In his recent acceptance speech, newly re-elected President Trump praised American oil reserves, calling them “liquid gold.” It’s an old story, one that sees fossil fuels as the bedrock of prosperity. But in a world facing environmental and climate crises, it’s time to expand our understanding of wealth. Imagine if we saw trees, wetlands, and biodiversity as valuable assets worth protecting and investing in, much like oil fields are today.
This shift requires not only policy and market innovation but also bold financial support from those who can lead by example.
Here’s how catalytic finance can help make natural ecosystems a critical part of our economy:
Price the true cost of carbon to make fossil fuels less attractive and level the playing field for cleaner alternatives.
Develop market mechanisms that value nature’s broader benefits, from biodiversity to water and air quality, so that ecosystems can be valued and protected.
Mobilise catalytic finance to support nature-based projects now, filling the gap while we wait for policy and regulation to catch up.
Empower philanthropic capital to lead by example, taking on the early risk in projects where traditional investors might hesitate, and enabling these initiatives to move forward.
Let’s unpack these points in more detail.
Pricing the Cost of Carbon: A Necessary First Step
Moving away from fossil fuels is a complex process that won’t happen overnight. Oil, gas, and coal, are still vital to the global economy, and a sudden halt would destabilise economies. Instead, we need a transition that makes fossil fuels more costly while promoting cleaner alternatives. Carbon pricing is a key tool in this transition, assigning a cost to the emissions that fossil fuels create.
Every barrel of oil burned releases about 0.43 tonnes of carbon dioxide, yet fossil fuel companies rarely bear this cost. Carbon pricing forces these companies to pay for the emissions they produce, making cleaner energy sources more attractive by comparison. With carbon pricing systems expanding globally, we’re starting to see a financial burden on emissions; one that makes room for cleaner alternatives to take root and grow.
Valuing Nature Beyond Carbon: Creating a Market for the Positive Externalities of Nature
Carbon pricing is crucial, but it’s only part of the story. Climate change is not just about carbon emissions; it also encompasses biodiversity, water availability, and soil health. Our planetary boundaries—those ecological limits we cannot exceed without severe consequences—are being pushed to critical points. Ignoring this broader context risks irreversible harm, not only to the environment but to human well-being and economic stability.
Forests, wetlands, and other ecosystems provide us with more than beauty; they clean our air, preserve biodiversity, and support our ecosystems. Yet, the services our forests, wetlands, and other ecosystems provide are going unpriced, leaving nature’s vast benefits invisible in our economic systems.
Imagine a system where preserving a forest is financially incentivised not only because it captures carbon but because it houses biodiversity, sustains indigenous communities, and protects watershed ecosystems. For this to happen, we need a real, functioning market for biodiversity and nature-based services. The idea may seem lofty, but as global frameworks for biodiversity protection emerge, like the Kunming-Montreal Global Biodiversity Framework (GBF) and the Task Force on Nature-related Financial Disclosures (TNFD), there is potential for this concept to take hold. When nature can be valued beyond carbon credits, it opens the door to larger investments and a healthier planet.
Bridging the Gap: Why We Can’t Wait for Policy Alone
Ideally, we’d live in a world where policy and regulation provide a stable framework to value and protect natural assets. But governments are slow-moving, and political agendas shift frequently, especially in democracies, creating uncertainty that hinders investment. The recent U.S. election, for example, may signal limited policy support for such efforts.
Elsewhere, regions like the EU are moving forward. Their Carbon Border Adjustment Mechanism (CBAM) charges for the carbon content of imported goods, forcing international businesses to account for their emissions. It’s an important signal that demonstrates how policy can drive change. Still, policy moves slowly, and we can’t afford to wait, if we want to sustain human life as we know it.
Currently, many projects that have enormous environmental benefit do not make commercial sense, and this is largely driven by the perceived regulatory and political uncertainty, and therefore the risk premia that investors require.
This is where catalytic finance comes into play. In the absence of mature regulatory support, a blended finance model offers the financial tools needed to make nature-positive projects viable today.
Take a native reforestation project as an example. A financial investor may look at this project and determine they need a 15% return on investment for the level of risk they are taking. They can value the carbon credits that the project will generate (although they have had to take a very conservative carbon price forecast, given ongoing shifts in policy). Currently the project is only forecast to generate a 12% IRR.
The financial investor can not value the other positive externalities that the project is likely to generate because there isn’t a viable or liquid enough market for them to have confidence in its “commercial” value. This means a lot of projects that have strong environmental and social outcomes, typically don’t go ahead.
Philanthropic capital, whether from foundations or grant makers, can recognise and value the positive externalities of a project. By using a blended finance approach, each party can contribute according to their priorities—the foundation or grant maker can fund what aligns with their values, while investors focus on the returns they seek.
Back to the example: The reforestation project currently offers a 12% return if an investor puts in the full $10 million in equity needed. But with catalytic finance, a foundation could step in and provide a $2 million interest-free loan. This reduces the investor’s equity contribution to $8 million, which boosts their return to the target 15%. The foundation is willing to accept a lower return on their loan because they see the environmental impact as part of their return—and without their support, the project wouldn’t be financially viable.
This makes the project commercially viable, and enables a project to go ahead that otherwise would not.
By supporting these projects now, catalytic finance helps us take immediate action on the climate and biodiversity crises while markets mature.
Act Now: The Way Forward
The temptation to wait for a global political consensus is strong, but we don’t have time. The climate and biodiversity crises are real and immediate, and solutions can’t wait for slow-moving policy changes. For philanthropic capital, the opportunity is clear: lead by example. Every concessional loan or grant can de-risk projects for other investors, building a bridge to a future where nature is valued as an asset. The urgency is undeniable. By stepping up now, philanthropic capital can pave the way for scalable solutions that will attract institutional capital, ensuring these projects can thrive beyond the support of philanthropy.
By embracing catalytic finance, accelerating policy frameworks, and pricing both the negative impacts of emissions and the positive contributions of ecosystems, we can reshape the market’s view on nature. Trees can be worth their weight in gold, if we’re willing to change the way we think, value, and invest in the planet around us.
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