The decision to invest in nature-based solutions from an environmental economic and financial perspective: a systematic review.

Abstract

Due to climate change, cities are facing major environmental challenges, like the urban heat island effect, loss of biodiversity and ecosystems, and flood risk. Nature-based solutions (NBS) harness the power of nature to adapt to and mitigate global warming’s adverse outcomes. Yet, cities are confronted with barriers to the implementation of NBS. The benefits of NBS do not result in direct revenues or cash flows. Moreover, city budgets often do not have the required resources to provide for extensive urban infrastructure. Alternative ways of financing are therefore being sought, including value capturing, impact financing and crowdfunding via initial coin offerings (ICO). However, it is unclear whether such alternative financing affects the economic feasibility of the underlying investments. In the existing literature, there are several studies that apply economic evaluation techniques to analyze the feasibility of investments in NBS. However, there is no structured overview of how economic feasibility studies can encourage investment in NBS. To fill this gap, this paper examines how the economic feasibility of NBS is currently assessed, whether and how non-monetary benefits are addressed, as well as uncertainty issues, and to what extent policy measures are proposed to encourage investment in NBS. In doing so, we adopt a systematic review approach by applying the framework of Reporting Standards for Systematic Evidence Syntheses (ROSES). This framework allows for a structured, transparent, and replicable review of the scientific literature. We contribute to the existing literature by providing an overview of how current studies value non-monetary benefits, integrate flexibility and adaptive management options, and assess alternative financing instruments to capture the benefits of NBS and stimulate the investment decision.