Nature Related Sustainable Finance in China 2025

Unlocking funding pathways through insurance mechanisms in Lishui 44 Farmers EvaluationBankInsured future revenue collateral loan Evaluate SecureBuy Forest carbon sink price index insurance Forest carbon sink insurance Insurance companyInnovation Provides pricing basis for insurance productsForest carbon sink certificateB. Establishing diversified risk transfer and compensation mechanisms: Innovative insurance models, including risk transfer, loss compensation and disaster prevention, can help close the financing loop by mitigating risks and ensuring project sustainability. Lishui city offers a promising solution for making nature- related projects profitable, by integrating innovative insurance mechanisms. Farmers use future revenue certificates from forestry-related carbon sinks as collateral for loans. The loans are supported by “Forest Carbon Sink Insurance” and “Forest Carbon Sink Price Index Insurance”. The involvement of insurance lowers loan interest rates by 10 to 50 basis points compared to conventional loans,45 while also increasing the loan amounts available to farmers.This model effectively transforms the environmental value of carbon reduction into a financial asset, opening funding pathways for more nature conservation and restoration projects. The cooperative mechanism between banks and insurance companies helps transfer risks, provide compensation and mitigate potential losses, making it easier for private institutions to engage. Figure 13: Insurance-driven financing flow in Lishui’s forest carbon sink projects C. Expanding collateral options to improve credit mechanisms: Introducing new forms of collateral based on natural assets or ecosystem services can significantly enhance the creditworthiness of biodiversity-related projects, thereby facilitating greater access to finance for nature-positive initiatives, particularly for small and medium-sized enterprises (SMEs). A key example of successful collateralization in the sustainable finance space is carbon credits, which have a well-established system that includes clear metrics, verification, certification and trading. These systems enable carbon credits to be used as collateral in financing transactions, creating a reliable and scalable asset for financial institutions. Similarly, biodiversity credits, or ecosystem service-related credits could be developed by adopting a comparable framework, which would mobilize financial institutions to assess and incorporate nature-related risks and opportunities into their lending decisions. This approach would unlock a wider range of collateral options for projects favouring nature-positive outcomes, attracting more diverse financial support and driving increased investment for nature. 21