Finance Solutions for Nature 2025

2.1 Sustainability-linked bonds and thematic bonds SLBs and thematic bonds are established bond structures for nature-positive projects, corporates and sovereigns. Overview Sustainability-linked bonds (SLBs) are outcome- based, tradeable fixed-income instruments with coupon rates tied to meeting entity-wide environmental or social key performance indicators (KPIs). Failing to hit KPIs raises coupon rates – or “step-ups”; overperformance can trigger a decrease in coupon rates – or “step-downs”. Thematic bonds (or green, social and sustainability – GSS – bonds) are tradeable fixed income instruments whose “use-of-proceeds” (or total sum raised) is earmarked for specific environmental and social projects. Together with SLBs, they may be referred to as GSS+ bonds. Bonds are multisectoral instruments. SLBs are typically issued by corporates or governments; thematic bonds are used by public or private projects. They attract a wide investor base, including institutional investors, asset managers and banks, seeking returns, thematic alignment and diversification. The Green Bond Principles and Sustainability- Linked Bond Principles of the International Capital Markets Association (ICMA)24 set global norms on annual reporting, KPIs and independent verification. The European green bond standard of the European Union (EU)25 and ICMA’s labelling guidance on sustainable bonds for nature align nature-related projects with global biodiversity goals and streamline reporting across GSS+ bonds.26 Potential to mobilize capital for nature In 2024, labelled bond issuance reached $1.1 trillion – 57% as green and blue bonds, but just 5% as SLBs.27 Thematic bonds remain preferred by many investors due to clearer tracking of outcomes and lower greenwashing risks. Nevertheless, nature-related themes (e.g. water, pollution control, resource conservation) still made up only 18% of thematic bond issuance in 2023.28 The familiar bond structure and robust ecosystem of issuers and exchanges makes them attractive and efficient products, especially in developed capital markets. However, capital access remains costlier in the Global South, home to seven of the 17 mega-biodiverse countries with below investment grade ratings.29 Issuances are typically large. SLBs range from $100 million to $3 billion; thematic bonds range from $10 million to $10 billion. Credit-enhancement and bundling can help smaller projects tap capital markets. Bonds can finance capital-intensive business models and large-scale nature investments, including sustainable agriculture, energy, ocean industries, habitat protection, sourcing and climate adaptation.30,31 Ability to price nature into markets In principle, both bond types assign financial value to nature outcomes indirectly. Use-of-proceeds bonds ringfence funds for nature-related activities, while SLBs tie coupon rates to performance metrics without fund restrictions, potentially creating stronger incentives. However, neither approach prices outcomes based on natural capital valuation. In practice, weak KPIs and limited penalties in SLBs have triggered investor scrutiny. KPIs are often hard to compare and inconsistent metrics increase transaction costs.32 Besides, most SLBs feature only step-downs in their structure, which typically offer minimal incentives to overperform (e.g. 25bps or 0.25%) and trigger near maturity, while step- ups – the most common incentive – can perversely reward investors for issuer failure with higher yields. Use-of-proceeds bonds can face scepticism for nature-related investments, with concerns over the returns generated by nature-related projects. This can result in a limited “greenium” (i.e. a price premium for green bonds) regardless of application or impact. Pathways to mainstream Scaling-up robust nature-linked bonds requires standardized, high-integrity nature metrics, KPIs and reporting. This demands coordination among regulators, investors, project developers, data platforms and standards bodies. ICMA’s recent guidance is a step forward.33 Scaling-up robust nature-linked bonds requires standardized, high-integrity nature metrics, KPIs and reporting. Finance Solutions for Nature: Pathways to Returns and Outcomes 16