How Markets Can Help Protect Life On Earth

Pollinators that keep our food system running are disappearing. Forests that stabilize the climate are shrinking. Fisheries that feed billions are under strain. Scientists have warned for years that biodiversity loss isn’t just an environmental issue—it’s an economic one. More than half of global GDP depends, directly or indirectly, on healthy ecosystems. Yet protection of those systems has been massively underfunded.

The problem is as much a lack of incentives as it is a lack of awareness. Biodiversity functions largely as a public good. Everyone benefits from thriving ecosystems, whether they pay for them or not, making biodiversity notoriously hard to finance through markets alone. Governments and nonprofits have long carried the burden, but estimates suggest the annual funding gap for conservation runs into the hundreds of billions of dollars.

A growing number of policymakers and investors hope private capital can help close that gap. “Right now, the markets only capture a small fraction of the value that biodiversity brings,” says Geoffrey Heal, Donald C. Waite III Professor Emeritus of Social Enterprise at Columbia Business School. “What if we could draw in more investors to fund biodiversity by reducing risk and boosting returns?” 

Two recent papers by Heal, co-authored with Caroline Flammer, A. Barton Hepburn Professor of Economics at Columbia, and Thomas Giroux, Assistant Professor of Sustainable Finance, at ETH Zürich, explore whether this vision can actually work. Together, they offer one of the clearest pictures yet of how money might flow into saving nature. The key? Blended finance, in which public or philanthropic money absorbs some risk to attract profit-seeking investors. 

Analyzing deals that protect biodiversity

In the papers, Heal and his team show how blended finance works by restructuring incentives. If governments, development banks, or philanthropies agree to take lower returns or absorb losses, private investors face a more attractive risk-reward tradeoff. In effect, public money acts as a cushion that makes uncertain projects feel safer.

The researchers also highlight another key strategy: bundling environmental benefits with things people already pay for. Think of eco-lodges in protected areas, sustainably produced commodities, or tourism experiences tied to conservation. In this model, customers aren’t directly buying biodiversity, but their spending helps finance it.

But the papers’ biggest move is to go from theory to practice by analyzing project-level data from a major biodiversity investment institution. This kind of granular information is rarely public, making the dataset unusually valuable. The researchers examined how deals were structured, what risks they carried, what returns they promised, and how much biodiversity benefit they were expected to produce.

The data allowed the authors to identify patterns in how different types of projects attract funding. It also shed light on the kind of incentives that investors would be most likely to respond to.

What the research means for investors

One of the papers’ most important insights is that biodiversity investments don’t fit neatly into the traditional two-dimensional world of finance, where decisions hinge on risk and return. Instead, they operate along a three-way trade-off: risk, return, and environmental impact. Projects with strong financial prospects—say, profitable sustainable agriculture ventures—can often attract purely private funding. But projects with weaker returns or higher uncertainty typically need blended finance to get off the ground, especially if they deliver major ecological benefits.

In other words, the more a project helps nature but struggles to make money, the more likely it is to require public or philanthropic support. Those actors essentially subsidize impact so private investors will participate.

The papers also show how investment contracts can be structured to improve investor incentives. By adjusting how returns and risks are distributed among participants—through guarantees, subordinated capital, or other financial instruments—blended finance arrangements can create outcomes that are attractive even for risk-averse private investors.

Investors and fund managers, Heal notes, should be encouraged by the fact that there are viable opportunities in nature-related investments, particularly where conservation can be paired with revenue-generating activities. “We see an enormous potential market here,” he says. “There’s a big demand for money, and quite a lot of investors are interested in putting some of their money into the kind of project where there’s a social return as well as a commercial return.”

At a broader level, the findings reinforce the idea that protecting nature is a collective action problem. Private capital can play a significant role, but only when supported by smart policy, public investment, and institutions capable of measuring impact.