Viewpoint: Why the UK Investment Bank must nurture nature

The UK can rightly state that it was one of the first countries in the world to introduce climate change legislation – the Climate Change Act 2008 – and can also lay claim to having founded the world’s first ever green finance institution, the Green Investment Bank (GIB).

Now, with the establishment of the UK Infrastructure Bank (UKIB), we have an opportunity to demonstrate our capacity for climate leadership again in two crucial ways: first, by showing the extent to which we genuinely value nature by delivering both a net-zero and nature-positive economy, and second, by actively crowding in the private sector to invest in nature and natural capital.

Investing in nature

Plainly, the objectives the UK has set for itself are challenging. Simply to meet the country’s stated environmental targets over the next 10 years, another £44bn (€52.2bn) to £97bn above public sector commitments will be needed.[i]

So how can the government begin to bridge that gap? Unquestionably, one of the best approaches will be to invest in the restoration of the UK’s natural capital, which will help both to achieve the UKIB’s net-zero promise, as well as support economic growth.

To do this, however, the UKIB will need to find ways to address the UK’s biodiversity and climate crises together, not to mention broadly to reform its financial flows. Not an easy task.

Yet nature and climate change are so inextricably linked that for anyone launching a new financial institution, it now makes sense immediately to think about how best to integrate nature into decision-making.

Details of how financial institutions will be expected to account for nature are emerging from the work of the Taskforce on Nature-related Financial Disclosures (TNFD). The work of the Natural Capital Committee and the Dasgupta Review on the Economics of Biodiversity have also catalysed action in this space.

From these, there are elements that the UKIB should consider immediately in its investment decision-making: What impact are investments having on nature? How do investments rely on the provision or consumption of natural capital to achieve a financial return?

These considerations also create scope to develop new financial instruments. For example, obligations to deliver nature-positive outcomes or new mechanisms to quantify and monetise ecosystem services can help create new nature-based revenue streams. These can be incorporated into innovative business models for investments into the restoration of natural capital.

This is where a public financing institution like the UKIB can be truly pioneering – integrating nature into decision-making and creating new financial products to support investment in natural capital. Doing so will also help support UKIB’s dual objectives of reaching net-zero while achieving economic growth.

Delivering net zero

As recognised by the UK’s Chancellor Rishi Sunak in a recent letter to UKIB chief executive officer John Flint, both engineering and nature-based approaches to greenhouse gas removals will be critical to achieving net zero and both should fall under the UKIB’s investment scope. The restoration of nature can also help build the UK’s resilience to climate change.

A growing body of evidence further supports the effectiveness of incorporating nature into infrastructure. Such “green-grey interventions,” which combine natural and engineered elements or approaches, are particularly well-suited to adaptive planning in a changing climate.

The dangers of climate change to the UK are broad, presenting direct risk to agriculture – with impacts like flooding and drought damaging soil health, crops, livestock and commercial trees – as well as infrastructure, with storms presenting a risk to energy systems, and heat and floods potentially impacting transportation.

Consequently, any efforts to reach net-zero and set up more environmentally sensitive infrastructure will have positive impacts on the food the UK can grow, the functioning of its energy infrastructure, and the smooth running of its transportation systems.

Bolstering economic growth

The Chancellor’s letter recognised that investments in nature can contribute to economic growth. Critically, they can enhance productivity in underserved areas by improving physical and mental wellbeing, as well as helping to drive a “green recovery” for the country.

On the question of public wellbeing, consider this: air pollution in the UK today accounts for an estimated 17,000 to 40,000 premature deaths and three to six million sick days annually[ii]. Simple investments in natural infrastructure could help alleviate this public health burden.[iii]

As for the economic benefits, capital spending on the creation of urban green infrastructure and the restoration of nature can create permanent and valuable jobs, particularly in regions with the greatest employment challenges.[iv]

According to the Green Alliance, improving woodlands, peatlands, and urban parks could also create 16,050 jobs in the 20% of Britain most affected by unemployment.[v] Accelerating the development of nature-based projects through the UKIB would therefore make a meaningful difference in job creation, supporting local and regional economic growth to drive a green recovery.

Not just a responsibility but an opportunity

Corporate and financial institutions increasingly recognise that they are having an impact on nature, and many want to measure, understand and potentially remedy the harm they may be causing. Plus, with the prospect of regulation on the line, many corporations are already thinking about how to get ahead of the changes that are likely coming their way.

But if the private sector is to be properly mobilised, they have to be shown a commercial opportunity too – and that is where the UKIB can play a significant role.

The UK has a long history of successfully creating innovative institutions to accelerate the growth of new markets. Consider the recent cases of Big Society Capital and the GIB; both provide concrete examples of how the UKIB can catalyse new markets for nature.

Big Society Capital, a financial institution launched in 2012, has, in its short life, rapidly helped the UK social impact investment market grow to £6.4bn – an eight-fold increase. Its model provides a useful reference for how the UKIB could achieve both financial returns and a positive impact on nature, while helping to scale nascent markets for nature.

The GIB, meanwhile, also launched in 2012, swiftly cultivated the market for offshore wind in the UK, increasing the share of electricity generated from offshore wind from 1% to 13% in the last 10 years. The UKIB could serve a similar catalytic role for natural capital.

How the UKIB can become a global leader

By taking nature into its mandate, the UKIB can send a clear market signal domestically to spark development of infrastructure-scale projects. But the benefits are not only national. More broadly, the UKIB can set a global standard that investment in nature is a real and emerging opportunity.

The world is watching the UK’s leadership in this area and the Treasury has already committed that all new UK bilateral aid will not harm nature. The UKIB should support this global leadership by setting a strong example at home.

By showing how infrastructure can help deliver both a nature-positive future while contributing to net-zero targets, the UKIB will encourage both sovereigns and private markets to take natural capital more seriously.

[i] GFI, eftec, Rayment Consulting. (2021). The Finance Gap for UK Nature.

[ii] CBI Economics. (2020). Breathing Life into the UK Economy: Quantifying the Economic Benefits of Cleaner Air. & Royal College of Physicians. (2018). Reducing air pollution in the UK: Progress report 2018.

[iii] JNCC, Natural England, Natural Resources Wales, NatureScot, and the Northern Ireland Environment Agency. (2021). Nature Positive 2030.

[iv] Vivid Economics & Barton Willmore. (2020). Levelling Up and Building Back Better Through Urban Green Infrastructure: An Investment Options Appraisal.

[v] Green Alliance. (2021). Jobs for a Green Recovery: Levelling Up Through Nature.