This article was first published in Environmental Finance.

  

Financial flows should be redirected towards nature protection, restoration and long-term resilience, writes Eric Usher, Head of UNEP FI.

Europe is heading into COP17 after one of its hottest and driest summers on record. The extreme heat this year could reduce Europe’s GDP by 1% — equivalent to €180 billion in economic damage¹. Resultant wildfires, drought, impacts on soil health, shrinking lakes and reservoirs, and depleted groundwater, all impact upon flora, fauna, agriculture and industry.

Despite the ensuing and mounting human and economic costs of climate change and nature loss, financial flows remain largely misaligned with environmental goals. For every $1 invested in protecting nature, roughly $30 continues to support activities that harm it². Examples of capital flows supporting nature loss include fossil fuel subsidies; investments in new fossil fuel infrastructure; and under-pricing of water, leading to unsustainable consumption. When you consider that around 55% of global GDP is dependent on nature³, directing finance in ways that harm nature is neither sensible nor financially sustainable.

Against this backdrop, the UN Biodiversity Conference – COP17, taking place in October, will bring together governments, financial institutions and businesses to focus on actions they can take. As momentum builds, I outline the four key changes that are needed to redirect financial flows towards nature protection, restoration and long-term resilience.

   

1. Redirect capital away from nature destruction

One of the greatest opportunities for closing the nature financing gap, the difference between the funding needed to protect and restore nature and what is currently being spent, is to redirect money away from activities that harm nature and towards those that help it recover.

Funds that support environmentally damaging practices, such as intensive farming, overfishing or fossil fuel-intensive activities, could instead be invested in regenerative farming, and other sustainable approaches, such as forest restoration or renewable energy. Redirecting existing financial flows at scale would not only help close the nature financing gap but also reduce the economic risks associated with ecosystem degradation.

  

2. Build sector-specific nature transition pathways

The nature transition, where we move to a system where biodiversity and ecosystems are protected, restored, and used sustainably, needs to be economy-wide, but it will not look the same across every sector. For example, agriculture will need to reduce land conversion, while infrastructure will need to minimise habitat disruption.

Progress will depend on engaging sectors individually with practical, sector-specific transition pathways rather than treating nature as a single cross-cutting issue. This mirrors the climate transition, where many governments, regulators and financial institutions established separate sectoral decarbonisation pathways and started by prioritising the highest-emitting industries.

  

3. Put freshwater at the heart of nature action

Freshwater, that is water with very low levels of dissolved salt, underpins almost every part of the economy. It is essential for irrigating crops, manufacturing goods, generating energy, cooling industrial facilities, and meeting basic household needs, such as drinking and sanitation.

Yet we are entering an “era of global water bankruptcy”⁴, as climate change brings hotter, drier summers and the proliferation of data centres places greater strain on already stressed water resources. Central banks and governments are starting to take notice, with, for example, the Central Bank of Spain hosting, and the UK and Netherlands governments supporting, the 13th Meeting of the Roundtable on Financing Water in May this year.

As COP17 approaches, freshwater should be elevated as a key priority and an opportunity to drive greater awareness of the value of nature. Because people and businesses depend directly on healthy freshwater systems, water can serve as a tangible way to demonstrate how protecting nature underpins human well-being, economic prosperity and climate resilience.

  

4. Embed nature in financial decision-making

When making lending, investment and insurance decisions, financial institutions should assess whether a business understands how it depends on and impacts nature, to better assess the risk.

For example, agricultural businesses depend on reliable rainfall to grow crops but may increase withdrawals from rivers and groundwater during droughts. However, if water levels get too low, governments can impose limits on the volume of water that can be extracted by businesses to protect reserves. This could potentially result in crops being lost and businesses subsequently being unable to repay loans or needing to claim insurance.

An agricultural business that understands this risk can assess its water use, set targets to reduce freshwater dependency, and build the business case to invest and implement measures, such as precision irrigation, rainwater harvesting and drought-resistant crop varieties.

Businesses that understand and manage their nature-related dependencies and impacts are generally more resilient to environmental, regulatory and market changes, which can support stronger long-term financial performance and lower risk for lenders and underwriters.

   

COP17 is the mid-decade stocktake on progress against the Kunming-Montreal Global Biodiversity Framework to protect and restore nature. Recent heatwaves have demonstrated the business, environment and health risks posed by not acting – we now need governments to support the finance sector in making these shifts. I believe that by redirecting harmful financial flows, building transition pathways, prioritising freshwater and embedding nature into financial decision-making, we can build an economy that rewards regeneration rather than depletion. The question is no longer whether we can afford to invest in nature, but whether we can afford not to.

   

Find out more about UNEP FI at COP17

  

¹ Europe’s extreme heat could wipe out EU growth in 2026 Hot Summer Economics Report by Triodos Bank
² State of Finance for Nature 2026, UNEP
³ Managing nature risks: From understanding to action | PwC
⁴ Global Water Bankruptcy, United Nations University, January 2026