Beyond Carbon Bond Prototyping - connecting liability holders and investors for ecosystem service outcomes

We are developing an outcomes-based financial instrument to channel capital (from public and private sources) in urban Nature-based Solutions (uNbS), establishing natural assets as a critical part of urban infrastructure, alongside bridges, roads and rail.

Our aim is to fund portfolios of urban Nature-based Solutions that are aggregated and analysed via the TreesAI platform. TreesAI is a cloud-based platform integrating impact and financial modelling to calculate the ecosystem services delivered by Nature-based Solutions and assess the potential to mitigate climate-related transition and physical risks.

Typically, the mitigation of climate risk is managed using financial hedging products such as weather derivatives or insurance solutions. In the face of ongoing climate volatility, this approach will be subject to escalating costs and ultimately uninsurability. TreesAI shifts the attention from financial to natural hedging.

In the context of our initiative, natural hedging involves investing in uNbS (e.g. green roofs or sustainable urban drainage systems) that provide benefits (e.g. flood control) that help mitigate financial risks (e.g. damage to property). The TreesAI platform and the novel outcomes-based financial instrument together allow public and private sectors who hold significant transition and physical risks in urban areas to invest in uNbS based on the current and future climate change risk mitigation services that a uNbS provide (i.e.value added or cost savings generated through ecosystem services delivery such as natural flood management, air purification, etc.).

Proceeds from the instrument will be used to co-finance eligible and investable uNbS projects managed by project developers. The instrument allows short-term to medium-term capital to pay for long-term maintenance of trees and thereby increase the environmental and climate risk mitigation value that uNbS can deliver.