Financing nature-based solutions in the MENA Region

Global finance is pivotal in harnessing nature, one of the most formidable allies against climate change, and in recognising natural capital as a crucial asset class. Nature’s capacity to offset the impact of climate change while also boosting societal, economic and biodiversity resilience is unparalleled. Research indicates that the protection, restoration and sustainable management of ecosystems through nature-based solutions (NbS) could account for one-third of the global mitigation required to fulfil the Paris Agreement objectives.

NbS initiatives offer extensive sustainability impacts, benefitting people, the planet, purpose and profits.

These projects adopt a comprehensive approach because conserving natural habitats yields multiple advantages which include species protection, carbon sequestration and socioeconomic opportunities for local communities. Yet, the financial returns from such investments often take time to materialise, with historical funding primarily coming from small-scale philanthropy or being predominantly public sector-driven.

The United Nations Environment Programme (UNEP) reports that investment needs to surge to $384bn per year by 2025 and $484bn per year by 2030 from the current $154bn per year to achieve climate, biodiversity and land degradation targets.

Shifting financial flows towards climate-nature projects is essential for our planet’s future.

Financial institutions: A catalyst for change

Financial institutions are uniquely positioned to propel NbS projects forward by providing capital, crafting innovative financial instruments and insurance products in addition to advising on risk management and performance structures. They also serve as crucial intermediaries, uniting stakeholders—governments, NGOs, private sectors and international bodies—to foster NbS projects. While governments and multilateral development banks predominantly support non-revenue-generating environmental initiatives – private capital gravitates towards profit-yielding projects.

Achieving net-zero targets necessitates a collaborative effort among governments, financial institutions and businesses.

Public-private partnerships exemplify such collaboration, with government support bolstering confidence among private investors and financial entities to co-invest in NbS projects.

Governments can further attract private investment through incentives, guarantees or subsidies. Blended finance tools are instrumental in drawing diverse financial actors and increasing investments across the NbS spectrum.

The role of policy

Policy frameworks can also be co-created in collaboration between governments and financial institutions to identify and address barriers to sustainable investments. Global policies are now recognising and focusing on the need for finance and impact investments to achieve the desired goals and targets. For example, the Mangrove Breakthrough Community of Action brings together civil society organisations, governments and the private sector to sustainably manage and increase global mangrove cover by 15 million hectares by 2030 with calls for $4bn in financing.

The Mangrove Breakthrough collaborated last year with the Sustainable Markets Initiative Financial Services Taskforce (SMI FSTF). A sub-working group led by Barclays and HSBC worked alongside Pollination to develop the FSTF Financing Coastal Nature-based Solutions Practitioners Guide, in a collaborative effort with the Mangrove Breakthrough and Systemiq.

The document serves as a practical guide targeted towards financial institutions to build awareness and address key potential considerations for embedding coastal nature-based solutions into financial structuring.  It complements the “Mangrove Breakthrough Financial Roadmap” released in November last year.

Islamic finance and nature-based solutions

Islamic Finance, with its ethical and sustainable core principles, aligns closely with NbS.

By structuring Shariah-compliant financial instruments, a new avenue of Islamic capital opens up, catering to investors seeking to support environmental and sustainable projects. This approach is particularly relevant in the MENA region in addition to countries like Malaysia and Indonesia where it can significantly accelerate NbS financing.

UAE’s flagship nature-based project

The World Resources Institute, WWF and HSBC have initiated the “Nature-based Solutions for Climate, Biodiversity, and People” project in the UAE. This project aims to enhance the resilience of blue-carbon coastal ecosystems, thereby supporting climate mitigation, biodiversity and community benefits.

Through initial funding for pilot NbS projects, the initiative seeks to demonstrate commercial viability, spark entrepreneurship, and preserve natural capital, thereby attracting further investment.

The UAE’s leadership in setting net zero targets, a sustainable finance framework and the recent hosting of COP28, has spotlighted climate issues in the region, potentially increasing the demand for sustainable finance solutions.

Teh writer is acting Head of Sustainability – HSBC Middle East