Financing Nature-based Solutions in Indian Cities

REPORT

Unlocking Finance for Nature-based Solutions (NbS) in Indian Cities

Learnings and Insights from Case Studies

22 September, 2026 | Climate Resilience

Shreya Wadhawan and Ritwika Mishra

Suggested citation: India Forum for NbS (2026). Unlocking Finance for Nature-based Solutions (NbS) in Indian Cities: Learnings and Insights from Case Studies.

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Overview

Nature-based Solutions (NbS) are increasingly recognized as a critical pathway for addressing the intertwined challenges of climate change, biodiversity loss, and sustainable development. Government bodies, businesses, and financial institutions are investing in ecosystems not only to conserve nature but also to enhance urban resilience by reducing disaster risks, enhancing water security, and improving agricultural productivity. Recognising this potential, the previous report, Unlocking Finance for Nature-based Solutions in Indian Cities, examined India’s financing and policy landscape for urban NbS.

Building on this foundation, this report analyses the on-ground functioning of these financial instruments. The report elucidates that successful implementation depends not only on finances, but also on enabling policies, creating an investable project pipeline, institutional will, technical expertise, stakeholder coordination, and appropriate mechanisms for risk sharing. Considering nine case studies across India, this report examines the operationalisation of different financing mechanisms, the institutional arrangements that enabled implementation, the challenges encountered, and the lessons that can inform future investments.

Key findings

The report analyses these case studies by intervention type, geography, financing, and business mechanisms, as well as the potential for replicability and scalability, to set out insights into what has made NbS financing work in practice in India and what continues to hold it back
Conducting feasibility studies during project design to determine the effectiveness of NbS, placing MRV systems to ensure long-term sustainability and accountability for project performance, and community stewardship play a crucial role in mitigating technical risk associated with the implementation of NbS interventions
A robust risk-return profile for nature-positive measures is reflected by bundling of NbS with civil projects by to help secure institutional acceptance. This enables alignment with the existing schemes and policies for NbS in India.
A key recommendation for project developers and financial institutions is creating a taxonomy to match capital to intervention and identify the sequencing of appropriate sources of capital for different stages of projects, enabling fit-for-purpose financing taxonomy and capital stack
A dedicated NbS project preparation facility accounts for adequate time periods and financial support for feasibility assessments. This enables integrating NbS into the existing project-preparation structures, and developing adaptable project-preparation templates for different NbS typologies

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Shreya Wadhawan

Programme Lead

[email protected]

“Nature-based solutions can deliver significant resilience and livelihood benefits, but unlocking their full potential requires stronger evidence on their economic value, financing, and long-term management. This report brings together evidence from diverse Indian contexts to demonstrate what it takes to make NbS more effective, investable, and scalable.”

Executive Summary

Nature-based Solutions (NbS) are increasingly recognized as a critical pathway for addressing the intertwined challenges of climate change, biodiversity loss, and sustainable development (Ghaedi, Santos and Monteiro, 2026). Across the world, governments, businesses, and financial institutions are focusing on leveraging natural ecosystems to strengthen urban resilience and create more livable cities (World Bank, 2026; UNDP, 2025).

Recognizing this potential, the previous report, Unlocking Finance for Nature-based Solutions in Indian Cities, examined India’s financing and policy landscape for urban NbS. The report found that while India has supportive national- and state-level policies/schemes to enhance private finance for urban NbS, many promising financing and business mechanisms/instruments remain underutilized, fragmented, and insufficient to support long-term implementation and maintenance (Wadhawan and Bajpai, 2024).

This report builds on that foundation and shifts the focus to understanding the essential elements of developing an investable NbS that works in practice. Through nine case studies from across India, this report examines how different financial and business mechanisms/instruments have been operationalized, the institutional arrangements that enabled implementation, the challenges encountered, and the lessons that can inform future investments.

