Natural Capital and Ecosystem Services

 

The European Commission and the European Investment Bank (EIB) have launched a new financing instrument – the Natural Capital Financing Facility (NCFF) – for projects promoting the preservation of Natural Capital, including adaptation to Climate Change.

In December 2014, the EU Commission and the EIB have signed an agreement entrusting the EIB with the management of the NCFF, that will be developed by blending EIB funding with EC financing funded by the LIFE budget.

The NCFF will provide innovative financial solutions to support bankable projects, which have the potential to be revenue-generating or cost-saving, promoting the conservation, restoration, management and enhancement of natural capital for Biodiversity & Ecosystem Services (BES) and climate adaptation benefits, including ecosystem-based solutions to challenges related to land, soil, forestry, agriculture, water and waste.

 

Natural Capital is defined as the stock of natural assets in an ecosystem which interacts to yield a flow of goods and/or services. It refers to the biodiversity that provides goods and services, from fertile soil and productive land and seas to fresh water and clean air. It includes vital services such as pollination of plants, natural protection against flooding, and the regulation of the climate.

Although it is critical to sustainable development, the current levels of European funding are insufficient to meet policy objectives of enhancing BES and nature-base climate change adaptation. Stepping up BES financing is regarded as one of the prerequisites for achieving the EU’s 2020 biodiversity goals.

The primary aim of the NCFF is to provide a proof of concept to demonstrate that BES and nature-based climate adaptation projects can generate revenues or save costs, whilst delivering on biodiversity and climate adaptation objectives.

 

The Natural Capital Financing Facility wants to demonstrate that biodiversity and ecosystem services, and nature-based climate change adaptation projects can be financed through innovative and sustainable market-based mechanisms.

Currently, there are clear barriers to the uptake of many natural capital projects, including lack of experience, long investment and project payback periods, and uncertainties about target markets, revenue streams and profit margins.

The ultimate objective is to provide evidence to investors their attractiveness for the longer term, in order to develop a sustainable flow of capital towards those projects and achieve scale.

 

The NCFF will establish a pipeline of replicable, bankable projects that will serve as a “proof of concept” and that will demonstrate to potential investors the attractiveness of such projects.

The Natural Capital Financing Facility will be managed by the EIB which works closely with other EU institutions to implement EU policy. The Facility will provide debt and also equity instruments.

The NCFF may finance projects directly or indirectly through intermediaries which will then provide financing to final beneficiaries. Particularly, equity investments will be undertaken through investment funds.

 

The focus will be on projects which are at an advanced stage of development and which have the potential to be replicated within the European Union. In addition to the Investment Facility, the NCFF also includes a support facility for project preparation and implementation for investments eligible under the Natural Capital Financing Facility.

The NCFF will start with a pilot phase of 3 to 4 years (2014-2017). The EIB will contribute a total budget for the Investment Facility of €100 – 125 million for the financing of 9 to 12 operations; the European Commission will contribute €50 million as a guarantee for the investments, and €10 million for a support facility.

For this phase, target operations will have a size of € 5-15 million. The term of the debt and equity instruments will be up to 10 years plus potential extensions. Beneficiary companies and financial intermediaries will provide significant additional financing.

 

The Natural Capital Financing Facility will fund the following types of projects:

 

  • Green infrastructure (e.g. green roofs, green walls, ecosystem-based rainwater collection / water reuse systems, flood protection and erosion control);
  • Payment for ecosystem services (e.g. programs to protect and enhance forestry, biodiversity, to reduce water or soil pollution);
  • Biodiversity offsets / compensation beyond legal requirements (e.g. compensation pools for on-site and off-site compensation projects);
  • Pro-biodiversity and adaptation businesses (e.g. sustainable forestry, agriculture, aquaculture, eco-tourism).

 

The final recipients for the Natural Capital Financing Facility are public and private entities, including public authorities, land owners and businesses. The Facility will finance sustainable projects located in the EU-28.

 

Information Source: European Investment Bank (EIB).

 

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Category: Adaptation Businesses | Climate Change | Ecosystem Services | Environmental Funding | Green Infrastructure | Natural Capital | Sustainable Finance

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