In late 2021, as part of our Green Investment Cumbria Plan, we created an ecosystem warehouse finance model that was designed to support the development and scaling of nature-based solutions and natural capital markets, particularly in areas like biodiversity credits, carbon sequestration, and other ecosystem services. Our pioneering model, draws inspiration from warehouse finance used in trade and commodity finance, adapting the principles to the environmental and nature finance context.
What Is Warehouse Finance?
In traditional warehouse finance, a financial institution provides short-term funding to aggregate and hold assets (like commodities or loans) before they are sold or refinanced in the long-term capital markets. It is commonly used to:
- Accumulate a portfolio of similar assets (e.g. mortgages, solar loans)
- Hold them temporarily (“in a warehouse”)
- Repackage or securitize them for institutional investors or the bond market
Overview- Ecosystem Warehouse
In the natural capital context, our ecosystem warehouse finance model aims to aggregate and de-risk environmental assets (e.g. biodiversity units, carbon credits, ecosystem service contracts) before they are sold to buyers such as developers, corporates, or investors. It helps overcome two major challenges:
1. Upfront Capital Gap
Most ecosystem projects (peatland restoration, rewilding, afforestation) require significant upfront investment before credits or outcomes are validated and monetised.
2. Fragmentation of Supply
Environmental credits are often fragmented and generated by small-scale landowners or community projects that lack access to capital or markets.
How It Would work
- Aggregator or Facility Set-Up
- A specialised intermediary (often a nature-focused investment platform or fund) sets up a warehouse facility.
- The facility is capitalised with blended finance: concessional capital, grants, or public finance alongside commercial investors. This early capital would de-risk investment for downstream buyers.
- Acquisition or Contracting
- The warehouse purchases or enters pre-payment contracts for future ecosystem service credits (carbon, biodiversity, etc.) from landowners, NGOs, or community groups.
- These suppliers use the proceeds to finance project delivery.
- Aggregation & Standardisation
- The credits or contracts are bundled, standardised, and verified (e.g. using UK’s Woodland/Peatland Carbon Code or Biodiversity Metric).
- Exit / Monetisation
- The credits are sold to developers (BNG buyers), corporates (Net Zero buyers), local authorities or other institutional investors.
- Revenues flow back to repay the warehouse facility, and profits are shared.
- A community benefit fund could be set up.
Benefits
- Bridges early-stage finance gaps in ecosystem restoration.
- Attracts private capital into nature markets.
- Provides advance payments to landowners who commit to habitat restoration projects.
- Sells those units later to developers needing to meet BNG obligations.
- Repays investors and reinvests proceeds into new nature recovery projects.
- Enables aggregation of fragmented, small projects into investable portfolios.
- Reduces transaction costs and helps create liquidity for a previously illiquid environmental asset.
- Supports high-integrity, local-to-local environmental outcomes.
- Will benefit the community.
For more information – see chapter 5 (page 35) of our Green Investment Cumbria Plan. With thanks to Ian Dickie, eftec and Ian Callaghan for their work on this model.
As a next step, we planned to explore how this model would work with partners but we were not able to get funding to do so. We very much hope to continue where we left off.
