CROSS-CUTTING: CAPITAL FLOWS
How Money Moves
Capital flowing into nature. Revenue flowing to land stewards.
The financial mechanisms that connect ecosystem value to economic returns.
IN THIS SECTION
In 30 Seconds
Capital Flows are the mechanisms that turn ecosystem services into economic value. They connect three groups:
- ProducersGenerate ecosystem services (carbon sequestration, biodiversity, water regulation)
- MarketsTranslate services into tradeable units (credits, certificates, premiums)
- BuyersPurchase units to meet sustainability commitments (net-zero, BNG, voluntary)
Why it matters: Understanding capital flows is essential for anyone wanting to monetise ecosystem services OR procure credible credits. The mechanisms are evolving quickly, and private finance for nature exceeded $100B in 2023 (estimates vary).
Where This Fits
Capital Flows cut across all five layers of the sustainability landscape:
Finance flows vertically – capital moves down from buyers (L5) through markets to producers (L2). Evidence moves up through disclosure (L4). This is where the translation happens.
Types of Finance Flow
Capital In
Investment into nature-positive assets
- • ESG investment funds
- • Green & transition bonds (EU Green Bond Standard; ICMA guidance)
- • Nature-based asset finance
- • Impact investment
Trillions of dollars now integrate ESG ? well over a third of global AUM by some estimates
Capital Through
Value chain premiums & payments
- • Sustainability premiums
- • Certification price uplift
- • Deforestation-free sourcing
- • Insetting programmes
EUDR driving supply chain investment
Capital Out
Payments for ecosystem services
- • Carbon credits
- • Biodiversity credits
- • Watershed PES
- • Stacked/bundled credits
Most dynamic growth area
Blended finance is scaling: public and philanthropic capital is increasingly used to de-risk nature projects and unlock private investment (e.g., expanded coral reef finance vehicles in 2023).
Market Mechanisms
The mechanisms that translate ecosystem services into tradeable value
Carbon Markets
Voluntary and compliance markets for carbon credits. How credits are born, traded, and retired.
Explore Carbon Markets →
Biodiversity Credits
BNG (mandatory UK), voluntary biodiversity markets, habitat banking. Pilots are underway globally.
Active pilots
Payment for Ecosystem Services
Watershed payments, water quality credits, direct PES schemes. New models include nutrient trading and flood management payments.
Emerging programmes
Stacking & Bundling
Multiple revenue streams from single land parcels. The frontier of nature finance.
Emerging frontier
Quality matters: as markets scale, regulators are tightening disclosure and anti-greenwashing rules. High-integrity credits and transparent methodology are becoming the baseline, not the exception.
Actors by Role
Capital flows describe where value moves. The actors framework explains who makes the system work.
The three roles map to the four buckets: Value Creators, Connectors, Enablers, and Demand Side.
Actor buckets: Value Creators
Producers
Where outcomes are generated
Create verified ecosystem service outcomes that can be financed or sold.
Typical roles:
- • Land stewards
- • Indigenous and community groups
- • Restoration implementers
- • Project developers (on-ground delivery)
Key questions:
- • Which services or credits can I generate?
- • What standards and MRV apply?
- • How do I finance early-stage work?
Watch out for: Land tenure, additionality, permanence, verification costs.
Actor buckets: Connectors + Enablers
Markets
Where value is structured and exchanged
Translate outcomes into tradable units and move capital through systems.
Typical roles:
- • Registries and marketplaces
- • MRV and data providers
- • Legal and transaction advisory
- • Ratings, indices, market infrastructure
Key questions:
- • How do we assure integrity?
- • What infrastructure reduces transaction friction?
- • How do we serve smallholders at scale?
Watch out for: Methodology risk, regulatory shifts, liquidity gaps.
Actor buckets: Demand Side
Buyers
Where value is paid for
Procure credits or deploy capital to meet targets and manage risk.
Typical roles:
- • Corporates and supply chains
- • Asset owners and allocators
- • Institutional funding (pensions, insurers, endowments)
- • Public grant funding and philanthropy
Key questions:
- • What fits our targets and disclosures?
- • How do we avoid greenwashing or double counting?
- • What is the right mix of direct finance vs credits?
Watch out for: Quality variance, claims risk, evolving standards.
The Physical Foundation
Finance flows don't exist in isolation – they're built on the physical reality of ecosystem services. Carbon markets require actual carbon sequestration. Biodiversity credits require real habitat improvement.
The Connection
Ecosystem Services (What nature does)
- • Carbon sequestration
- • Biodiversity support
- • Water regulation
- • Flood mitigation
Capital Flows (How it's paid for)
- • Carbon credits
- • Biodiversity credits (BNG)
- • Watershed PES
- • NFM payments
Where To Go Next
Sustainable Finance Guide
Core concepts, capital types, instruments & the regulatory landscape.
Carbon Markets
VCM structure, compliance markets, quality assessment, key players.
Nature-Based Solutions
The physical interventions that generate ecosystem services & credits.
Disclaimer: This content is for general educational and informational purposes only. It does not constitute financial, investment, legal, or tax advice and should not be relied upon as such. Pandion Studio does not provide regulated investment advice. For specific guidance on your circumstances, please consult appropriately qualified professionals.