Mainstreaming private biodiversity finance is often seen as a pragmatic solution to securing conservation funding given the perceived challenges to increasing public spending on nature. One argument is that private finance may avoid the waxing and waning of political interest in biodiversity protection. Yet, although it is true that political obstacles remain relevant (especially in the present economic climate), it is unclear how private markets might provide more stable funding streams. The most developed carbon markets, for instance, have been plagued by volatility and speculation21. Another argument highlights limited improvements in biodiversity following decades of public spending. However, underwhelming outcomes from past public programmes may just as much be a result of the comparatively small amounts spent: public funds supporting nature are estimated to be five times smaller than public subsidies that are harmful to biodiversity3.
‘Blended finance’ mechanisms are commonly advocated as a realistic solution to some of these issues. Here, public spending is used to ‘de-risk’ conservation projects to mobilize large-scale finance from institutional investors, either by providing upfront returns to private investors or by underwriting and socializing potential future investment losses. It is argued that improving the risk–return characteristics of nature-related investments will enable more conservation projects to be funded than by direct public spending2,6,7.
Yet it is underacknowledged that such de-risking may represent an overly expensive use of government investment capacity. Blended finance mechanisms give the appearance of reducing public spending outlays by moving immediate expenditure off government balance sheets, but such financing arrangements are increasingly recognized — including by the International Monetary Fund — to be more costly over the long run22,23. Governments can usually borrow more cheaply than the private sector and blended finance infrastructure projects typically incur large legal, technical and consultancy fees. De-risked nature-related investments may incur even larger costs owing to the complexity of crafting new markets out of nature. For example, Belize’s US $364 million debt-for-nature swap — which used public funds to de-risk private investors in a conservation-linked debt restructuring deal — may cost the Belizean government an additional $84 million in transaction costs paid mostly to banks and knowledge brokers in the Global North: 23% of the deal size24. More policy focus is needed to ensure that blended finance mechanisms for nature represent genuinely cost-effective funding solutions, rather than primarily revenue streams for private actors.
Advocates for private biodiversity markets have also underplayed the benefits of public interventions. It is estimated that the gains in economic welfare from biodiversity protection are likely to outweighs costs of public intervention25. Resilient and effective ecosystems also display the classic characteristics of complex public goods: they are nonrivalrous (the benefits that one person reaps do not prevent others from also benefitting) and nonexcludable (it is difficult to prevent others from benefitting). These aspects of nature are fundamental to social and economic prosperity, yet free-riding abounds at multiple scales. Furthermore, effective ‘beneficiary pays’ strategies (such as payments for ecosystem services) are challenging to implement in practice given the multidimensionality of conservation benefits. Disaggregating ‘bundled’ environmental services from a single area into various markets, such as carbon, watershed and species-protection markets, to sell to private beneficiaries raises logistical concerns over additionality and little bundling has occurred in practice26. This multidimensionality makes a strong case for direct public investment — both to counteract private free-riding and to ensure the provision of bundled ecosystem services. The ‘crowding out’ of private by public investment is unlikely to occur for such complex public goods, given they are poorly provided for by the private sector.
The creation of green jobs may help to generate political legitimacy for increased public spending on conservation. When conservation and restoration projects are shovel-ready and geographically well-distributed in terms of available labour, they may offer high macroeconomic multipliers27. One study focusing on the USA found that the nature restoration economy directly employed 126,000 workers and generated $9.5 billion in annual output, with an additional 95,000 jobs and $15 billion output generated on an indirect basis28. There is also historical precedent for large-scale public spending on biodiversity-related crises. For example, President Franklin Roosevelt’s ‘New Deal’ in the 1930s included the creation of the Civilian Conservation Corps to tackle the Dust Bowl environmental crisis, employing over 2.5 million people to plant over 3 billion trees. As adverse environmental trends increasingly affect on our productive systems today, there have been growing calls for ambitious mission-driven public policy — such as ‘Green New Deals’ — based upon similar thinking.
