By Caroline Flammer, Columbia University, NBER and ECGI



The biodiversity crisis is one of the biggest societal challenges facing our world. Protecting biodiversity is critically and alarmingly urgent for the planet, our health and well-being, and the world’s economy.

In its Living Planet Report 2022, the World Wide Fund for Nature (WWF) issued a code red alert for humanity and highlighted that the global populations of mammals, fish, birds, reptiles, and amphibians had declined by 69% since 1970.

Moreover, as the UN Environment Programme highlights in its 2022 report, the climate and biodiversity crises are deeply intertwined. Meeting the Paris Climate Agreement goals depends on the successful conservation, restoration, and management of biodiversity. The UN report further points out that the biodiversity crisis represents an existential threat to the global economy as over 50% of the world’s GDP is dependent on nature and the services it provides.

The biodiversity financing gap

Protecting and restoring biodiversity requires considerable funding, which has, in the past, been primarily provided by the public sector and philanthropic organisations. However, this is unlikely to be sufficient. Indeed, in a recent report, The Nature Conservancy estimates that about US$722 billion-US$967 billion per year of additional financing is needed to close the gap and effectively address the biodiversity crisis.

This raises a key question: How can we close this financing gap? One potential avenue is private capital investments. In this regard, a new development in sustainable finance is the emergence of biodiversity finance, in which private investors invest – either directly or through blended finance – in biodiversity projects that aim to provide financial returns and biodiversity impact. While this practice is gaining momentum, it is not well understood.

In a new study, Biodiversity Finance, Thomas Giroux, Geoffrey M. Heal, and I explore this new phenomenon. Specifically, we provide a conceptual framework that describes the monetisation mechanisms and lays out how biodiversity investments can appeal to private investors, and we provide first evidence on biodiversity finance using the proprietary data of a leading biodiversity finance institution.

Risk and returns

Investors care about risk and returns. This is true of i) traditional investors and ii) impact investors, who also value the social and environmental impact of their investments. How can biodiversity investments generate financial returns? This is a tricky question, as biodiversity is a public good – that is, one cannot exclude individuals from enjoying the benefits of biodiversity even if they do not pay for it.

Accordingly, the key is to find a way to monetise the benefits that arise from this public good. This can be done by bundling the public good (biodiversity) with a private good whose value increases with the protection of biodiversity. For example, protecting pollinators (such as bees, beetles, and butterflies) can enhance the farmland’s productivity. Hence, investments that bundle farmland investments with pollinators’ preservation can achieve the dual role of protecting biodiversity while providing a financial return to investors.

Besides returns, the second dimension is risk. While private capital investments in biodiversity may generate financial returns, these returns may not be sufficient to compensate investors for bearing the risks of biodiversity investments. To de-risk biodiversity investments, one potential remedy is to use blended finance. That is, development funding (from the public sector or philanthropic organisations) is blended with private capital to reduce the risk borne by private investors, thereby improving the risk-return trade-off for private investors and making biodiversity investments more attractive.

Private capital investments in biodiversity

To examine private capital investments in biodiversity, we obtained access to the proprietary database of a leading biodiversity finance institution. Given that biodiversity investments are a relatively new phenomenon, the database only includes 33 deals that were closed between 2020 and 2022 and are still ongoing (the average maturity of these deals is eight years). Out of these 33 deals, we find that 19 are financed purely by private capital, while the remaining 14 are blended finance deals.

On average, the pure private capital deals have higher expected financial returns. However, they are smaller and so is their expected biodiversity impact. For larger-scale projects with a larger biodiversity impact, blended financing is the more prevalent form of financing. While these deals have lower expected returns, their risk is also lower due to the de-risking from the blending.

Overall, these findings point towards the existence of a trade-off between financial returns and biodiversity returns, with implications for the type of financing. Projects with higher expected returns can be viably financed through pure private capital, but tend to have lower biodiversity returns. Projects with higher biodiversity returns tend to be less profitable, but can nevertheless appeal to private investors through blending.

Finally, we also obtained data about 32 deals that were under consideration, but ultimately were discarded and did not make it to the portfolio stage. When comparing these discarded deals with the 33 deals that made it to the portfolio stage, we find that the discarded deals tend to have lower expected financial returns and lower biodiversity impact. This suggests that deals need to be sufficiently profitable and impactful to attract capital from private investors. Accordingly, financing biodiversity through private capital investments may not be a feasible option for a large set of biodiversity projects.

In sum, the results from this study suggest that, while private capital investments in biodiversity are a useful addition to the toolbox, they are unlikely to provide a silver bullet against the biodiversity crisis. Although such investments can help close the financing gap and contribute to the conservation and restoration of biodiversity, they are unlikely to be a substitute for implementing effective public policies.


The PRI’s academic blog aims to bring investors insights from the latest academic research on responsible investment. It is written by academic guest contributors. Blog authors write in their individual capacity – posts do not necessarily represent a PRI view.