Investing in nature to reduce climate risks
Interventions such as wetland restoration and forest management offer a pragmatic approach to limiting climate change impacts, but many projects struggle to attract investment. While these projects can boost climate resilience and deliver wider benefits for biodiversity, water quality, food security, public health and local economic resilience, these gains are often spread across communities, businesses and public authorities rather than generating a direct return for a single investor. “Nature-based solutions (NbSs) are fantastic,” says Jaroslav Mysiak, project coordinator of NATURANCE(opens in new window) and founding director of the Risk Assessment and Adaptation Strategies(opens in new window) division at the Euro-Mediterranean Center on Climate Change. “But investors need reliable returns on investment, while NbSs create benefits that are shared more widely.” The challenge, therefore, is twofold: to demonstrate the wider economic value of NbSs, and to develop financial mechanisms that can recognise and reward these benefits. “In NATURANCE, we were trying to bridge insurance and risk transfer with ecosystem restoration,” explains Mysiak. “The question was how insurance could contribute to reducing climate risk by incentivising investments in nature.”
Insurance as part of the solution
NATURANCE established nine Innovation Labs across Europe to test how insurance and investment approaches could make NbSs more financeable, involving insurers, finance professionals, SMEs, local authorities and NbS developers. Each lab produced practical outputs, including recommendations for insurance design and a five-phase roadmap for developing innovative financing schemes. In Italy, NATURANCE looked at how ecosystem restoration could support flood management. The work brought together regional water management bodies, public authorities, insurers and financial regulators to test the feasibility of insurance-backed controlled flooding and a community insurance fund. In the United Kingdom, the team looked at whether requirements for property developers to improve habitats could help generate funding for projects that use nature to reduce flood risks. The lab also tested parametric insurance, which provides a pre-agreed payout when a defined event or threshold is reached – such as a heatwave – rather than a loss incurred. In Sweden, the lab used ongoing wetland restoration projects to identify barriers to scaling up, and explored how benefits such as carbon sequestration, biodiversity, water quality, and flood and drought protection could be valued in financing models. NATURANCE also worked with organisations and companies active in nature-based insurance, including the Munich Re Foundation, OroVerde, Allianz Commercial and WTW, to strengthen business cases through risk and performance assessment, governance and equity criteria. Beyond the consortium, the team also collaborated with European initiatives including Invest4Nature, Firelogue, PIISA and Adaptation AGORA through webinars, workshops and ‘Naturethon’ activities connecting expert knowledge with citizen-led ideas for nature-based climate adaptation.
Tools to unlock investment in nature
The project’s Digital Library(opens in new window) offers the NATURANCE Compendium, a practical resource of 45 case studies from across Europe, a Business Model Canvas designed to help organisations assess nature-based investments, identify opportunities and tackle barriers to implementation, as well as other tools. NATURANCE also developed a CEN Workshop Agreement(opens in new window) that provides guidance on the design and assessment of nature-related insurance schemes. It has already been taken up for development into a national standard in Italy, paving the way for wider market uptake. According to Mysiak, this was one of NATURANCE’s most significant achievements: “We developed a common way of looking at how nature restoration and climate risk reduction can work together.”
