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; private finance for nature is now a multi-billion dollar asset class, with high-integrity markets scaling rapidly heading into 2026.
Why Capital Matters
Throughout history, three forces have shaped the trajectory of societies: institutions, governments, and capital.
Today, capital flows may be the most powerful lever for changing outcomes at scale. The challenges facing a warming planet are serious – but capital can be part of the solution. Investment decisions, supply chain requirements, and procurement choices ripple through economies far faster than regulation alone.
Understanding how capital moves – and who controls it – is essential for anyone seeking to shape sustainability outcomes.
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 and de-risking capital into nature-positive assets
- • ESG investment funds
- • Green & transition bonds (EU Green Bond Standard; ICMA guidance)
- • Nature-based asset finance
- • Impact investment
- • Guarantees & first-loss capital (blended finance)
Trillions of dollars now integrate ESG – well over a third of global AUM by some estimates
Where capital originates: Sovereign wealth funds (Middle East, Norway, Singapore), pension mandates, and institutional allocators increasingly drive global sustainability requirements – their capital flows through fund managers to portfolio companies worldwide, shaping behaviour regardless of local regulation.
Capital Through
Value chain transfer pricing & procurement premiums
- • Sustainability premiums
- • Certification price uplift
- • Deforestation-free sourcing
- • Insetting programmes
EUDR driving supply chain investment
Capital Out
Outcomes-based payments for ecosystem services
- • Carbon credits
- • Biodiversity credits
- • Watershed PES
- • Stacked/bundled credits
- • Conservation impact bonds (pay-for-results)
Most dynamic growth area
Blended finance has reached critical scale: public and philanthropic capital is systematically used to de-risk nature projects, unlocking significant private investment across the Global South and mature markets alike.
The Private Company Gap
90%
of global employment sits in private companies – small and mid-sized enterprises that form the backbone of every economy
Supply chains
Most public company supply chains are composed of private SMEs – the sustainability footprint is largely hidden
Public companies face intense scrutiny on sustainability. But they cannot understand their true footprint – or improve it – without visibility into their supply chains. And those supply chains are overwhelmingly composed of private companies with limited reporting infrastructure.
This creates a data visibility gap: capital allocation decisions depend on information that often doesn't exist, or exists in formats that can't be compared or verified. The challenge is less about willingness and more about capacity – smaller companies need tools that make tracking simple, affordable, and actually useful for their own operations.
The opportunity: Private companies often face fewer competing stakeholder pressures than public ones – making them potentially faster adopters of sustainability practices when given the right tools and incentives. Supply chain requirements from large buyers are becoming the primary driver of private company sustainability action.
Market Mechanisms
The mechanisms that translate ecosystem services into tradeable value
Carbon Markets
Governance-backed and high-integrity voluntary markets. How PACM and CCP labels are defining the 2026 landscape.
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.