Incentives and barriers to private finance for forest and landscape restoration

The paper addresses why a gap persists between growing private-sector interest in restoration and the limited private finance actually flowing to forest and landscape restoration. Restoration is critical for ecological integrity and climate mitigation, yet global restoration targets (e.g., Bonn Challenge, 1 Trillion Trees, UN Decade of Ecosystem Restoration) are off track, with finance identified as a key bottleneck. While most restoration funding remains public, private actors—through investments and corporate actions—could complement public efforts. The study focuses on two influential private actor groups—asset managers and corporations—whose objectives differ and likely shape distinct approaches to restoration finance. The research questions are: (1) What incentives do private actors have to finance restoration? (2) What restoration project types and regions align with these incentives? (3) What barriers do private actors face when financing restoration? and (4) How can these barriers be overcome? By exploring these questions via interviews and thematic analysis, the study seeks to clarify pull factors for private finance and pathways to scale it while safeguarding ecological and social integrity.

Prior research has emphasized ecological aspects of restoration, mapped spatial potential, and examined social processes influencing outcomes. Economic studies have explored restoration cost–benefit structures and potential financial mechanisms. Despite such foundational work, less attention has been given to global pull factors and the role of private finance in scaling restoration. The paper situates itself within this gap, noting the dominance of public funds, the insufficiency of current levels for meeting targets, and the rise of sustainability commitments (e.g., Net-Zero Banking Alliance; Principles for Responsible Investment). It also notes existing green finance tools (e.g., green bonds) have allocated relatively little to land-based restoration compared to other sustainable asset classes, and that voluntary carbon markets have grown but may bias toward certain project types.

The study employs a qualitative design using 30 in-depth semi-structured interviews across six categories of stakeholders: asset managers, corporations, NGOs, consultancies, a foundation, and an agroforestry initiative (actors summarized in Table 2). Sampling was purposive via existing networks, snowball sampling, and event attendee lists, proceeding until thematic saturation. Interviews were conducted online (Zoom/Skype/Microsoft Teams), with consent for recording; otherwise detailed notes were taken. A common interview guide was adapted slightly for asset managers, corporations, and restoration finance experts (provided in Supplementary Appendix C). Transcriptions were produced using Otter. Data were coded and analyzed in NVivo using inductive thematic analysis, following a six-step process: familiarization, initial coding, theme search, theme review, definition/naming of themes, and report production. Potential biases (e.g., self-selection, social desirability) were mitigated via anonymity and probing for sensitive topics; the authors acknowledge limitations inherent to thematic analysis and the possibility that perspectives of actors with no restoration interest were not captured.

- Corporations’ market incentives: (1) meeting net-emission-reduction commitments (use of nature-based solutions, carbon offsets/insetting), (2) promoting sustainability in supply chains (e.g., agroforestry, regenerative agriculture to restore soil and landscape function), and (3) impact and sustainability branding (storytelling potential). - Corporate preferences: For emission reductions outside supply chains, active restoration and tree plantations are favored due to ease of quantification and communication; within supply chains, agroforestry/regenerative practices are prioritized. Projects with strong storytelling appeal are preferred; natural regeneration often overlooked due to limited quantification and communication pathways. - Corporate barriers: Limited knowledge about links between interventions and emission reductions; lack of robust quantification/verification systems for broader benefits (biodiversity, well-being), making it hard to attribute and count benefits toward targets; benefits often public goods with weak internalizable returns; high upfront costs (capacity building, infrastructure); farmer hesitancy and trust issues; unclear tenure; unsupportive or shifting policies and subsidies; risk that a carbon-centric focus crowds out broader social/ecological goals. - Asset managers’ incentives: Interest driven by risk-adjusted ROI, sustainability positioning, and risk hedging (diversification, stranded asset risk, reputational risk, resilience to natural disasters). However, none are sufficient without a clear, investable business case. - Asset manager preferences: Bankable projects with risk-adjusted ROI, typically where commodities (timber, agricultural products) or verified credits (carbon, biodiversity) can be generated in low-risk geographies. - Asset manager barriers: Perceived mismatch with fiduciary duty due to low ROI relative to risk; restoration is illiquid and long-term; projects are often too small (high transaction costs); scarcity of bankable pipelines as many benefits are public goods; lack of standardization, limited track records, and uncertainty increase perceived risk; governance and institutional risks in the Global South (tenure insecurity, shifting laws, human rights concerns). - Geographic bias: Investment finance tends toward low-risk regions; corporate finance gravitates to areas with business presence; both types show low interest in natural regeneration. - Contextual data points: Net-Zero Banking Alliance (128 banks from 41 countries; ~US$74 trillion in assets); PRI signatories (>3,000) manage >US$103 trillion; Green bonds allocate ~5% to land vs. renewable energy (35%), sustainable buildings (30%), transport (18%); Voluntary carbon market >US$1 billion in 2021, with Forestry and Land Use credits at 61%.

Market mechanisms are providing some restoration finance but are insufficient to meet global targets, and without strong policy frameworks may channel funds toward narrow, carbon-centric or plantation-focused projects in lower-risk areas, potentially undermining ecological and social outcomes and neglecting high-priority regions. Corporations can justify restoration in production landscapes (agroforestry/regenerative practices) and outside supply chains (active restoration) for emissions compliance and branding, yet face knowledge, measurement, business case, and enabling-environment barriers. Asset managers, focused on ROI, view restoration as a nascent, high-risk asset class with illiquidity, small project sizes, public-good benefit structures, and weak standardization/track records—thereby favoring other proven sustainable assets (e.g., renewable energy). A capability gap exists between finance and restoration communities. The paper proposes three intervention strands to realign incentives and reduce barriers: (1) expand markets and robust quantification systems for a wider set of restoration benefits (including biodiversity and social metrics) to steer finance toward ecologically and socially beneficial projects; (2) deploy green finance and blended public–private instruments (e.g., Forest Resilience Bond) to de-risk, increase ticket sizes, and improve liquidity, with public finance covering start-up costs and first-loss tranches; and (3) enact regulations and subsidies that create trustworthy policy signals and binding requirements (e.g., mandatory disclosures, legally binding climate/biodiversity limits, redesign of perverse subsidies), analogous to enabling policies in renewable energy. Safeguards are essential to avoid low-quality credits and short-termism (e.g., post-planting maintenance gaps). With these supports, private finance can scale across more project types and geographies while maintaining social and ecological integrity.

Private finance engagement can help scale restoration, but current flows are limited. Corporations exhibit clear market-driven incentives (emissions reduction commitments, supply chain sustainability, impact/branding) and prefer agroforestry/regenerative practices and active restoration, especially where they have a business presence. Asset managers mostly perceive barriers: restoration is a nascent, high-risk, illiquid asset class with too-low ROI, resulting in preferences for low-risk regions and projects with clear commercial outputs; natural regeneration garners little attention. Three public and civil society interventions can help overcome barriers: broadened markets and quantification for restoration benefits, development of green finance and blended public–private instruments with public support, and stronger regulations and subsidy reforms. With robust policy frameworks and safeguards, private finance can be leveraged to support equitable, ecologically sound restoration at scale.

The study’s qualitative, interview-based design may be subject to self-selection bias, as actors interested in restoration were more likely to participate. Participants may overstate sustainability orientation (social desirability bias); anonymity and proactive discussion of sensitive topics were used to mitigate this. Thematic analysis, while flexible, relies on researcher judgment and may introduce interpretive bias. Perspectives from actors with no interest in restoration finance and not engaged with NGOs/consultants may be underrepresented. Generalizability is limited due to sample size and qualitative approach.