Nature as an Asset Class or Public Good? The Economic Case for Increased Public Investment to Achieve Biodiversity Targets

Abstract

Mobilising private institutional investors to fund global biodiversity goals has become a hegemonic narrative within environmental policy and sustainable finance circles. We challenge its underlying economic assumptions and question the deprioritisation of direct public investment in nature. Financial instruments for attracting large-scale private finance into conservation often incur high transaction costs to ensure ecological effectiveness, which potentially conflict with institutional investors’ need for competitive returns, market efficiency, and investment scalability. Market-led environmental governance approaches are frequently plagued by fundamental conflicts of interest, thus failing to mitigate this trade-off. Strategies to mobilize investor involvement by using public funds to ‘de-risk’ nature investments may not be as promising as assumed, given the costly exercise required to render nature markets conventionally ‘investible’. Given these ongoing problems, we explore the economic case of increasing direct government investment to achieve biodiversity targets, as part of broader green industrial strategies. Public financing is often more suitable to incentivize the imminent bundled nature of ecosystem services provided. Contrary to the conventional framing, well-targeted public nature investment may be a macroeconomically sound way of ensuring the provision of ecological public goods that are critical to economic productivity and resilience.

Keywords: biodiversity finance, nature markets, blended finance, public investment

JEL Classification: Q57, Q58, E62