Shifting nature-finance flows towards emerging investment opportunities in emerging markets

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Shifting nature-finance flows towards emerging markets

With world leaders from governments and climate-focused organizations such as the Climate Group, UNEP-FI, and the IIGCC calling for a faster pace towards a just transition and increased climate finance flows, New York Climate Week reinforced that governments and investors from developed economies must accelerate action to mitigate and adapt to the climate crisis.

Attendees from all over the world participated in in-depth climate and nature conversations, with more participation and representation from the financial sector within events and discussions than in previous years. For example, this year’s Nature Hub focused on influencing investors and financial institutions through calls to make financial commitments in advance of COP16 and COP29, and provided ample opportunities to learn and exchange knowledge through finance for nature-focused events and networking hubs. In addition, the UNEPFI’s Sustainable Investment Forum saw 500 institutional investors and financial leaders discussing partnership opportunities and ways to advance global sustainability, with the day including panels on how to facilitate a nature-positive transition and how investors can support inclusive development in emerging markets. Discussions at these events include a renewed acknowledgement of the true scale of the climate and nature finance gap at present, accompanied by announcements of new financing commitments, reports, and deals. Key finance for nature announcements include the launch of the High Integrity Forest Investment Initiative (HIFOR), which aims to directly support tropical forest integrity and biodiversity maintenance through ‘HIFOR units’, and the LEAF Coalition’s pledge of 180 million USD worth of carbon credits to support the Brazilian state of Para’s efforts to combat deforestation.

Growing investment opportunities in developing nations

The growing amount of ambitious nature-positive investments in emerging economies is promising, but it is still not enough. Whilst some of the biggest opportunities within the nature investment market lie within developing nations, a lack of financing means that a wealth of unrealized opportunities stay dormant. Barriers to scaling up investment in these areas include a lack of appropriate financing instruments, underdeveloped policies and regulations, and a lack of credible data .

Despite this, the pipeline is still growing, and new investment models are attracting attention from the private sector. Brazil, for example, is the largest potential market for Nature-based Solutions (NbS). Within the last 12 months, at least USD $1.67 billion of capital was allocated to NbS in the country, and multiple case studies have demonstrated the growing impact and success of different investment models. Factors for success have included recognizing community engagement and support, developing new nature technology to improve integrity and certification, and using innovative financial mechanisms to help lower the cost of capital overall.

Overall, shifting private investment focus and enabling the conditions for success in the Global South requires more catalytic capital and structural changes. To support the growing pipeline of opportunities, innovative financing mechanisms and incentives could help promote private capital flow into NbS in developing countries. Blended finance, for example, is a powerful risk-sharing tool that can bridge the climate finance gap, enhance resilience, and unlock more private-sector investment for nature.

Investing in nature in emerging economies: MFF and FMO invest in BTG Pactual TIG’s Reforestation Strategy

As part of New York Climate Week, MFF and FMO announced a USD $55 million commitment to reforestation in Latin America through BTG Pactual Timberland Investment Group’s Reforestation Strategy. The investment focuses on the conservation, restoration, and planting of deforested and degraded properties, including within the Cerrado biome – one of the most diverse ecosystems in Brazil . By dedicating half of the investment to sustainable commercial tree farms and the other half to projects that restore and protect native ecosystems, the fund integrates sustainable production models with biodiversity conservation and greenhouse gas sequestration goals.

The investment is a combination of MFF funds and FMO’s own balance sheet, with MFF’s portion of the investment designed to encourage additional private sector investment in the project by providing downside risk protection and potential returns enhancement. Ultimately, the blended finance transaction is expected to support climate mitigation efforts and strengthen sustainable forest management practices, as well as providing jobs and expanding economic activities in rural areas of the country.

FMO manages Mobilising Finance for Forests (MFF), a UK Government-funded blended finance investment program which aims to combat deforestation and other environmentally unsustainable land-use practices that contribute to global climate change. With a €178 million (£150 million) commitment from the UK Government, MFF aims to catalyze €1 billion of private sector investment into forestry and sustainable land use projects in Africa, Asia, and the Amazon Basin over 5 years.

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