Nature Positive Financing the Tranisition in Cities

To effectively integrate nature into urban planning processes and maximize impact, cities should use innovative and sustainable funding mechanisms. Nature- and sustainability-related instruments provide a greater level of control over managing the nature impact of investments in urban development and ensuring the support of actions that protect, restore or enhance sustainable use of nature. These often have more strict eligibility criteria to ensure a positive impact on nature, and can incentivize developers to offset negative impacts. Urban financiers, including MDBs, deploy a range of financing mechanisms, of which a significant number have been created specifically for nature and environmental investments. These include market-based solutions (loaned on debt or equity bases), policy-based tools (policies and regulation support), and partnerships and blended finance mechanisms (PPPs). Other innovative nature financing mechanisms, such as land value capture and payment for ecosystem services, are used to capture direct economic benefits from projects. Despite the multitudes of financial mechanisms available for use, MDBs still largely use investment loans across all income economies. In total, 61% of climate finance in low- and middle-income countries and 80% of finance in high-income countries comes from investment loans alone.3.6 Major funding mechanisms and the opportunity to further mainstream nature Overview of instruments for mainstreaming nature and advancing nature-positive finance TABLE 1 Source: World Economic Forum and Oliver Wyman.Funding types Funding sources Debt Equity Risk mitigation instruments Policies and other instruments National governments –Sustainability-linked bonds and loans –Sovereign debt –General obligation (GO) bond infrastructure debt funds –Blended finance instruments –Green revolving fund –Risk guarantees –Risk insurance products –Payment for ecosystems services schemes –Land value capture mechanisms (tax increment financing) –Externality taxes (e.g. carbon, land and water) –Land banking and readjustment Central banks –Monetary policy incentives –Disclosure regulations Development banks (NDBs, MDBs) –Sustainability-linked bonds and loans –Sustainability Sukuk –Use-of-proceeds bonds –Catastrophe bonds –Debt-for-nature swaps (DNS) –Blended finance instruments –Revolving funds –Private equity –Equity futures –Project-level equity –Risk guarantees –Risk insurance products –Technical assistance –Public-private partnerships –Payment for ecosystems services schemes –Land value capture mechanisms (tax increment financing) Commercial banks –Commercial loans –Sustainability-linked bonds –Catastrophe bonds/ insurance pool –Risk guarantees and insurance products –Syndicated loan –Yieldcos –GO bond –Revolving funds –Green investment funds –Sustainable EFTs and indices –Public-private partnerships –Payment for ecosystems services schemes –Land value capture mechanisms (tax increment financing) –Pooled finance/procurement Insurance companies –Private equity –Equity futures –Risk guarantees –Risk insurance products –Public-private partnerships Private capital –Sustainable EFTs and indices –Private equity –Equity futures –Property taxes from nature markets –Blended finance instruments –Pooled finance –Land sales and leasing Not-for-profits –Sustainability-linked bonds and loans –Green investment funds –Sustainable EFTs and indices –Sale of market goods Foundations and philanthropies –Green investment funds Public sector Private sector Other Nature Positive: Financing the Transition in Cities 23