GFI launches new investment readiness toolkit: to create investment ready nature projects and mobilise private finance into nature restoration

by | Dec 8, 2022

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With COP15 now underway, this new UK investment toolkit sets out clear pathway to create ‘investment ready’ nature projects, urgently mobilising private finance into nature restoration and climate mitigation. In support of this goal, the project looks to help channel financial commitments into tangible projects on the ground.

The Green Finance Institute has today launched the Investment Readiness Project Toolkit, a new online platform that will accelerate the development of investment ready nature-based projects in the UK.

By setting out eight critical milestones to investment readiness – each with sets of considerations and case studies – the toolkit helps bridge the gap between project developers and investors or lenders, mobilising private finance into the restoration of nature and nature-based solutions.

 

Eight milestones to investment readiness

Private sector investment in nature is urgently needed if the UK hopes to meet its nature-related goals, such as the reduction of flood risk through natural flood management, carbon sequestration and sustainable soil management. Up to £97 billion in investment is required over the decade ahead.

In order to put money to work, the private sector will require a pipeline of high-integrity nature recovery projects at scale that meet their requirements, be that through the provision of cost savings, nitrate reduction, carbon credits or biodiversity units, or, in the case of lenders and investors, that provide a return in addition to environmental benefits.

 

Project development, however, is often unique, and can take several years with multiple false starts before being able to attract private sector finance.  

Grounded in extensive research with project developers, consultants and investors, the Investment Readiness Project Toolkit breaks down the pathway for developers to follow and more swiftly reach a stage of attracting private sector finance. It guides project developers – including farmers, estate owners, charities, local authorities and project aggregators – from initial scoping, through the identification and engagement with sellers and buyers and establishment of governance structures, to the end point of signing legal contracts with key stakeholders including investors or lenders.

Dr Rhian-Mari Thomas, CEO, Green Finance Institute said: “As the Convention on Biological Diversity (COP15) begins in Montreal, it’s evident there’s no time to lose in channelling more private investment towards nature-based solutions. The Investment Readiness Toolkit for Nature provides a clear framework to support investment into nature restoration in the UK to deliver the environmental benefits we need to see. With three-quarters of UK FTSE All-Share firms ‘highly dependent’ on natural capital, catalysing private investment into nature to strengthen investment opportunities and scale nature markets is critical to the future and heath of our economy.”

 

Neil Davies, Director of Future Funding at the Environment Agency said: “Attracting investment from the private sector is vital if we are to make significant progress in improving our environment. This step by step guide, illustrated with case studies, including those from the innovative Natural Environment Investment Readiness Fund, highlights aspects to be considered on that investment journey. Through capturing the value of the carbon, water quality, biodiversity and other benefits provided by our natural environment, both ourselves and our project partners can use this approach to address the nature and climate emergencies we are facing.”

Liam McAleese, Director at the Esmée Fairbairn Foundation said: “Across the UK, over 100 projects are working hard to develop nature restoration investment readiness projects. The toolkit will help these developers on that pathway, being able to learn from each other, move at pace and ensure a pipeline of high integrity projects designed around outcomes for nature and communities. The Esmée Fairbairn foundation are proud to support the GFI Hive toolkit.”

Robbie Kernahan, Director – Green Economy, at NatureScot said: “NatureScot welcomes this new toolkit to support and guide innovative project developers. Its publication is an important milestone in the mainstreaming of private investment in nature and the development of high-integrity environmental markets.  As well as helping project developers it will also facilitate the design and operation of future investment readiness programmes.”

 

Eoin Murray, Head of Investment at Federated Hermes Limited said: “Enabling the development of a suitable pipeline of projects is a critical component of the scaling of the nature-based solutions marketplace.  The Toolkit, through its supported of that pipeline, will enable us to deploy significant sums of institutional capital and give investors confidence on the investment readiness of the market.”

Lord Benyon, the Environment and Green Finance Minister said: “A thriving natural world where habitats and species are abundant is absolutely essential for our food and economic security, as well as efforts to tackle climate change.

“This Government has set a target to stimulate at least £500 million of private investment for nature recovery in England each year and I welcome efforts that build the capacity of nature projects to mobilise this much-needed finance, restore landscapes and halt species decline.”

 

The toolkit has been developed based on learnings from projects across the UK, including those in the Natural Environment Investment Readiness Fund and the Investment Ready Nature Scotland Grant Scheme. Its milestones are applicable across a range of environmental outcomes, such as the delivery of woodland creation, peatland restoration, nutrient reduction, natural flood management and biodiversity uplift.

What is ‘Investment Readiness’?

All nature-based projects and enterprises will need a buyer of their ecosystem service, whether that is a corporate buying carbon offsets, a housing developer buying nutrient offsets or a local council buying reduced flood risk. This income can sometimes be delivered early enough to cover the costs of the project so that, together with grant funding, the need for a loan or investment is eliminated. In many cases however, a separate upfront investment will be needed, such as a loan or an equity stake, to be paid back from the sale of your ecosystem service, plus an additional financial return. Investment readiness in the context of this toolkit refers to this upfront investment – the stage at which private investment or a loan is ready to be deployed. The toolkit, however, will be also helpful for those seeking buyers only.

 

This framework defines ‘Investment Readiness’ as a stage in the development of a project or enterprise at which private investment or a loan is ready to be deployed. At this stage, the project or enterprise will be able to demonstrate that it is:

Profitable
All proposed financial obligations, including returns on investment can be met

Delivering environmental outcomes
Scientifically-credible baselining, metrics and delivery and maintenance plans are in place

Secure
Any risks that threaten the project are mitigated or managed

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