Ecosystem Restoration

With less than 3% of the world’s ecosystems left intact and a million species at risk of extinction, ecosystem restoration is increasingly seen as central to addressing the twin crises of biodiversity extinction and climate change. Restoring 15% of degraded ecosystems in priority areas could avoid 60% of expected extinctions while potentially sequestering up to 158 GtCO2e —15% of the total CO2 increase in the atmosphere since the Industrial Revolution.

Restoring degraded ecosystems offers a cost-effective way to mitigate climate change, reverse biodiversity loss, enhance economic development, secure livelihoods, alleviate poverty, ensure global food security, and preserve essential ecosystem services. Ecosystem restoration has a critical role to play in achieving the Paris Agreement climate targets, Aichi biodiversity targets, and the UN Sustainable Development Goals. Biodiversity will face amplified risk in lower-income economies, due to the lack of financial, regulatory, and legal systems required to address these risks internally. These are priority regions where biodiversity is most threatened.

Temperate forests play a crucial role in the global water cycle by regulating precipitation, evaporation, and flows. In addition to serving as carbon sinks, they are a source of timber and wood products for local and global communities.

Tropical forests are also biodiversity hotspots, with 80% of all global species relying on tropical forests for food and shelter. Additionally, Western medicines often rely on plants found within tropical forests, especially ones essential to day-to-day life, like treatments for inflammation, rheumatism, diabetes, muscle tension, surgical complications, malaria, heart conditions, skin diseases, arthritis, glaucoma, and more.

Together, both types of forests are a lifeline for communities worldwide: “Food, shelter, energy, medicines and around 86 million associated jobs come from forest products.”

Over the past two decades, an estimated 420 million hectares of forests (an area larger than India) has been lost. Pressures on both tropical and temperate forests are anticipated to grow. There is an expected surge in demand for food and industrial roundwood, which is predicted to rise by 46% and 49% respectively between now and 2050.

Forest degradation could potentially affect 1.75 billion people. In addition to habitat fragmentation and damage to biodiversity, it is also linked to outbreaks of vector-borne and animal-borne diseases, due to increased human-wildlife conflicts.

Ninety-five percent of the 10 million hectares of forest lost every year occurs in the tropics. These forest regions have the world’s highest levels of biodiversity - specifically in countries including Indonesia, Bolivia, Guyana, and Brazil. According to the 2023 Biodiversity Finance Factbook, these countries are especially higher-risk because they have “a greater share of economic activity from nature-exposed industries such as agriculture, forestry and fisheries.” As illustrated above, there are also many other countries with high biodiversity – like Mexico, China, Australia – that will require forest restoration.

Peatlands serve as highly productive carbon sinks, sequestering more carbon than any other type of ecosystem. For local communities, they provide important benefits by “regulating water flows, minimizing the risk of flooding and drought, and preventing seawater intrusion.”

About 11% of the world’s peatlands have been lost. For Indigenous and rural communities that greatly depend on surrounding peatlands, these effects are substantial. UNEP specifies that in Peru, peatland forests not only provide habitat for fish and wild animals, but also for the palm fruit that holds sacred cultural value for the Indigenous Achuar people. It also accounts for “80% of the income for many rural households during winter.”

Grasslands are critical in global carbon sequestration, as well as for local pollination, recreation, and water regulation. Not only does vegetation above ground store large amounts of carbon, so do in the “underground forests” of root systems and soil. Grasslands cover 20% to 40% of the world’s total land area, with key regions including Tanzania’s Serengeti, Brazil’s Cerrado, and Mongolia’s Steppes.

Unfortunately, grasslands have suffered a fate similar to other critical ecosystems, with approximately 70% of native grasslands converted to graze livestock.

**1. Is ecosystem restoration investable today and at what level of maturity?

**Ecosystem restoration, especially in tropical regions including Indonesia, Brazil, and developing countries like Kenya, is emerging as a noteworthy investment opportunity. For forest restoration, most investment opportunities involve creating and selling carbon credits. Financing is available via the Voluntary Carbon Market, which has seen a 252% increase in retirements since 2017, and an anticipated growth from $2 billion in 2020 to $250 billion by 2050.

