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Scaling Up Finance for Green Infrastructure

by Riddhi Batra

Tokyo, Japan, by micah epstein

Nature-based Solutions (NbS) are defined as “‘actions to protect, conserve, restore, sustainably use, and manage natural or modified terrestrial, freshwater, coastal and marine ecosystems, which address social, economic, and environmental challenges effectively and adaptively, while simultaneously providing human well-being, ecosystem services and resilience and biodiversity benefits” [1]. They include strategies that forefront nature in order to address and adapt to the challenges presented by climate change, such as preserving wetlands and mangroves for flood protection, protecting forests for carbon sequestration, or constructing green stormwater infrastructure in cities to manage flooding [2].

In the global efforts to meet the 2016 Paris Agreement – to keep global warming below a benchmark of 1.5-2 degrees Celsius – nature-based solutions hold opportunities to capture billions of tons of carbon-dioxide from the atmosphere [3], preserve natural ecosystems, increase the resiliency of urban infrastructure assets, protect human settlements from disasters, and increase economic activity in other sectors that rely on nature. However, only 3 percent of finance required to meet these goals has currently been tapped, an amount which will need to at least triple by 2030 and quadruple by 2050 to remain on track with the targets set in the Paris Agreement. This is particularly pertinent for developing countries where 60 percent of low-carbon infrastructure requirements are still to be met.

This piece, originally written as a policy brief, outlines the current state of finance for NbS, identifies the key challenges to scaling-up finance, and recommends four policies for demand-side and supply-side actors – namely, national and subnational governments, International Organizations, Multilateral Development Banks, Multilateral Climate Funds, and private investors - that could help close this gap.  


Only 3 percent of finance required for Nature-based Solutions has currently been tapped, which needs to triple by 2030 to remain on track with global temperature targets set in the Paris Agreement. 

The Benefits of Green Infrastructure

By 2030, the world will need to build approximately $85 trillion in low-carbon climate-resilient (LCR) infrastructure in order to meet the Paris Agreement [4], around 60 percent of which is needed in developing countries [5]. Nature-based solutions can provide up to 37 percent of the emission reductions needed by 2030 to keep global warming under 2 degrees Celsius [6]. 

The advantages of NbS also extend to global and local economies, through investments which are estimated to generate about $1.1 trillion in annual business opportunities [7], where green infrastructure could return over 3 times the initial investment [8]. As these alternative ways of imagining urban infrastructure are scaled up, they can also generate employment – currently, about 40 full-time jobs are created with every $1 million invested in NbS [9]. 

Key sectors 
In a 2021 report the IFC identified ten key sectors that can be prioritized for scaling-up green infrastructure investments [10],  broadly categorized under Energy infrastructure, including decarbonization of existing grids and scaling up generation and storage for renewable energy; City systems, within which buildings stand to be retrofitted for energy efficiency, and waste and water, transportation, and urban infrastructure are critical to include in mitigation and adaptation strategies; and Industry, including decarbonization of heavy industry, climate-smart agriculture, and sectoral changes for textile and apparel, and airlines and shipping. In this categorization, cities present both a challenge and an opportunity. They contribute over 70 percent of global greenhouse gas emissions, mostly from motorized transportation and carbon-intensive infrastructure [11], for which nature-based solutions can provide long-term, sustainable alternatives. 

Finance gaps
There is presently an estimated gap of $4.1 trillion in NbS financing that is required by 2050 for the world to remain on track to meet the Paris Agreement [12]. While approximately $133 billion flow into NbS per year, 86 percent of this comes from public funds and 14 percent from private finance [13]. This skew exists in spite of over $100 trillion worth of assets managed by institutional investors, including commercial banks and investment companies, private equity, and pension and insurance funds.

Green bonds, issued against the debt capital market to finance projects with environmental benefits, have seen a market increase of 220 percent from 2013 to 2014 [14]. They are primarily issued by development banks, private investors, and regional or municipal governments, certified by the Climate Bonds Standard, and aligned with the Green Bond Principles. However, the market for green bonds is only about 2 percent of the entire bond market [15]. Out of the $14.6 trillion in fiscal spending announced by the world’s 50 largest economies post-COVID-19, under 3 percent were directed towards green initiatives, despite an opportunity to rethink the way infrastructure and services are deployed. 


