cooperation within a large landscape), legal (e.g. questions about ownership and risk allocation), economic (i.e. stability of carbon/other ecosystem markets), and regulatory.

Finally, projects that can achieve scale and thus attract large financing require significant coordination across a large area. Coordinating and governing this poses challenges in garnering support, and sufficient expertise in monitoring and oversight to achieve success.

In some cases, lack of finance may not even be the problem. We see that hurdles for NbS financing also lie further upstream in the process, before projects are even established as a viable investment. As a cost analysis for grey infrastructure is widely standardised throughout industries, such projects can easily appear more viable than NbS, where such standardisation is lacking. 

A Reframing

NbS is often treated as something that needs to generate returns on its own. We now know that this framing creates the problem it is trying to solve.

NbS does not behave like a standalone asset. Rather, it underpins the performance of assets. It stabilises systems, reduces risk, and enables infrastructure, energy, and land use projects to operate over time.

The question is no longer whether NbS can meet the expectations of traditional investments. It is whether projects that ignore ecosystem function can remain viable at all.

Embedding NbS within business models follows from this. It aligns ecological function with economic activity, rather than trying to force one into the logic of the other.

1. Embedding NbS

Embedding NbS within an existing intervention opens a pathway for impacting landscapes at a larger scale, while stabilising these systems through the critical services nature provides. This holds several key advantages over the conventional financing approach to NbS. Crucially, it means that our approach to NbS is focussed on system wide approaches rather than point solutions to issues e.g. carbon sequestration. Furthermore, investors are often already comfortable with projects in transport or energy; thus, the embedding of NbS within them de-risks nature as a financing component. In addition, integration across sectors offers a key opportunity for impact, and provides a diverse portfolio to investors, with many different investible avenues aggregating across the project.

Embedding NbS within landscape projects alleviates many of the concerns that investors have raised with the traditional financing approach to nature projects.  In this model, we no longer need to fret about NbS yielding short-term returns on investment, since it is coupled to revenue generating elements which can provide short-term revenue to complement the longer time horizons of NbS.

2. Governance for NbS

In this embedded model, effective governance serves to ensure that NbS’s potential functionality is achieved. It is unlikely that one entity or business will be able to implement NbS at the scale needed to allow ecosystems to fully function – hence our emphasis on collaborative cross-sectoral projects.

A good example is a water company wishing to improve its water quality and quantity through changes in land management. Much of the land which needs to be managed differently will not be owned or controlled by the water company. Thus, governance should enable a common purpose across this landscape to embed NbS.

While the choice of governance model depends on the type of intervention, a few principles apply broadly. Because systems change requires large-scale, cross-sector collaboration, institutions must coordinate expertise across sectors and organisations, while integrating local knowledge and input. Governance should meaningfully engage local stakeholders, giving those with a stake in the project’s success a real voice in decision-making. Finally, governance structures need to remain adaptive — able to evolve with changing circumstances and support diverse interventions developing both independently and together.

Final thoughts

When we talk about regenerative systems, we are talking about designing a system that provides stable, sustainable, ecosystem-restoring functionality year-on-year. Nature is fundamental to this. In particular, NbS  acts as an enabler - providing essential risk mitigation and stabilising ecosystem services. Adopting this reframing will embed NbS within large-scale projects much more effectively than current approaches to NbS financing can.

Embedding NbS is not a workaround: NbS fails when treated as a standalone investment but works when treated as embedded infrastructure within a revenue system

Rather than a financing gap, NbS becomes a design choice and a different way of defining what a viable project is. It is not the only answer, but one that aligns economic activity with living systems.

To learn more, read North Star Transition’s full report here.