Thanks to the increase in demand for carbon credits, tech restoration startups have acquired significant funding and attention. Investors include large asset owners, VC firms, large corporations (like Google, Nestlé, and PepsiCo), and public-private initiatives. The investment opportunities themselves range from restoration tech startups, to projects that develop carbon credits through nature-based solutions, to carbon-trading platforms.

2. What are the required and current capital flows in ecosystem restoration? Where are their sources?

If the world is to meet its climate change, biodiversity, and land restoration targets, investments in four solutions - re/afforestation, mangrove restoration, peatland restoration, and silvopasture - would need to quadruple to about $500 billion per year by 2050, totaling $8.4 trillion in cumulative investment

The same report states that investments in forest-based solutions need to amount to $203 billion per year, and for peatland restoration, $7 billion per year.

Citing an even bigger gap, consultancy Global Canopy estimates that global annual biodiversity conservation funding needs to range from $722 billion to $967 billion by 2030 with more than half going to agricultural systems. The investment gap for ecosystem restoration is substantial. Today, only $133 billion is invested annually, of which 14% comes from the private sector.

Despite the substantial underinvestment in this sector, a 2015 study found that ecological restoration in the U.S. generates $25 billion a year in economic benefits and supports 220,000 jobs. The prospects for further returns are promising: forest-related nature-based solutions could generate $800 billion in annual revenues by 2050.

3) Where are the opportunities? Although the business model for restoration and protection is still in its infancy, the World Resources Institute found the sector growing rapidly, with three themes emerging: technology, project management, and commercial forestry.

On the tech side, there is a boomlet in venture for nature tech – and within that, for restoration-focused startups and platforms. Emerging tech-focused ventures are focusing on drones for both planting and measurement, reporting, and verification (MRV), as well as on the use of satellite imagery and AI for productive restoration.

Examples include:

• Dendra Systems, a U.K.-Australian startup, raised $10 million in a Series A round co-led by Airbus Ventures, At One Ventures, Future Positive Capital and Lowercarbon Capital, for its drone-enabled tree-planting technology.
• Also utilizing drone technology to scale tree replanting, Terraformation recently closed a $30 million Series A round led by Apollo Projects plus several undisclosed institutional investors and nearly 100 angel investors. Terraformation was founded by former Reddit CEO Yishan Wong.
• Mast Reforestation (formally Droneseed), a U.S. startup, recently announced that it had raised $36 million in a Series A round led by Social Capital and Seven Seven Six. Known as a pioneer in climate tech and post-wildfire reforestation, Mast Reforestation is the only company approved by the FAA to deploy a fleet of heavy-lift drones to reforest after wildfires. The company also recently acquired Silvaseed Company, one of the largest private forestry seed suppliers in the Western U.S. As of 2023, the company has raised an additional $17 million over two rounds, the latest being a debt financing round, and has acquired Cal Forest Nurseries.
• In addition to using drone technology, Land Life Company uses its patented Cocoon product to improve the survival rates of the planted saplings, especially in dry and degraded land. Using data analytics from satellite imagery and internet-of-things (IoT) devices, the company monitors the progress of these sites, further enhancing productivity. Its business model relies on selling reforestation services to other businesses, governments, and non-profit organizations. Land Life Company has raised a total of €11.9 million in funding over three rounds. Investors include Vectr Ventures, DOEN Participaties, Stichting ODEN, Achmea Innovation Fund, Green Challenge Fund, and others.
• Flash Forest, a Canadian reforestation startup, specializes in using drones for planting trees. Initially funded with a $1 million grant from Google.org, the company has gone on to secure $9.8 million in funding.
• Restor.eco, a science-based open data platform powered by Google Earth Engine and Google Cloud, helps scientists and project developers analyze the restoration potential of any site globally – and could eventually be used to measure impact for investors.
• The winner of the World Economic Forum’s Uplink Initiative, EcoTree collaborates with businesses to help them improve their green profiles, supply chains, and operations. EcoTree achieves this by offering opportunities to invest in sustainable forestry projects across Europe. The company has raised a total of €16.8 million in funding over five rounds, from a total of eight investors: The Founders Games, Financiere Fonds Prives, Accuracy 4, Societe Generale, Famae Impact, West Web Valley, SeedBlink, and Finistère Angels.

