Nature remains an underinvested yet critical sustainability imperative in Asia Pacific. Sumitomo Mitsui Banking Corporation's latest report explores how we can unlock capital to drive a stable and nature-positive economy
Today, nature remains an underinvested yet critical sustainability imperative in Asia-Pacific. Nature-positive business opportunities in the region could total up to $4.3 trillion in annual business value by 2030, and a loss of biodiversity and nature could threaten up to 63% of Asia-Pacific's GDP. With the understanding that nature underpins sustainable economic growth, a rapid transformation in resource management is critical across the business, finance, and governmental ecosystem. Only then, can we enable nature positivity and safeguard our economies and communities.
This is where nature-positive financing serves as a key enabler within the ecosystem to materially close the funding gap. Through nature-based solutions (NBS), structuring nature-positive financing, and helping businesses integrate environmental risks into financial decisions, financial institutions have a strategic role in the shift towards a stable and nature-positive economy.
As a leader in sustainable finance and commitment to sustainability, SMBC is focused on advancing understanding, fostering collaboration, and developing practical solutions to bridge the funding gap for nature. In a recent report titled "Mobilizing Finance for Nature-based Solutions: New Business Opportunities & Capital Flows", SMBC together with valuable insights from leading organisations with experience investing in and managing nature-based solutions, discussed innovative approaches to nature-positive investments and strategies to unlock capital to scale NBS in the Asia-Pacific region.
Identifying revenue generating models for NBS
To gain a deeper understanding of the challenges, opportunities, and solutions for nature finance, the report takes a closer look at some rich biodiversity hotspots in the region, each with their own diverse habitats and ecosystem services, as well as different financing strategies that were developed. The report identifies four categories of revenue-generating models across these projects, and how financial institutions can contribute to promoting these models.
1. Activating carbon markets
Carbon markets provide a revenue-generating model for NBS by monetising activities including reforestation and sustainable land management, as well as incentivising the preservation and restoration of natural ecosystems while addressing climate change. Financial institutions act as the facilitators, intermediaries, and liquidity providers, to reduce market opacity, create transparent pricing, and manage risks.
While demand for carbon offsetting is projected to grow, carbon credits also offer investment opportunities due to rising carbon costs and potential for portfolio diversification. As voluntary carbon markets mature, financial institutions should explore opportunities in these markets, beyond offsetting.
2. Management of Ecosystem Services
The proper management of ecosystem services can generate significant revenue through practical examples such as charging for water purification services provided by wetlands and eco-tourism fees for maintaining biodiversity-rich areas.
These practices monetise the benefits of sustainable land use, incentivising the conservation and restoration of natural resources, while generating financial returns. They also strongly benefit local communities who have relied on these ecosystems for centuries, supporting their livelihoods and promoting sustainable development.
Financial institutions can support these initiatives by increasing the visibility and dissemination of NBS, and offering green, blue and sustainability-linked financing solutions with performance linked to the implementation of best-in-class practices.
3. Alternative Business Models
Existing businesses have the opportunity to adopt more environmentally efficient and "alternative" methods, which do not require technological innovation. These models align economic incentives with environmental stewardship, benefiting both nature and local communities. For instance, Regenerative Agriculture practices like crop rotation and agroforestry can enhance soil health and biodiversity, allowing farmers to sell carbon credits and reduce costs.
Financial institutions can support the adoption of alternative business models through aggregation of projects and blended finance solutions, promoting the expansion of production areas with regenerative models deployed.
4. Leveraging Technology and Innovation
Technology advancement is key to enhancing the efficiency and scalability of NBS. Financial institutions can support this in various ways, including funding for research and development (R&D), establishing investment vehicles targeted at technology-driven NBS projects, and ensuring the effective adoption of innovations on the ground.
Furthermore, by incorporating these technological advancements into risk assessments and valuation models, financial institutions can incentivise more investments in sustainable and technology-enabled NBS.
What's next for ecosystem participants
In financing the conservation of nature, it is essential to recognise that these initiatives cannot thrive through bilateral efforts alone. Instead, they require the active involvement of all ecosystem participants, including the conservationists, investment funds, technology providers, local and international regulators and corporations.
Non-governmental organisations (NGOs) have a pivotal role to play, with their unique position at the intersection of government, community, and the private sector, where they can help align financial flows with shared environmental goals.
The on-the-ground insights and extensive networks of NGOs enable the identification of impactful projects and the fostering of collaborations across sectors. This ensures that decisions are not made in silos, and conservation efforts are integrated at all levels, including in broader national development plans.
On the other hand, financial institutions are in a critical position to mobilise capital and support NBS at scale. To do so effectively, they must design financial products that bridge the gap between conservation goals and market-driven returns.
SMBC endeavours to drive innovation and foster scaling of impactful nature-based solutions. by broadening its array of nature-related financing initiatives specifically designated for projects aimed at valuing and conserving natural capital.
Through fostering collaboration, capital allocation and effectively advancing synergies between alternative business models and technological development, we can work towards a sustainable future with shared accountability and resilience.
To download SMBC's Mobilizing Finance for Nature-based Solutions report, click here.
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