How do perceptions of risk shape nature finance?
Caitlin Hafferty, Postdoctoral Researcher in the Centre, has recently been awarded an Oxford Policy Engagement Network (OPEN) Fellowship to conduct a project on understanding the impact of risk and uncertainty on high-integrity nature markets in the UK.
The UK is committed to meeting net zero and nature recovery targets through the Environmental Improvement Plan (EIP), aiming to close the “nature-finance” gap by unlocking private investment through voluntary carbon and nature markets. This is supported by policy, regulation, and guidance outlined in the Nature Markets Framework (NMF) and Green Finance Strategy (GFS). Carbon and nature markets must be “high-integrity” to ensure genuine environmental improvement, transparency, and avoidance of greenwashing, while supporting an array of socio-economic, climate, and ecological goals. Research also indicates that high-integrity should also guarantee community benefits and protect social safeguards. However, a key policy challenge is understanding the drivers and barriers to business’ participation in these markets. Recent studies show tensions between investor demands for certainty and the delivery of socio-economic and community benefits, which can introduce new risks for already risk-averse investors. Desire to avoid risk and uncertainty can also bias the types of ecological interventions that are prioritised, where market-driven approaches can drive simplistic narratives around the delivery of biodiversity benefits (e.g., tree planting) alongside carbon and wider societal goals.
This rapid, collaborative, and impact-focused project – titled ‘How does risk and uncertainty shape policy on high-integrity carbon and nature markets in the UK?’ – runs from January-July 2025 and is part of Caitlin’s broader LCNR-funded research on Risky Nature Recovery. The Fellowship is being conducted in partnership with the Green Finance and Capability Team at the Department for Energy Security and Net Zero (DESNZ), with support from the Green Finance Division in the Department for the Environment, Food, and Rural Affairs (Defra). It is also being supported by existing collaborations within the LCNR ‘Society’ work package and the Agile Initiative alumni network.
This social science and conceptually driven project will generate novel insights to inform the UK government’s strategy for achieving net zero and nature recovery goals through high-integrity carbon and nature markets. Specifically, it will explore how risk and uncertainty influence investor perceptions of and participation in the markets, providing evidence on how policy, guidance, and regulatory interventions can help. This will directly contribute to DESNZ and Defra’s work on the Nature Markets Framework (NMF), which sets out the government’s vision and approach for scaling up private investment in nature recovery and sustainable farming.
The Fellowship will see Caitlin embedded in DESNZ in an advisory role, co-designing the research with policy partners to help decision-makers make use of the evidence to shape policy in the UK, with relevance internationally. Building on their participation in the OPEN Policy Mentoring Scheme, the research problem has been co-identified with DESNZ to contribute to the UK’s upcoming consultation with Defra on high-integrity voluntary carbon and nature markets. This will provide timely insights into the challenges and solutions for developing future standards, while aligning with broader policy on the EIP, NFM, and GFS. The Fellowship aims to foster collaboration between ongoing research and relevant projects at the LCNR and Agile Initiative, drawing on cutting edge analysis conducted between these projects in a mutually enriching way, to ultimately contribute to collective forward-thinking on integrated and socially inclusive approaches for financing and governing nature recovery.
This project is actively open to fostering new collaborations and knowledge sharing with other projects, researchers, policy and industry partners working on related themes across the University of Oxford and elsewhere. For more information, or any questions, please contact Caitlin: Caitlin.hafferty@ouce.ox.ac.uk.