Project Developers restore degraded lands into more native states, pay landowners to keep these lands pristine, and develop carbon credits to fund their activities.

• Biofilica is one of the world’s largest nature-based solutions project developers. In 2022, the company was acquired by Ambipar, and became Biofilica Ambipar Environment. In collaboration with IPÊ (Institute for Ecological Research), their "Corridors of Life AR Project" will restore 75,000 hectares of the Atlantic Forest, sequestering approximately 29 million tons of CO2e over 50 years while also supporting local communities.
• South Pole offers investors a return by generating both high-quality carbon credits and helping corporations achieve their social responsibility goals. With minority investors Temasek and Salesforce, South Pole is a start-up unicorn, with a stated valuation of $1 billion, as of April 2022. In 2022, the company partnered with Carbonfuture to digitize project tracking and increase transparency for investors.

Venture capitalists and corporates are backing dozens of carbon-trading platforms and developers that are ready to monetize and trade forest carbon, a market that is expected to grow with reforestation and other restoration efforts. There are are more than 25 such exchanges, including:

• Air Carbon Exchange, which uses blockchain technology to convert carbon credits into tradable carbon asset classes, much like global commodities such as corn and soy, and secured $15 million in a pre-series B round in early 2023, led by Singapore-based decarbonization investor TRIREC, in addition to other backers: Thailand’s Banpu Public Company and Mubadala Investment Company PJSC.
• Natural Capital Exchange (NCX), which has backing from Union Square Ventures and Microsoft (among others), and is a data-driven forest carbon marketplace that seeks to source high-quality forest carbon credits from American landowners and connect them to corporations.
• Puro.earth, a Finnish business-to-business carbon offset exchange that was acquired in March to be incorporated as a Nasdaq platform.
• Singapore Stock Exchange, which entered into a joint venture with DBS Group, Standard Chartered and Singapore’s state investor Temasek to launch Climate Impact X (CIX), another global exchange for high-quality carbon credits.

Private capital is also moving to large restoration efforts. A number of restoration or afforestation platforms have been launched in the last two years to focus on this new frontier of investment. These include:

• Vertree, a 2021 vintage joint venture of commodities investor Hartree with advisory firm SystemIQ, aiming to deploy $2 billion to the space. It is teaming up with the carbon development platform EcoSecurities for investment of up to $1.5 billion in Latin America.
• Climate Asset Management’s natural capital fund, launched in 2021, itself a joint venture between HSBC Asset Management and strategic advisor Pollination Group. As of December 2022, the fund has raised $650 million for restoration projects, with managers projecting a 10% return over 15 years on investments (before fees) on projects in regenerative agriculture and forestry in developed markets. Additionally, due to soaring corporate demand for verifiable carbon offsets, the fund also finances eco-focused projects in developing nations that focus on nature-based solutions, while generating carbon credits.
• Cultivo, a fintech startup with the aim of unlocking $1 billion of investment over the next five years for at least 3.5 million hectares of restoration projects, including forests, grasslands, wetlands and regenerative agriculture primarily through the sale of high-quality carbon credits. Since its launch in 2020, the company has secured partnerships with Aeromexico, Nature for Justice, and TerViVa.
• Lestari Capital, a Southeast Asian impact investing firm, which recently launched Rimba Collective, a $1 billion initiative to protect and restore half a million hectares of tropical forest over 25 years and to support 32,000 individuals in forest communities in Southeast Asia. Poised to be one of the largest private sector-enabled forest conservation initiatives ever launched, the Rimba Collective is a first-of-its kind initiative for the palm oil commodity sector. Founding partners include Nestlé, PepsiCo, Procter & Gamble and Wilmar. The collective has plans to expand to more corporate partners and users when it becomes operational at the end of 2021.
• BTG Pactual Timberland Investment (TIG), a major investor in timberland, which recently entered into a partnership with Conservation International to launch The Restoration Fund. This collaboration seeks to mobilize $1 billion over five years to acquire, protect, restore, and plant forests in Latin America. The firm projects a return of roughly 13% to 15% over 15 years (post tax). These figures include the sale of 41 million verified carbon offsets, which firm managers say could generate $750 million over 15 years.

