Global efforts aim to advance Nature-based Solutions (NbS) and secure funding for widespread adoption. In the previous article of this series, we discussed financing requirements, sources of capital, and the commonly used instruments. Despite the potential for higher private sector participation, public finance remains the dominant source of funding for NbS. In this blog of the series, we focus on some of the structural, institutional, and operational challenges that limit the bankability and scalability of NbS and, as a result, restrict private finance flows.
Structural heterogeneity from a broad definition
The expansive definition of NbS contributes to structural heterogeneity in both financing approaches and stakeholder participation. On one hand, the breadth allows NbS to act as an umbrella concept, linking multiple policy agendas like climate, biodiversity, water, and food security through a multi-stakeholder and multidisciplinary approach. On the other hand, it creates design complexities that require robust governance, community engagement, and ecosystem-based cost-benefit analyses.
This diversity in design requirements, sectoral priorities, and policy contexts leads to fragmented financing modalities and inconsistent stakeholder engagement. Adding to this is the lack of standardised classification systems, which makes interoperability across geographies and sectors difficult.
Limited structural adjustments in macroeconomic accounting
Another key challenge lies in the way macroeconomic systems account for nature. Ecosystems are still largely treated as externalities rather than productive, risk-hedging, and cash-flow-generating assets, which directly affect private finance flows.
For example, while the System of National Accounts (SNA 2008) provides for accounting of natural resources, most countries do not yet reflect natural capital in their accounts. [1] The System of Environmental-Economic Accounting (SEEA-CF) was adopted in 2012 to bridge this gap, and its 2021 extension, the SEEA-EA, integrated ecosystem services into both physical and monetary terms.[2] Yet, the 2024 Global Assessment of Environmental-Economic Accounting shows that only 94 countries have implemented SEEA to varying degrees. [3]
This slow and partial uptake limits the ability of investors to assess nature-related risks and returns. Without robust and comparable macroeconomic data on ecosystem services and natural capital stocks, NbS valuations remain fragmented, leading to higher risk premiums and lower private finance flows.
Operational hurdles in designing bankable NbS
At an operational level, NbS face the absence of tested and standardised business models. Critical aspects such as demand assessment, cost and revenue structures, monetisation of societal benefits, and timelines for realisation — remain unclear. This lack of clarity reduces the bankability of NbS projects (WWF, 2025 and 2022). The challenge is further compounded by temporal and valuation asymmetries. Besides, NbS often involves higher upfront financial costs, while their societal and financial benefits are realised over long gestation periods. In the absence of sufficient public, concessional, or philanthropic capital to de-risk such investments, private financiers remain hesitant, as their expectations are usually aligned with near-term returns.
Progress through global initiatives
Despite these systemic barriers, progress has been made. Several global initiatives are working to create enabling ecosystems for NbS financing.
- The IUCN has developed a global standard to provide frameworks for the design, verification, and scaling of NbS.
- The International Finance Corporation (IFC) has published sectoral catalogues to help investors and project developers identify bankable interventions
- The NGFS has advanced frameworks on nature-related financial risks to guide central banks in integrating environmental considerations into policies.
- The World Bank has issued guidelines for project developers to strengthen cost-benefit analyses of NbS (Zanten et al., 2023).
In addition, disclosure and target-setting frameworks have emerged as important complementary tools. The TNFD has recommended disclosures on nature-related dependencies, risks, and opportunities, while the UNPRI, Science Based Targets, UNEPFI-PRB, and other institutions are aligning investors, financial institutions, and corporations more closely with NbS.
The road ahead
NbS have made significant progress, but not enough for combating the climate crisis and biodiversity loss. Mobilising capital at scale requires convergence between policy, finance, and science:
- Integrating natural capital into public accounts to reduce information asymmetry, and better tracking and management of natural resources, and better linkage of policy and planning.
- Developing robust business models that assess the viability and growth potential of NbS.
- Building human capital expertise to improve efficiency and effectiveness at all stages of NbS implementation.
- Strengthening collaboration between public and private finance, with knowledge-sharing processes that refine existing instruments and reduce the costs of developing new ones.
By Honey Karun, Economist, Climate and Sustainability Initiative (CSI). Views expressed are personal.
References
International Monetary Fund. System of National Accounts 2008, (USA: International Monetary Fund, 2009) accessed August 24, 2025, https://doi.org/10.5089/9789211615227.071
Van Zanten, Boris Ton; Gutierrez Goizueta, Gonzalo; Brander, Luke Mckinnon; Gonzalez Reguero, Borja; Griffin, Robert; Macleod, Kavita Kapur; Alves Beloqui, Alida Ivana; Midgley, Amelia; Herrera Garcia, Luis Diego; Jongman, Brenden. 2023. Assessing the Benefits and Costs of Nature-Based Solutions for Climate Resilience: A Guideline for Project Developers. World Bank. http://hdl.handle.net/10986/39811
World Wildlife Fund (WWF). (2022). Common success factors for bankable nature-based solutions. https://www.wwf.org.uk/sites/default/files/2022-08/Common-success-factors-for-bankable-NbS-report.pdf
WWF. (2025). Balancing Bankability and Integrity: Fostering Investment-Ready Nature-based Solutions. Chausson, A., zu Ermgassen, S., Bull, J. W., Hafferty, C., Milner-Gulland, E. J., Newing, H., Swinfield, T., Thompson, B., & Carter, H. WWF-UK, Woking, United Kingdom. https://www.wwf.org.uk/sites/default/files/2025-03/Balancing-Bankability-and-Integrity-report.pdf
Endnotes
[1] See Chapter 10, Section D. System of National Accounts, 2008. https://unstats.un.org/unsd/nationalaccount/docs/sna2008.pdf
[2] SEEA-CF aims to establish concepts, definitions and classifications needed to support integrated accounting, which can allow assessment of the use and availability of natural capital, emissions from various economic activities etc.
[4] For example: https://www.ifc.org/content/dam/ifc/doc/2024/nbs-for-cities-solutions-and-examples-for-municipalities-and-private-sector.pdf ; and https://www.ifc.org/content/dam/ifc/doc/2023/catalogue-of-nature-based-solutions-for-infrastructure-projects.pdf
