Nature Positive Financing the Tranisition in Cities

Most finance for cities is allocated through government budgets, but development finance sources – mainly MDBs – and philanthropic support continue to provide essential, supplementary, and derisked finance to large urban development programmes. We can expect an increase in private sector participation in nature-positive finance as private developers become more interested in investing in projects with measurable positive impacts on the environment; but that participation will still necessitate greater commercial viability of projects. These supplementary sources of finance are essential to bridge the funding gap, build critical infrastructure and transform cities as they continue to grow. Cities around the world are developing strategies to attract new finance and creating initiatives with the private sector that make use of blended capital for nature protection and restoration. This collaborative process should operate across a long-term horizon to ensure success. National, regional and local governments Governments are the largest financers of urban development and provide support for nature by creating policies and frameworks that prioritise nature-positive urban development. Despite this, national governments allocate and spend less than 0.1% of their national budgets on biodiversity and five countries account for more than 75% of global biodiversity spend. Subnational governments play a key role in public investment in nature-positive infrastructure for economic development and well-being. At present, subnational governments account for nearly 60% of total public investment on average across countries in the Organisation for Economic Co-operation and Development (OECD). Municipal governments will need to create fiscal space and prioritize nature investments to ensure they do not compromise financial sustainability. MDBs have a role to play in supporting these efforts by assisting with reallocating existing funds or unlocking new sources of revenue.Philanthropy Philanthropy channels resources from affluent individuals and corporations through organizations with significant expertise in addressing social and environmental challenges. It has historically played a vital role in urban development as well as social and environmental welfare. Philanthropic groups are among the most effective nature and climate advocacy groups, playing an important role in drawing increased attention towards sustainable action across public and private sectors. Philanthropy has proven essential in driving progress across many critical environmental issues yet only 11% of total philanthropic spend is represented by corporate philanthropy. However, giving for climate and nature is a growing practice. According to the World Economic Forum’s 2024 report, The Role of Corporate Philanthropy in Accelerating Climate and Nature Transitions, global corporate philanthropic funding for environmental causes alone represents almost half of all corporate philanthropy today, and saw a 127% rise in dollar terms between 2018 and 2022. Philanthropy strengthens advocacy and community engagement and is critical to empowering grassroots organizations and Indigenous groups as key stewards of nature. In the urban realm, philanthropy is essential as a catalyst for de-risking private sector investment and unlocking future finance. Private sector For greater private sector involvement, cities need to generate opportunities that enable the creation of revenue streams associated with nature. These are mostly generated through the protection, restoration and sustainable management of nature (e.g., through resorts and reserves) or by internalising positive externalities and compensating for business action (e.g. through participation in nature credit markets). Actions from companies have to have a measurable benefit for nature to be considered nature positive, which could be done through a broad set of actions from technological innovations to green space protection. As a result, private sector investment in nature tends to increase only when there are clear dependencies on natural resources, or when the financial benefits and risks behind sustainable practices become evident.27 Businesses dependent on wild pollinators, marine fisheries and forest timber could stand to lose $2.7 trillion in global GDP annually if sustainable practices are not introduced soon based on current nature loss trends, meaning that they have an interest to act on reversing their loss. 2.3 Nature-positive finance in cities 0.1% or less of national budgets is allocated to biodiversity by governments globally. Nature Positive: Financing the Transition in Cities 14