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Investment Readiness
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Introduction

The Investment Readiness Toolkit is an online and interactive framework that takes nature-based project developers and enterprises along the eight milestones of a path to ‘Investment Readiness’, providing key considerations and case studies.

This starts from initial project scoping and concludes with signing legal contracts with key stakeholders, including investors or lenders. The framework also includes two underlying factors that project developers and enterprises should consider throughout this journey – Community Engagement and Policy and Regulation.

This framework is intended for any project developer or enterprise interested in restoring or creating natural habitats in the UK with the use of private finance – including farmers, estate owners, charities, local authorities, project developers or aggregators.

Its milestones are applicable across a range of environmental outcomes, such as the delivery of woodland creation, peatland restoration, nutrient reduction, natural flood management and biodiversity uplift.

The Toolkit has been developed based on learnings from projects across the UK, including those in the Natural Environment Investment Readiness Fund, and is updated regularly as those learnings develop and as case studies are added.

We recommend reading the “What is Investment Readiness” section before beginning. Click here to read.

Based on the success of the Investment Readiness Toolkit, a more specific version has been created for farmers in England – the Farming Toolkit for Assessing Nature Market Opportunities. This includes content bespoke to farmers, including an Introduction to Nature Markets.

Toolkit Updates: October / November  2024

The GFI Hive has continued to iterate and improve the Investment Readiness Toolkit with new case studies, considerations and external resources. The below have recently been added to the following Milestones:

Useful Resources

The GFI Hive is delighted to signpost and promote the work of other organisations that is relevant to project developers’ journey to Investment Readiness.

Milestone 1 / 3

This guidance document provides a summary of the key decision-making stages expected to be made during a landscape restoration project. It also contains a shortlist of 15 tools that developed through a literature review and interviews with the six pilot projects of the Nature based Solutions for Climate Change at the Landscape Scale Fund.

Milestone 4

This report presents key findings on the motivations, incentives and barriers of potential buyers of ecosystem services in voluntary markets, based on research and 17 buyer interviews. This report was commissioned through the Nature Returns Programme with the aim of developing a better understanding of how the demand side of voluntary nature markets is currently operating.

Milestone 6

This study is a meta analysis on the key components needed for convening people across a landscape / catchment to deliver Nature based Solutions. These components include leadership, decision-making structures, feedback channels from a diverse range of stakeholders, and other important factors that tie into effective governance.

Milestone 7

This report summarises the views of financial sector representatives, when asked what they need in order to invest
in nature-based solutions, at scale, across a landscape. It offered these representatives a sample scenario of a deal structure for nature and asked key questions relating to scale, impact, community involvement, partnerships and appropriate aggregation models and financial mechanisms.

Call for Feedback

The GFI Hive will continue to iterate the Investment Readiness Toolkit and welcome feedback from anyone who has views on its improvement. We have also included a Testimonials section on the landing page of the Toolkit, for those who. Please contact at [email protected] for any and all feedback.

Hover and click to view milestones and complementary steps

How to use this Toolkit

At any point, you can return to the infographic ‘snake’ and click on the milestones to learn more. Each milestone includes key considerations for your project or enterprise, with rationale for why these are important, a checklist of activities that represent these considerations, useful links and in-depth case studies specific to each milestone.

These milestones are not intended to be linear in practice but have been ordered here for ease of learning. The development of every project follows a unique sequence of activities, and it is likely that a project developer will undertake activities across multiple milestones at once. The colour groupings represent which milestones are most often worked on in tandem.

Some activities within these milestones may not be applicable to every project.

Milestone 1: Initial Project Scoping

Often the initial task is to understand the site(s) you want to use and the land use change needed for nature restoration or creation. This includes considering the goals of the land managers involved, the vision within the wider catchment or neighbouring area, and whether there are permits or planning consent needed for any proposed changes.

At this stage, you can also conduct a high-level assessment to determine which revenue streams can be generated from ecosystem services , e.g. carbon credits, flood reduction cost savings, or biodiversity units, which will be crucial for identifying buyer interest.