Corporates also see the potential in ecosystem restoration for accessing low-cost carbon credits and the opportunity to be recognized as leaders. Many work with funds, like Climate Asset Management, for verifiable carbon offsets, but some have developed and deployed their own initiatives.

• A high-profile initiative is The World Economic Forum’s 1t.org platform, a global effort to bring together companies, NGOs, climate activists, and governments with the goal of conserving, restoring, and growing one trillion trees around the world by 2030. Backed by the Marc R. Benioff Foundation (Salesforce’s founder), the platform aims to connect stakeholders by spotlighting successful landscape restoration projects and mobilizing private-sector investment in impact-driven partnerships.
• In 2020, Mastercard launched the Priceless Planet Coalition, a platform that aims to plant 100 million trees over five years. Founding coalition partners include Citibank, American Airlines, Santander UK, IHS Markit and Transport for London, among others. The Priceless Planet Coalition will work with the World Resources Institute and Conservation International to restore forests. Salesforce has also pledged to plant 100 million trees by 2030 in support of the 1t.org mission. The company announced in March 2021 that it had already funded the planting of 10 million trees across 19 projects globally.

Regional public-private initiatives have also been gaining ground. Examples include:

• AFR100, where, to date, 32 African countries have pledged to restore more than 100 million hectares by 2030.
• The Great Green Wall Initiative, which launched in 2007 and is led by the African Union, and received an additional $14.3 billion in funding for their new accelerator in 2021. They plan to restore 100 million hectares of degraded land, sequester 250 million tons of CO2, and implement 10 million green jobs by 2030 in the Sahel region of Africa.
• The Bonn Challenge, which has involved 61 countries to restore 350 million hectares of degraded and deforested landscapes by 2030. As of 2017, 150 million hectares have been pledged to be restored.
• Initiative 20x20, a regional partnership bringing together over 95 technical organizations and institutions, 25 private investors and the governments of 18 countries across Latin America and the Caribbean to restore 50 million hectares by 2030. To date, $2.5 billion of private funding has been committed to 60 restoration projects, ranging from establishing wildlife corridors for critical species to helping smallholders restore their land.

There is a small (but growing) innovation scene emerging, focused on scaling restoration efforts.

• The Land Accelerator, housed within World Resources Institute (WRI), is a network and accelerator program for entrepreneurs who restore degraded forests and farmland. To date, the program has 191 entrepreneurs from 46 countries restoring 207,000 hectares. WRI also launched a global platform, TerraMatch, that connects restoration projects to funders.

Enhanced public-private collaboration and blended finance is essential in this market to provide a ramp towards mainstreaming ecosystem restoration. Although green bonds could also attract capital into this new sector, innovative finance mechanisms still need to be developed.

An initiative that is working to catalyze such mechanisms is Convergence’s Design Funding Program, a market acceleration tool that provides early-stage capital to support blended finance solutions in frontier markets and nascent sectors. Earlier this year, the program awarded a grant to PT. Kandelia Alam (KLIA) to explore a blended finance solution to accelerate sustainable forestry and ecosystem restoration in Indonesia.

