Good morning from New Economy Brief.
The natural world is in crisis, and evidence that this threatens the economy is mounting.
Halting and reversing these trends requires a big increase in investment. To deliver it, fiscally strained governments worldwide are creating new markets to make nature ‘investable’ for private finance.
This week’s New Economy Brief unpacks the challenges and controversies around funding solutions to the nature crisis with private capital, and looks at proposals for alternatives.
The age of extinction
Biodiversity is declining faster than ever. Land-use change, including clearing land for agriculture and mining, is the main cause, but climate change is increasingly causing habitat degradation and species loss. Experts now believe several critical ecosystems are nearing ‘tipping points’. Crossing these would have catastrophic consequences – such as the rapid loss of the Amazon Rainforest.
There’s no doubt that urgent action is needed. At the 15th UN biodiversity talks (COP15) in 2022, 188 nations approved the Global Biodiversity Framework, a commitment to halt biodiversity loss and restore ecosystems, with 23 ambitious targets for 2030, including protecting 30% of all land and sea. Progress, however, has not been smooth sailing, with nature degradation continuing at a dangerous rate since.
Meeting these commitments also needs investment – over $700 billion a year, according to an influential report by the Paulson Institute. At fraught COP16 talks in 2024 and 2025, participating nations pledged to reach only $200 billion a year in biodiversity finance from public and private sources by 2030. Much of this funding is needed in fiscally constrained, biodiversity-rich Global South countries. Yet high-income countries aim to direct just $30 billion a year in public biodiversity-related spending for low-income countries – far less than their fair share. According to the COP16 agreement, mobilising private finance is the way to fill both domestic and international ‘finance gaps’.
Nature as an asset class
Getting private finance to fund nature requires creating assets it can invest in. Various nature-related financial instruments have been created, from ‘green bonds’ – which allow companies to borrow to fund sustainable activities – to new markets for biodiversity offsets or credits. Here, units of nature can be bought or traded to ‘offset’ damage done elsewhere. This is meant to create a financial incentive for restoration or conservation (a similar concept to carbon markets, whose failures have been well documented).
Can pricing nature work? Ecological economists have long critiqued ‘natural capital’ approaches to conservation. A fundamental issue is that monetary values cannot reflect the complexity of the natural world. Ecosystems aren’t interchangeable - you can’t make up for destroying one with conserving or restoring nature somewhere else. Valuing nature is also practically challenging, and to date the small size, high risk, and low returns of nature projects means that profit-seeking private investors have yet to fund them at a significant scale.
Challenging the private-public dichotomy. According to biodiversity finance expert Sophus zu Ermgassen and co-authors, these challenges mean that cajoling private investment into nature relies heavily on the state, primarily via regulation to create demand for nature assets. For example, England’s biodiversity net gain scheme requires developers of housing, commercial buildings and infrastructure projects to deliver a 10% overall increase in biodiversity. Developers can do this by directly restoring habitats on the site of their developments or elsewhere, or by buying biodiversity credits generated by other projects. However, regulation is vulnerable because of how often it comes up against vested interests or clashes with shifting political priorities – as demonstrated in last month’s partial roll-back of biodiversity net gain requirements.
Poor outcomes for people and planet. Even where private investment has been successfully directed into markets for natural capital, projects have typically failed to improve the environment. Biodiversity offsetting projects, like carbon offsets before them, also have a poor track record for social impacts, with one 2018 study estimating that 34% of all biodiversity offsets lead to displacement of local communities.
Though social impacts are often more direct in the Global South, where more people depend directly on local nature for their livelihoods, similar dynamics have played out closer to home. Large amounts of rural land under unusually concentrated and lightly regulated ownership has made Scotland a particularly desirable destination for investors seeking to profit from natural capital. An influx of rich investors – dubbed ‘green lairds’, are inflating land prices and worsening existing inequities. Laurie Macfarlane argues that this illustrates a fundamental tension in getting private finance to invest in nature: unless you buy the land and make gains from its rising value, nature restoration is not particularly profitable.
What are the alternatives?
Private finance, false economy. According to economist Katie Kedward and co-authors, the sheer difficulty of aligning private motives with environmental benefits without substantial public subsidies makes a strong economic case for more direct public investment. A recent Future Economy Scotland report backs this up, finding that the use of private finance for peatland restoration could increase costs by up to 48%.
Halting destructive activities. Economists at the World Bank’s C3A Nature Transition Hub have argued that the focus on filling the ‘finance gap’ distracts from the need to address unsustainable patterns of production and consumption. To do this, we need to steer financial flows away from harmful activities – including through the use of central bank tools, according to Lydia Marsden from UCL Institute for Innovation and Public Purpose.
International financial reform. The same World Bank economists argue that the ‘finance gap’ rhetoric obscures the need to reform the international financial system, which locks biodiversity-rich Global South countries into producing extractive and polluting exports for Global North consumption. They argue that a more critical approach based on “transforming finance” for the transition is needed to address the nature crisis.
For now, governments look likely to push ahead with market-based approaches to addressing the new age of extinction. But as the limitations of this approach become increasingly clear, and environmental degradation increasingly impacts our economies and livelihoods, governments may be forced to turn to concerted action themselves and provide more direct funding in order to halt destruction.
Too much finance. A range of civil society groups and academics came together at a major conference to discuss evidence that a large financial sector hinders growth of the wider economy and fuels inequality. The conference coincided with the launch of a new report from the Balanced Economy Project, Too Big to Cool the Planet, which argues that the growing size, concentration and power of finance is undermining efforts to tackle climate change, and calls on regulators to intervene to constrain the sector’s influence.
Deregulation. Economist David Aikman and John Vickers, formerly the Bank of England’s Chief Economist, argue that the central bank’s recently announced watering down of bank capital requirements (rules on how much money banks must keep in reserve to cover the risk of loans turning bad) is a ‘capital mistake’. They suggest that rather than driving economic growth, ‘the primary effect of this relaxation in capital requirements is likely to be to boost bank payouts to shareholders’.
Billionaire power. The 2026 edition of Oxfam’s annual Global Inequality Report finds that global billionaire wealth rose by more than 16% in 2025. This year's report also hones in on how growing inequality and billionaire influence in politics, media and legal systems are undermining democracy and fuelling the rise of authoritarianism.
Making offshore wind cheaper. The UK has secured a record amount of new offshore wind capacity in its latest auction for renewable energy projects, boosting the government's ambition for clean power by 2030. However, the New Economics Foundation’s Chaitanya Kumar argues that though record wind power is a cause for celebration, before the next auction the government should take steps to bring down the cost of capital and lower consumer bills.
Tackling economic insecurity to restore trust in politics. New polling from the Joseph Rowntree Foundation finds that almost half of adults in Scotland are worried about being able to afford essentials like food and energy, with economic insecurity strongly linked to feeling let down by politics. The analysis also suggests that undecided voters can be won over by policies to deliver economic change – they strongly supported action to lower energy bills, increase pay for the lowest earners, and provide more social and affordable housing.