Traditional accounting also does not measure how the depreciation of natural resources affects the economy and human wellbeing – metrics key to arguing the case for investing in NbS.

Current Policy Failures and Barriers to Finance


Limitations of green bonds
A number of factors presently deter the growth of the green bond capital market. Without commonly accepted guidelines to evaluate green bond credentials, issuers can run the risk of “greenwashing” - selecting projects that do not have significant environmental value. The Green Bond Principles and Climate Bonds Standard and Certification Scheme are voluntary evaluation standards, and independent reviews by governments and private investors can incur high transaction costs for governments or companies. The lack of aggregation mechanisms to underwrite green bonds also makes it difficult for small-scale projects (roughly under $100 million) to tap into the green-bond market. A strong asset pipeline is typically required to back green-bond lending, a challenge exacerbated in emerging economies where legal frameworks to enable asset-backed securities are scant [16]. 

Further, green bonds are very similar to regular bonds in terms of structure, risk, and rates of return, making them equally competitive financial products for governments or companies looking to finance green infrastructure projects, but more restrictive in their verification requirements. Combined with a non-standardized approach to project eligibility, this can restrict borrower flexibility and also make it difficult for emerging economies with low credit ratings to obtain or issue green bonds [17].


Valuating nature-based assets
When compared with grey infrastructure projects, such as oil and gas [18], which can generate revenue over their lifecycle to pay-off debt, the risk-reward profiles of green infrastructure are not as financially attractive. In fact, the revenue streams of nature-based solutions are difficult to determine. An adaptation project, such as building a seawall, cannot be justified using traditional cost-benefit analyses that purely employ economic metrics to monetize returns on investment [19]. 

There are very few financial systems that capture the value of natural assets and ecosystem services such as air, water, soil, and wildlife [20]. Traditional accounting also does not measure how the depreciation of natural resources affects the economy and human wellbeing – metrics that are key to arguing the case for investing in nature-based solutions. The degree to which ecological stewardship is practiced in infrastructure planning processes is currently left to the discretion of national and subnational legislation. This leaves a large amount of room for ambiguity in maintaining high standards of environmental management within urban spatial planning and infrastructure design. 

The investment environment for green infrastructure is further impeded by gaps in technical information and the absence of financial records for newer, climate-friendly technology and practices [21]. Private investors rely on governments to support future returns with tariffs or subsidies, policies that are subject to political fluctuation. These challenges are higher in developing countries with political instability, underdeveloped capital markets, and fluctuating local currencies [22]. 

Investment enabling environments
Sustainable urban development is contingent on consistent revenue flows, creditworthiness, and strong management [23]- conditions that are especially lacking in developing countries. Municipal governments need support to obtain the long-term finance required for the large costs and long amortization periods of infrastructure projects. Most municipal governments do not possess the resources, capacity, and engagement to plan for infrastructure scale-ups, migration, and disaster-risk [24]. Regional and municipal entities rely on national sovereign guarantees to obtain funding from MDBs – a system that does not enable local autonomy. Few subnational governments have requested or acquired their own credit ratings, and in developing countries, ratings are unaffordable without the presence of credit rating agencies and made even more challenging by weak financial markets [25].



Photo by Micah Epstein

Policy recommendations 

The four policy recommendations put forth in this brief have been organized by supply-side and demand-side measures, both of which are equally important to improve for the scaling-up of green infrastructure finance. 

Supply-side recommendations
Supply-side policy recommendations are towards MDBs, MCFs, governments, donors, private financers, and other issuers of green climate finance, which revolve around creating blended finance instruments and natural capital accounting systems to metrically evaluate the benefits of nature-based solutions. 


1) Create blended finance instruments by strengthening the green bond market and providing alternative sources to incentivize green infrastructure over grey. 


  • Establish internationally accepted definitions of “green” projects with stringent evaluation systems of environmental impact, fund allocation, and preferential risk.

