Ecosystem Services for nature-positive models of sustainable finance

Abstract

The ESG taxonomy is an element of the European sustainable finance strategy, serving as a framework for categorising economic activities based on their environmental effect (E), social performance (S), and governance (G). Despite the taxonomy's guidance for small and medium-sized enterprises to integrate natural capital into their production assessments, especially in natural capital risk analyses for securing financial capital for sustainable projects, there remains a deficiency in the methodological integration of financial evaluations and the assessment of a company's production activities' impact on Ecosystem Services (ES). An understanding of ESs and their potential worth throughout a business's life cycle would facilitate nature-positive financial transactions, conducted under a mutually beneficial framework for both the enterprise and ecosystems. This paper examines the functional link between ES and enterprise, outlining relevant theme areas for enterprise valuations concerning social enterprises. A risk-opportunity matrix of productive activities (SERO) is developed to analyse the dependence and impact on natural capital, identifying suitable decision domains of vulnerability and enterprise risk for which mitigation and compensation strategies can be implemented through co-governance systems (PES) and relevant financial instruments (e.g., natural capital bonds).