COP29 came to a close on Sunday 24 November, with a new pledge under the New Collective Quantified Goal (NCQG)to raise $300bn a year for developing countries by 2035.

This headline figure is included in the second part of the final NCQG agreement as a target, which calls on “all actors” to upscale finance from “all public and private sources” to $1.3tn by 2035. Public finance alone cannot address the financing gap for nature and climate. Y The challenge of raising enough public funds has existed since the development of the UN Sustainable Development goals in 2012, however there is now real urgency to establish coherent investment pathways, to plug the finance gap and respond effectively to the climate and biodiversity crises.

So where will this money come from? And how can we create clear pathways for finance to flow to blue carbon ecosystems to overcome this?

Blue carbon ecosystems are powerful tools for climate mitigation and adaptation, and are deeply important to coastal community livelihoods and biodiversity. Yet there remain multiple challenges to scaling blue ecosystem restoration and conservation. These include:

Complexity - How can a mangrove forest be transformed into an investment opportunity while ensuring financial mechanisms directly support communities and conservation efforts? Establishing reliable market infrastructure, dealing with underlying drivers of degradation, addressing local regulations and multistakeholder capacity building are complex social processes that are necessary.

Access - At present, the majority of blue carbon projects such as mangrove restoration do not meet the criteria for finance to credibly invest in them. A project to restore abandoned and degraded fishponds for example, is small-scale; yet some farmers may not have access to a formal bank account, or a formal recorded history of operations, and little to no governance structure in place. Foreign exchange fees can also spike relevant interest rates if the investment capital crosses national borders, making loans unattractive for farmers and/or mismatching risk/return profiles for the foreign investors.

Size - Another barrier to investment can be the scale of blue carbon projects, as the majority of projects are small. State-sponsored projects can reach sufficient scale for larger investors, but are few and far between, and much more complex as they require jurisdictional agreements on key activities between stakeholders. Aggregation is an opportunity to increase size, but obstacles remain to effectively aggregate in most areas.

Awareness - Blue carbon ecosystems are attracting global attention for their cross-jurisdicional benefits. However the visibility of projects that are ready for investment are not yet great enough to attract the necessary investors needed to upscale on a global level.

Building market infrastructure: Greater dialogue between stakeholders in finance, government, NGOs and local communities is needed to ensure that enough market infrastructure is set up around blue carbon projects to enable engagement by commercial finance. This includes setting up fundamental infrastructure and passing laws and bills to formalize reliable transaction components.

Meeting the needs of commercial finance: In order to meet investability criteria for commercial finance to provide funding at scale, blue carbon ecosystem projects must be supported at earlier stages to both support project pipeline generation and lift those projects to a scale and level of commercial viability that lowers the risk profile enough to attract investment. This step-wise process necessitates smaller, specialist mezzanine financiers that can address a higher-risk profile due to their specialist capacities, before tapping into bigger nature and climate funds via global banks. Alternatively, other expert organizations can help scale projects towards commercial viability with the support of technical assistance from donors.

Financial baselining: Governments are currently focusing their baselining activities on mapping scientific metrics such as the highest conservation value areas . Adjacent to this, baselines should incorporate investor needs, such as adjacent and interacting commercial industries that could be shifted to have a positive effect on blue carbon ecosystems (such as aquaculture, fisheries, rice cultivation, and ecotourism). Doing so would support financial institutions’ entrance, who would otherwise have to send personnel to spend more time on the ground, thereby increasing already relatively-high transaction costs.

Minimizing risk: Risk premiums associated with developing countries often make the cost of capital unaffordable. Blended finance - a strategic use of development and philanthropic funds to attract private capital to emerging markets - is essential to allay real and perceived risks. This also involves attracting a degree of catalytic finance.

Capacity Building: A lack of awareness can be overcome by launching initiatives to help private finance understand which projects to invest in, saving them time and money on research. Capacity building between governments and other critical stakeholders such as project developers, financiers, corporations and philanthropy can help with the understanding of what is needed across all stakeholders to support investment and scaling.

Initiatives such as BCAP are working with partners to put into place the enabling conditions needed for the investment readiness of high-quality blue carbon projects and their ability to function within a reliable market. Some key areas of work underway include:

Establishing investment enabling conditions - this includes ensuring investee projects and their owners have the fundamental infrastructure to receive capital and scale their project. It also involves connecting stakeholders between government departments to ensure stable and streamlined regulation that creates a business-positive environment. Supporting capacity building between all stakeholders is also necessary for the commercial project pipeline to grow, for the project owners to receive the capital and use it wisely, and for financiers to better understand risk profiles in the local context.

Building connections - By establishing in-country secretariats under NCBAPs, BCAP is supporting national governments as they streamline and align their policies to meet the needs of private finance and other critical stakeholders involved in the finance process. Dialogue between government and investors is critical to ensure aligned preparations for bringing in new capital.

Driving just and equitable community benefit sharing - Just and equitable sharing of benefits with local communities is essential to create a truly sustainable project that delivers its long-term potential. Local communities play a fundamental role in project success before, during, and after capital deployment and the project must compensate them for their role. Without benefitting sharing, the project’s risk increases, including from non-delivery or continued degradation, which leads to economic losses of the project. A local community's capacity to monitor and regulate local ecosystems is vital to economic project success and delivery- especially in carbon crediting projects that require additionality, permanence, and reputational considerations. BCAP is working to bring high-quality projects to the market that prioritize both the needs of local and indigenous peoples, while promoting how local leadership can minimize multiple risks that are ultimately economic.

The BCAP team is currently working with stakeholders across South East Asia, and Latin America to define commercially investable pathways for investment to flow into blue carbon ecosystems that address climate and ecological crises, and provide long-term benefits to local communities and to investors.

Stay tuned for key insights from our panel hosted at COP29 in our next blog out in two weeks!