Overall, the near-term growth outlook for investment is positive, with significant corporate and public sector demand for restoration products. Technology is lowering the costs of restoration, tree-planting, and ecosystem monitoring, resulting in a better investment profile and faster adoption. Over the next five years, revenue from high-quality certified carbon credits may be the dominant income stream for this sector, unless biodiversity credits can evolve quickly from today’s theoretical market.

**4. What is spurring growth? What is holding it back? ** The high upfront costs for restoration efforts can often overshadow the long-term benefits. Additionally, it is difficult to quantify and monetize the social and environmental advantages of restoration. The returns from these projects, especially in the form of ecosystem services like clean air, water purification, and biodiversity, have effects that do not manifest immediately and are hard to quantify. The co-benefits of nature-based solutions must be monetizable to alleviate this issue.

Additionally, regulation will need to incentivize conservation. Impediments to growth have included “unsustainable taxes and subsidies that incentivize degradation, a lack of financial policy to encourage investment, and land-tenure uncertainty.”

Finally, the carbon market faces its own challenges. According to McKinsey, the voluntary carbon market is characterized by “low liquidity, scarce financing, inadequate risk-management services, and limited data availability.” To alleviate this issue, trusted project developers are coming on line to lead investments through the development of high-quality carbon credits that also factor in overlooked yet crucial co-benefits, like community economic development and biodiversity protection.

Forests harbor more than 80% of the world’s terrestrial biodiversity. Protecting and restoring them is essential to halting the current biodiversity crisis. Protecting forests as well as Indigenous-managed land has been shown to increase levels of biodiversity. With 75% agricultural crops dependent on animal pollinators, forests play a central role in global food security.

Research published in Nature from the International Institute for Applied Systems Analysis (IIASA) Austria, and the International Institute for Sustainability, in Rio de Janeiro found that restoring 15% of converted lands in identified priority areas could avoid 60% of projected extinctions. Doubling the restoration goal to 30% of the priority areas, in addition to protecting current ecosystems, would mitigate 71% of biodiversity extinction risk.

Ecosystem restoration projects can create ecological buffer zones which protect sensitive or critical ecological habitats from human activity. Well-designed projects can serve as wildlife corridors, allowing species to move between different habitats in a fragmented landscape.

Additionally, ecosystem restoration is becoming recognized as a human health imperative. Increasing natural barriers to wildlife through restoring native habitat decreases wildlife-human contact and lowers the risk of animal to human pathogen spread.

Nature-based Solutions (NbS) have the potential to mitigate over one third of global GHG emissions and are integral to climate change mitigation. Restoration and extension of carbon rich habitats including forests, grasslands, peatlands and wetlands have the potential to mitigate between 13 - 15.5 GtCO2e annually. Yet today, deforestation generates net emissions of about 5.2 Gt CO2e per year according to IPCC.

Nature-based Solutions (NbS) have the potential to mitigate over one third of global GHG emissions and are integral to climate change mitigation. Restoration and extension of carbon-rich habitats – including forests, grasslands, peatlands and wetlands – have the potential to mitigate between 13 and 15.5 GtCO2e annually. Yet today, deforestation generates net emissions of about 5.2 Gt CO2e per year, according to the IPCC.

• World Resources Institute 2018 - The Business of Planting Trees: A growing investment opportunity
• World Resources Institute 2017 - Roots of Prosperity: The economics and finance of restoring land
• Earth Security 2021 - The Blended Finance Playbook for Nature-based Solutions
• Global Canopy 2021 - The Little Book of Investing in Nature
• IPBES 2018 - The Assessment Report on Land Degradation and Restoration: Summary for Policymakers
• The Global Partnership on Forests and Landscape Restoration 2018 - Restoring Forests and Landscapes: The key to a sustainable future
• PLOS One 2015 - (Estimating the Size and Impact of the Ecological Restoration Economy)[https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0128339]
• Open Earth 2020 - Restoring Abandoned Farmland to Mitigate Climate Change on a Full Earth