Finally, it is useful to have an idea of the costs of the project and potential grant funding that may be available to support initial development.

Milestone 2: Identify and Work with Sellers

Initial ownership of the ecosystem services will belong to the landowners or, in some cases, the tenants of the sites that the project is using. However, these can be passed onto others, such as third-party project developers, with appropriate legal arrangements and compensation. In some cases, there may be a sole seller of the ecosystem services, where the site or landholding is large enough that it delivers the volume of ecosystem services needed to cover the costs of the project and attract buyers.

However, in order to achieve scale and impact, a project will likely involve multiple sellers, such as neighbouring farmers and estate managers. Scale of land is often needed to deliver significant environmental outcomes, and also to attract private finance. Project developers must plan how they initially contact and engage with these sellers going forward, building their wants and needs into the project.

Milestone 3: Baseline and Estimate Ecosystem Services

At this point, you will have understood the vision for the project and identified a particular ecosystem service or set of services to be sold. The next step will be to carry out detailed analysis – baselining each ecosystem service and quantifying what will be able to be delivered from the interventions, as well as planning how to monitor and maintain these interventions. You will need to rely heavily on ecological expertise for this more scientific Milestone.

At this step, standards, verification and accreditation methods will be considered in more depth.

Milestone 4: Identify and Work with Buyers

Based on your earlier market analysis in initial project scoping, you will have identified one or more groups of beneficiaries who may be willing to ‘buy’ or pay for the ecosystem service(s) to be created, restored or maintained. Buyers vary – as do their requirements – but at this step, greater buyer engagement is now needed to develop a deal that channels money towards the nature-positive outcomes that your project wants to deliver.

 

 

Milestone 5: Develop Business Case and Financial Model

You’ll have started building your business case and financial model in earlier steps – laying out your project’s vision, the market proposition and estimating costs and income. This step offers a review, in addition to providing details needed to build out the financial model and business case more fully. Both of these key documents will be iterated throughout project development, and will likely be altered during project delivery as new information emerges. These documents are interlinked and, if developed correctly, will ensure your project’s viability and help you with discussions with stakeholders – including sellers, buyers and future investors.

The financial model will also enable you to better understand the type of structure your project may take to attract investment (i.e.a loan, an equity investment, a bond) and what sort of returns you can afford to pay/offer.

Milestone 6: Develop a Governance Structure

A governance structure will inform the way in which the project is run when fully operational and for what purpose. It identifies appropriate decision making processes, who is responsible for what actions, and what controls are in place to make sure that the project is meeting its stated goals, all while abiding by the risk appetite of its engaged stakeholders. The legal entity to host the project will be a key driver in this, and the appropriate choice of entity will be dependent on several factors that are outlined below.

Your governance structure should align with and underpin your business case, as a necessary component of how the project will deliver its environmental outcomes and other strategic targets.

Milestone 7: Identify and Work with Investors

It is important to note that not all projects will need up-front investment, but for those that do, this section provides a framework for thinking around the development of the investment model. This does not constitute financial advice – as the GFI is not licensed to do so. However these considerations are based on the insight offered by project developers and other market stakeholders.

An investor will be a new core stakeholder in your project, and it’s just as important to think of what you require from investors, as much as what they require from you – so that you can build a positive and collaborative relationship with them.

This entails defining the investment ask (in line with the financial model), the strategy for approaching the right investors, and the negotiation of terms that can then be formalised in contract development (Milestone 8).

 

Milestone 8: Establish Legal Contracts and Closing

When all relevant stakeholders have been engaged and their terms of engagement are clarified as much as possible, this is the time to develop the legal contracts and close the deal. This stage is last because legal fees are expensive, and it is generally advised to determine as much as possible in previous stages before starting to draw up contracts in earnest.

Note: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice on how to manage engagement with lawyers and the process of contract development.

The Green Finance Institute is not a firm of solicitors or connected in any way with the courts. The information and opinions we provide in this section and across the Toolkit do not address your individual requirements and are for informational purposes only. They do not constitute any form of legal advice. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from taking any action.

