Problem Definition

At the start of the project, we defined the problem in financial terms

Environmental management is hard to scale because few want to or are able to meet its full cost. Soil, forest, and biodiversity investments take years to yield returns, and may never do so: costs are real and immediate, benefits are future and speculative. These factors contribute to a conservation "finance gap" of $300 billion a year. The reality is that people will not or cannot meet the short-term costs of maintaining sustainable environmental systems.

We found a striking parallel which drove the point “home”. In housing, owners expect to spend 1-4 percent of a home’s value each year on upkeep. Without it, the asset deteriorates. In one sense at least, environmental systems are no different: neglect drives greater costs into the future. And the parallel between our houses and our wider home is hard to overlook.

Beyond the Finance Gap

With time, we started to ask whether defining the problem in terms of finance gaps may be unhelpful. It frames the problem as a shortage of money for environmental protection and restoration, and pushes us to look for new funding streams, rather than asking the question about how productive systems are organised. Simply filling the gap without rethinking production means running down one natural resource to pay for another. A system where oil and gas projects fund sustainable farming via the tax system appears illogical.

In terms of the "home" metaphor, we're dismantling the house itself to pay for its upkeep, and still falling short. Closing the finance gap without fixing where the funds come from drains one non-fungible resource to patch another. It may work on paper, but not in practice.

A Broader Understanding

Ecosystem Equity focuses on credit design as both a source of unsustainability and a means to overcome it. However, with a focus on farming in implementing pilot projects, we encountered over 50 more drivers and barriers (this list is available here), which often interact in locally specific and unpredictable ways. While it’s challenging to see how these barriers can be recognised and addressed all at once, toolkits are developing that can be deployed with greater precision to meet the many impediments to sustainable resource use.

Within these many challenges, one issue is hard to avoid: how society decides which projects and activities receive permission and resources to shape the future. That decision is fundamental. But where that decision sits is, remarkably, contentious. Banks, and the Green Financial Alliance for Net Zero, say governments must regulate, while central banks push back on a regulatory agenda. Is the question about what the future looks like – sustainable or unsustainable – embedded in the capital allocation mechanism, or in state regulation of economic activity?

Within this deadlock, Ecosystem Equity has sought a third path: asking whether environmental sustainability can deliver financial returns by strengthening environmental resilience and lowering borrowers’ credit risk. This idea proved especially relevant in the farming sector, where we conducted our pilots, and has helped us re-envisage what an agri-lender might look like in a sustainable future, as home to a rebalanced credit and capital allocation mechanism for food systems.

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