Nurturing nature financing

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💡This week: As Singapore’s financial sector builds momentum for the wider adoption of nature-related strategies, it will need greater support from non-financial players.

The Singapore Sustainable Finance Association, an industry group recognised by the Monetary Authority of Singapore, has published a guide to help financial institutions get started on nature financing.

At the heart of the nature financing movement is a recognition that nature-based issues present significant risks and opportunities for economies. The guide cited World Bank estimates that global GDP could decrease by US$2.7 trillion in 2030 if certain ecosystem services collapse. An analysis by Singapore government-owned investor Temasek figured that more than 60 per cent of GDP in the Asia-Pacific relies directly or indirectly on nature and ecosystem services.

On the opportunities front, the World Economic Forum sees US$4.3 trillion in business and 232 million jobs in Asia by 2030 from the nature transition to reverse negative impacts and restore nature. Globally, the nature transition could unlock US$10 trillion of business opportunities and 395 million jobs over the same period.

“We believe now is a good time for financial institutions to increase their proactivity in nature financing,” the authors write. “That means understanding the materiality of nature risks and opportunities, embedding these considerations in internal processes and pursuing new business opportunities. In doing so, financial institutions will both address nature degradation in the real economy and grow their businesses.”

So why aren’t banks rushing to provide nature financing?

The short answer is that it’s hard right now to know what an acceptable level of nature performance is. One of the 2030 targets under the internationally recognised Kunming-Montreal Global Diversity Framework is to conserve at least 30 per cent of water areas, including marine and coastal ecosystems. But that number needs to be translated for local circumstances to work.

What is sorely needed is policy support to lay down locally contextualised nature targets and pathways. Without science-based zoning policies and nature transition strategies to guide the way, the financial sector will struggle to provide capital efficiently. Investments will have to price in the risk of being on the wrong side of eventual policy, and of reputational damage from critics calling for more stringent standards.

Policy guidance is also needed to resolve competing demands for resources with other developmental goals. For example, building utility-scale solar farms or mining minerals needed for batteries or agriculture can all harm local ecosystems. Banks and investors can support a national strategy for allocating natural capital, but shouldn’t be the ones creating that strategy.

More importantly, financiers and businesses need confidence that the real-world outcomes of their activities are positive, and that’s not possible without deliberate system-wide plans.

Industry sectors also need to step up. While policymakers can set jurisdictional targets, industry players need to commit to aligning with those targets. Guidance on best practices and the transition away from nature-negative operations should be a coordinated effort.

Both industry and government need to work together on creating better datasets. Doing so will facilitate the development of assessment models that can better price nature risks and opportunities.

The challenges are not trivial, but that’s always true at the beginning. There are low-hanging fruit where banks and investors can start.

Some aspects of nature are better understood and developed than others. In Singapore, for example, water efficiency has been a national priority for decades, which means that policies and data are already in place to enable the financing of water-related projects.

In some ways, it shouldn’t take much for businesses to understand the materiality of nature, especially in sectors such as agriculture, mining and real estate.

Compared with climate change, some of the impacts from changes to natural systems can be detected in shorter time frames and more visible ways. Fishermen know when there’s overfishing because catches shrink, for instance.

Compared with climate change, nature-related issues are often local. Biodiversity loss in Australia doesn’t affect biodiversity in Argentina. However, greenhouse gas emissions in Australia will certainly affect temperatures in Argentina and Angola.

This means that the levers for many nature-related issues are local as well; a company that protects the local ecosystem on its properties in Australia doesn’t have to worry about whether its efforts will be undermined by what someone in Argentina is doing. This is very different from climate change, where the willingness to mitigate emissions is often affected by whether other countries are pulling their weight.

The point is that nature financing will be a long journey, and starting now will allow early adopters to develop effective systems and processes through gradual evolution rather than in a more disruptive way in the future.

🌱Top ESG reads:

1. Hospital operator IHH Healthcare has taken a S$300 million sustainability-linked loan from UOB tied to targets on carbon emissions and water and waste management.
2. Singapore priced its S$1.8 billion reopening of 30-year green bonds to yield 2.62 per cent following an auction that drew bids worth 1.84 times the amount offered.
3. South-east Asia could see up to 13 new gas projects financed in 2025, the highest in a decade, says Global Energy Monitor.
4. US imports of semiconductor products, including solar panels and cells, from South-east Asia fell sharply in the 12 months to February 2025 amid a crackdown on trade circumvention.
5. Chinese companies are involved in building 7.7 gigawatts of new coal-fired power in Indonesia despite a 2021 pledge to stop financing coal projects overseas, says Global Energy Monitor.

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