  • Assert key Green Bond Principles as mandatory procedures to secure financing for NbS. Increase the scope of certification boards, such as the Climate Bonds Standard, to help national and subnational governments adapt Green Bond Principles to local conditions.

  • MDBs and MCFs, must work directly with national and subnational governments to create stacked finance packages for green infrastructure projects.

  • MDBs need to increase their risk appetite. Currently, only the International Development Association, a branch of the World Bank Group, offers grants to very low-income countries. With commitments for climate-finance constituting 35 percent of the WBG’s total portfolio [26], the amount of concessional finance given to low-and-middle-income countries must increase. Small amounts of concessional grants in early stages of an infrastructure project can reduce risk and crowd-in private capital for future portions of the project [27]. In addition to backing NbS, significant quantities of concessional finance must simultaneously be directed towards countries transitioning towards low-carbon, such as abating coal-power, which currently contributes 40 percent of total GHG emissions [28]. 

2) Create regional inventories for ecosystem services and mainstream the quantification of environmental assets.

  • Leverage global climate-change agreements to hold countries accountable for the introduction of overarching national policies that will increase the baseline for including, scrutinizing, and evaluating environmental management systems in infrastructure project proposals.

  • Establish a neutral wing of the United Nations Environment Program to build regional ecosystem inventories with national and subnational governments. The consideration of infrastructure growth and land use at regional scales can help classify ecosystems based on patterns of geology, landform, soil, vegetation, climate, land use, wildlife, and hydrology, and provide a spatial framework for organizations to structure and implement ecosystem management strategies [29].   

  • Promote and train municipal leaders and project professionals in the Natural Capital Accounting and Valuation of Ecosystem Services (NCAVES), a tool to value natural assets that do not contain revenue streams in traditional accounting methods. NCAVES calculates the initial stock of a natural resource and subtracts depleted stock adjusted by a rate of regeneration. It is built on five core ecosystem accounts –extents, conditions, services, and monetary assets – which links natural resources to human and economic activity [30].

Demand-side recommendations

Recommendations for demand-side actors, primarily municipalities and entities bearing project cost burden revolve around increasing the ability to attract and retain finance, whether from private investors or development banks. 

3) Foster strong legal and regulatory environments and de-risk investments to create stable revenue sources for green infrastructure assets. 

  • Create spaces for national governments and international finance institutions to co-draft country-specific policies and instruments that can catalyze investments, such as low-carbon mandates, clean energy standards, or trade tariffs [31].  

  • Strengthen capital markets in developing countries by introducing regulatory and judicial frameworks to protect the rights of creditors and debtors at the subnational level [32].

  • Provide an entry for internationally accepted rating agencies that can improve investor knowledge and confidence. This can be further lowered if MDBs and international development agencies bear the cost of the first few municipal credit ratings.

  • Mobilize the private sector to arrive at blended finance solutions that can surpass the constraints of green bonds. As part of natural capital accounting, a simplified, practical monitoring, reporting, and verification (MRV) system must be created for green infrastructure projects. This should include key performance metrics adapted to measure environmental benefits. 

  • Quantify, assess, and allocate risks associated with green infrastructure investments using improved Natural Capital Accounting systems. The Sustainable Asset Valuation Methodology (SAVi) developed by the International Institute for Sustainable Development (IISD), for instance, helps agencies capture environmental, social, economic, and governance costs externalized by an infrastructure project. SAVi integrates past, present, and future climate data to arrive at more comprehensive costs of climate-related risks [33].

  • MDBs and MCFs must increase their mandates for de-risking investments through guarantees and escalate commitments of concessional finance towards nature-based solutions. As demonstrated by recommendation 1b., concessional funding in the early stages of infrastructure projects can work to crowd-in private capital. 

Cheonggyecheon, Seoul, South Korea, by Micah Epstein 

4) Support municipal governments to better manage budgets and assets, and to mainstream climate adaptation within urban development plans.

  • Achieving creditworthiness requires a demonstrated ability to maintain a reliable surplus of revenues over expenditures. Support for municipal governments must target sources of revenue and better resource management.

  • Prioritize urban action plans for specific cities in countries’ Nationally Determined Contributions (NDCs), with commitments from municipal governments to create periodic Voluntary Local Reviews (VLRs). This can also boost legitimacy for green infrastructure priorities to mobilize private sector finance.

  • Align intergovernmental transfers with NDC goals and incentivize VLR reporting through inducements such as technology-and-performance-based grants, and subsidized lending. 

  • Increase the scope of international organizations, MDBs, and MCFs, to directly assist municipal governments in order to improve financial management, including budgeting, accounting, reporting, and auditing [34]; increase local revenue generation through property tax, land value capture, license fees, and tax increment financing; manage, evaluate, and maintain infrastructure assets over a long-term period; and standardize infrastructure as an asset-class to back bond securitization.


The recommendations in this policy document were drafted in the weeks following COP-27, the annual Conference of Parties held for member states of the United Nations Framework Convention on Climate Change (UNFCCC) to track their progress towards meeting mutually agreed climate mitigation targets. It highlights the urgent need to progress beyond anthropocentric, econometric tools, to evaluate the true externalities of building large-scale infrastructure, and elevate the earth’s biodiversity to an asset that is crucial to save.

About the Author: Riddhi Batra

Riddhi is a second-year Master of City Planning student with a background in architecture and urban action, research, and advocacy. A firm believer in the potential of design and communication to transform our lives, she is currently exploring the intersection of mobility, infrastructure, and environmental planning to develop solutions for social and ecological equity. When not glued to her laptop, you can find her playing with a dog (or a cat), flipping through a book, sniffing coffee beans, running (for fun), or clicking photographs of almost everything.


[1]     UNEP. July 2022. ‘One small step for finance, one gianT leap for nature.’ UNEP Nature News. 
[2]    IFC. January 2021. A Green Reboot for Emerging Markets: Key Sectors for Post-Covid Sustainable Growth. International Finance Corporation, World Bank Group. Washington DC. USA. 
[3]    UNEP. July 2022.
[4]    Meltzer, JP. June 2018. Blending climate funds to finance low-carbon, climate-resilient infrastructure. Global Economy and Development at The Brookings Institute. Washington DC. USA. 
[5]    IFC. January 2021.
[6]    UNEP, WEF, ELD, Vivid Economics. May 2021. State of Finance for Nature: Tripling investments in nature-based solutions by 2030. 
[7]    UNEP et. al. May 2021.
[8]    IFC. January 2021.
[9]    Edwards, P.E.T. et al. 2013. Investing in nature: Restoring coastal habitat blue infrastructure and green job creation.
[10]    ibid.
[11]    Dasgupta, S., Lall, S., Wheeler, D. 2022. Cutting global carbon emissions: where do cities stand? Sustainable Cities. The World Bank Group, January 05, 2022. 
[12]    UNEP et. al. May 2021.
[13]   ibid. 
[14]    ibid.
[15]    IFC. January 2021.
[16]    UN-Habitat. 2016.
[17]    OECD and Bloomberg Philanthropies. December 2015. Green Bonds: Mobilizing the debt capital markets for a low-carbon transition. 
[18]    Meltzer, JP. June 2018.
[19]    Bilmes, L. November 2022. Public Climate Finance Guest Lecture. CPLN 5770: International Development. Weitzman School of Design, University of Pennsylvania.
[20]    ibid.
[21]    ibid.
[22]    ibid.
[23]    UN-Habitat. 2016.
[24]    ibid.
[25]    ibid.
[26]    The World Bank. September 2022. ‘World Bank Group Delivers Record $31.7 Billion in Climate Finance in Fiscal Year 2022’. Press Release. World Bank Group. 
[27]    Meltzer, JP. June 2018.
[28]    Center for Climate and Energy Solutions. November 2008. ‘Addressing Emissions from Coal Use in Power Generation”. 
[29]    US EPA. Ecoregions. 
[30]    United Nations. Ecosystem Accounting. System of Environmental Economic Accounting. 
[31]    OECD et al. December 2015. 
[32]    UN-Habitat. 2016.
[33]    SAVi. The International Institute for Sustainable Development. 
[34]    UN-Habitat. 2016.

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