Money talks. A systems perspective on funding and financing barriers to nature-based solutions

Abstract

A financing gap is seen as a crucial barrier, hampering the further uptake and upscaling of Nature-based Solutions (NbS). However, it is not always clear what is meant by this, nor is it clear why this barrier exists and persists. The aim of this paper is to generate an enhanced understanding of financial barriers to NbS. This is accomplished through first conceptually and theoretically clarifying the difference between funding and financing and then exploring these through an integrative literature review. We expose three different dimensions of financial barriers in NbS projects, namely the occurrence of multiple types of funding gaps, the occurrence of multiple types of financing gaps, and the particular and complex cost structures of NbS. NbS funding gaps can be broken down into public funding gaps, private funding gaps, and funding gaps specific for lifecycle phases, activities, and cost types. Bridging the funding gap is a necessary (although not sufficient) condition for bridging the finance gap and financing alone cannot solve a funding problem. We further find that these different dimensions of financial barriers can be explained by the misalignment between the characteristics of NbS and the characteristics of our existing institutions. These misalignments occur through different institutional mechanism, including (i) Funders’ preferences, (ii) Revenue generation enablers, (iii) Justification requirements, (iv) Funders’ regimes, (v) Financiers’ preferences and (vi) Finance application processes. All mechanisms influence the occurrence of public and private funding and financing gaps and they influence the cost structure of NbS, in particular transaction costs. The results of this analysis suggest that overcoming NbS funding and financing challenges requires a systemic, multi-level approach as the barriers to project implementation are not all located within a project's sphere of influence or control.