Community Engagement

Community engagement is highly advisable for any project that aims to sell ecosystem services, to ensure fair outcomes for local communities and the long-term success of the project. Project developers can build connections with local stakeholder groups early on to spot both risks and opportunities.

Policy and Regulation

Project developers and enterprises will need to keep a continuous check on how current and future policy may affect the project, and also opportunities for the project to inform policy. The role of private finance for nature across the UK is being encouraged by the UK government and its devolved administrations, and new rules, standards and markets are being developed.

 

What is ‘Investment Readiness’?

This framework defines ‘Investment Readiness’ as a stage in the development of a project or enterprise at which private investment or a loan is ready to be deployed. At this stage, the project or enterprise will be able to demonstrate that it is:

Profitable

All proposed financial obligations, including returns on investment can be met

Delivering environmental outcomes

Scientifically-credible baselining, metrics, delivery and maintenance plans are in place

Secure

Any risks that threaten the project are mitigated or managed

An important clarification is the difference between investors and buyers.

Like any business, all nature-based projects and enterprises will need at least one revenue stream and buyer of their ecosystem services, whether that is a corporate buying carbon offsets, a housing developer buying nutrient mitigation solutions or a local council paying for reduced flood risk. This income can sometimes be delivered early enough to cover the costs of the project so that, together with grant funding, the need for a loan or investment is eliminated. In many cases however, a separate upfront investment will be needed, such as a loan or an equity stake, to be paid back from the sale of your ecosystem service, plus an additional financial return.

Investment readiness in the context of this Toolkit refers to this upfront investment. The Toolkit, however, will be also helpful for those seeking buyers only.

Testimonials

Tim Hopkin, Founder, The Land App

The current state of environmental markets in the UK is complex; multiple routes toward similar outcomes risk creating inertia rather than progress. The GFI Toolkit is therefore an invaluable resource for those seeking to navigate this complexity, and we consider it essential for those looking to engage with nature finance projects.

Andy Creak, Founding Investor, Kana Earth

With so many new codes, methodologies and standards emerging, natural capital can be a daunting strategy for any landowner. The Investment Readiness Toolkit provides a step by step guide through the challenges and a comprehensive blueprint for making it happen. Great job by the GFI Nature Team

Neha Pawar, Environmental Economist, Bristol Avon Rivers Trust

The Investment Readiness toolkit has been a useful resource for us in providing practical guidance, checklist, and case studies in navigating the complex world of green finance. The step by step process helped us to identify and address key challenges, and the case studies provided ideas for our project. The toolkit is an invaluable resource for anyone looking to navigate investments in green projects.

Sarah Brownlie, Head of Development, Kent Wildlife Trust

The Green Finance Space is rapidly evolving and can be daunting. THE GFI toolkit offers a comprehensive and dynamic reference of the fundamental steps required to develop your project or market infrastructure initiative, continuously updated by those at the forefront of green finance and who are best positioned to guide on latest developments. It’s an excellent example of accessible, accumulated learning and best practice.

Sarah Jane Chimbwandira, Chief Executive Officer, Surrey Wildlife Trust

The Investment Readiness Toolkit is extremely helpful in providing a clear, accessible process to follow when developing any project for investment opportunities.  Whether you are fairly knowledgeable and experienced in natural capital investment or at the start of your journey in this area – the Toolkit provides a useful framework and makes what can seem a daunting task much simpler.

Sam Hanks, Wilder Landscapes Manager, Suffolk Wildlife Trust

As a pilot Landscape Recovery Project, it was important for us to locate the tools necessary to help plan our journey in the earliest phases of our project. After seeing what the GFI toolkit has to offer, it was quickly apparent that few resources are as clear and iterative in their advice, from both a detail and checklist approach. We plan to use the toolkit to help guide us through the set-up for the project through to its hopefully delivery stages over the next few years.

Acknowledgements

In addition to the input of experts from nature-based projects and enterprises across the UK, this Toolkit was developed with the support and review of the below organisations. With great thanks for their contributions: