Reviewing financing barriers and strategies for urban nature-based solutions
Toxopeus, Helen; Polzin, Friedemann
(2021) Journal of Environmental Management, volume 289, pp. 1 - 11
(Article)
Abstract
Obtaining public and/or private finance for upscaling urban nature-based solutions (NBS) is a key barrier for reaching urban sustainability goals, including climate mitigation and adaptation. We carry out a systematic review of the academic literature to understand the key barriers and corresponding strategies for financing urban NBS. First, we report
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on specific financing challenges and strategies found for NBS uptake in four urban ecological domains: buildings, facades and roofs; urban green space (parks, trees); allotment gardens (including urban agriculture); and green-blue infrastructure. Across domains, we identify two overarching barriers of NBS finance: (1) coordination between private and public financiers and (2) integration of NBS benefits into valuation and accounting methods. We discuss strategies found in the literature that address these barriers; here, two things stand out. One, there is a large variety of valuation strategies that does not yet allow for an integrated accounting and valuation framework for NBS. Two, strategies aimed at coordinating public/private finance generally look for ways to encourage specific actors (real estate developers, residents) that benefit privately from an NBS to provide co-financing. We visualize our findings into a framework for enabling (public and/or private) finance for upscaling urban NBS.
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Keywords: Green urban infrastructure, Nature-based solutions, Public-private finance, Sustainable finance, Sustainable innovation, Environmental Engineering, Waste Management and Disposal, Management, Monitoring, Policy and Law, B Journal
ISSN: 0301-4797
Publisher: Academic Press Inc.
Note: Funding Information: This research was funded by the European Union's Horizon 2020 research and innovation programme under grant agreement No. 730243 and participating partners in the NATURVATION research project. As such, it shares parts of the literature base with Deliverable 1.3 ( Toxopeus and Polzin 2017 ). We thank Dirk Schoenmaker, Harriet Bulkeley, Sander van der Jagt and Hade Dorst for their feedback on earlier versions of this article. We also wish to thank a very constructive anonymous reviewer for helping to improve the manuscript. Funding Information: The lack of public funding for urban NBS makes the entry of private and citizen investors attractive and sometimes even unavoidable (Koppenjan and Enserink 2009; Helm 2010). Even if public funding is potentially available, NBS often represent local public goods, benefiting some citizen groups more than others, which can lower citizen willingness to pay through taxation (Besley and Coate 2003; Mullin et al., 2018). Public actors need political support for their actions (to win the next election), which hampers their risk appetite, whereas private bodies have a higher incentive to provide standard solutions at reliable profits than to present innovative solutions (Klijn and Teisman 2003). The inclusion of private investors for infrastructure investment is often motivated by efficiency reasoning?they arguably embody improved incentive systems for faster and better delivery of such public services (Warner and Hefetz 2008; Helm 2010)?and levying user charges would create better incentives between providers and consumers (Helm 2010). Furthermore, private actor involvement allows for better risk sharing of long-term, illiquid infrastructure investments (Adair et al., 2000).Several innovative private and public funding solutions for urban regeneration have been suggested by Huston et al. (2015). First, capturing land value uplifting from urban NBS could occur directly through lease charges and connection fees or indirectly using tax schemes, usually through a land property special purpose vehicle. Second, alternative financing schemes based on crowdfunding could play a role in creating sound public-private partnerships (Vasileiadou et al., 2016). Social/environmental impact bond schemes can shift the risk of reaching social or environmental milestones from taxpayers to private bondholders. Tax increment financing (TIF) allows for property gains due to infrastructure investments to be used as a basis to capture ex-post project benefit streams.Although adjustment of accounting frameworks is seen as a promising route for upscaling NBS (and will be discussed in the next section), actual decision models for investment may change slower than expected due to persisting conventions and resistance to alternative investment strategies by traditional financial players such as pension funds (Clark 1998). Lack of entry of large, traditional players such as these may slow the scaling up of sustainable housing and urban infrastructure investment (Clark 1998). This raises the issue of which actors will be adopting these adjusted accounting?and ultimately, decision?frameworks.Many articles in our review highlighted developing workable accounting and valuation methods that are able to capture the multiple benefits of NBS (e.g. natural capital accounting, cost benefit analyses, tree valuation, valuation of ecosystem services). The authors focused on developing assessment frameworks that allow the diversity and timeframe of benefits to be taken into account in investment decision-making. Improved accounting methods, which include the variety of NBS benefits that are expected to increase their ability to generate funds.The concepts of natural capital (accounting) and the provision of ecosystem services are seen to increase the ability of financial decision makers to allocate funds towards nature-based solutions by providing a clear accounting framework for communicating NBS benefits (Nessh?ver et al., 2017). An example of such accounting frameworks is ?inclusive wealth?, which aims to measure human, social, manufactured as well as natural capital (Guerry et al., 2015). Improved performance metrics should allow for better monitoring of ecosystem services and impact assessment of environmental policies and programmes (Schaefer et al., 2015). Furthermore, ecosystem service valuation is a crucial factor in creating environmental markets, exemplified by sulphur dioxide trading, wetlands mitigation banking, and nutrient trading (Schaefer et al., 2015). Markets such as those for wetlands (where wetlands that are removed for urban development can be replaced by ?new? wetlands elsewhere) raise the concern that ecosystems cannot simply be duplicated, and ecological loss is inevitable (Schulte-Hostedde et al., 2007).This research was funded by the European Union's Horizon 2020 research and innovation programme under grant agreement No. 730243 and participating partners in the NATURVATION research project. As such, it shares parts of the literature base with Deliverable 1.3 (Toxopeus and Polzin 2017). We thank Dirk Schoenmaker, Harriet Bulkeley, Sander van der Jagt and Hade Dorst for their feedback on earlier versions of this article. We also wish to thank a very constructive anonymous reviewer for helping to improve the manuscript. Publisher Copyright: © 2021 The Author(s)
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