Case Study Analysis

The report analyzes these case studies by intervention type, geography, financing, and business mechanisms/instruments, as well as the potential for replicability and scalability, to set out insights into what has made NbS financing work in practice in India and what continues to hold it back. (For more details, check Table 4: Summary and analysis of case studies). Across the nine case studies, the analysis shows the following themes and insights/learnings:

Table 1: Learnings and Insights from Thematic Analysis

Analysis Themes	Insights/Learnings
Reducing technical risk	Across water-linked projects, feasibility studies as part of project design play an important role in determining the effectiveness of NbS MRV systems also played a key role in the long-term sustainability of all projects by enhancing trust and credibility, and long-term performance accountability Community inclusion within monitoring approaches allowed for capacity building for local communities, building community ownership and generating livelihoods
Gaining Institutional Access	Policy alignment for NbS exists in India, and alignment with these schemes can help secure institutional buy-in Bundling NbS with grey infrastructure projects allowed NbS to overcome the lack of institutional acceptance. They enabled the inclusion of NbS elements in the project, which was funded by financial instruments that better reflected its risk-return profile
Securing Demand	Demand articulation early on in the project determines the success of mechanisms User pay models for water continue to struggle with the skewed unit economics created by water subsidies and the political economy of water in India
Sequencing across the finance stack	Finance sequencing and phased capital deployment helped convergence of different types of capital, with each type of finance sequentially lowering risk or improving risk transferability
Crosscutting findings	Challenge for NbS is less about the availability of capital and more about the design that allows willing capital to actually be deployed Feasibility work is under-resourced relative to its ability to reduce performance uncertainty Supportive policy exists but is fragmented across schemes that are hard to discover and converge Technically sound solutions may still fail to attract paying beneficiaries without demand articulation deliberately built in

Recommendations

The report found that successful cases reduced technical uncertainty through project preparation and monitoring, secured institutional access, established demand for project outcomes, and matched different forms of capital to different stages of development. The cases also show that no single financial or business mechanism/instrument fits all NbS. Projects with predictable revenues can support user charges or commercial finance; projects generating primarily public benefits require grants or public finance; and higher-risk projects can use concessional or philanthropic capital to prepare and de-risk investment before other capital enters. These findings suggest that India should focus less on creating another standalone financing instrument for NbS and more on strengthening the systems that allow existing capital to reach projects.

Based on these findings, the case study analysis and stakeholder consultations identified the following cross-cutting themes and recommendations for stakeholders across the NbS ecosystem:

Table 2: Stakeholder-Specific Recommendations

Themes	Key recommendations	Lead stakeholders
NbS Project Preparation Facility	Accounting for adequate time periods and financial support for feasibility assessments	Multilateral development banks, bilateral organizations; Philanthropy; Project developers
	NbS considerations could be integrated into existing project-preparation structures	City municipalities; Multilateral development banks; Project developers, NGOs and civil society
	Developing standardized but adaptable project-preparation templates for different NbS typologies	Central and state governments, City municipalities; Multilateral development banks; bilateral organizations; CSOs and think tanks
Fit-for-purpose Financing Taxonomy & Capital Stack	Creating a taxonomy to match capital to intervention and identify the sequencing of appropriate sources of capital for different stages of projects	Central and state governments; Multilateral development banks; Philanthropy; Private commercial financial institutions; bilateral organizations; CSOs and think tanks
Create an NbS Convergence and Implementation Framework	Central and state governments could develop guidance for NbS convergence	Central and State Governments; CSOs and think tanks
	Defining and clarifying roles and responsibilities	Multilateral Development banks; Bilateral organization; Project developers; CSOs and think tanks
	Extending convergence to procurement, technical standards and implementation procedures	City municipalities; Project developers
NbS Outcomes, Valuation & Monitoring Framework	A shift from input to outcome indicators to capture long-term impacts and benefits	Central and state governments; CSR regulators; Multilateral development banks; Philanthropy; Project developers

FAQs

How can NbS projects overcome high technical risks and attract investors?

Technical, and performance-based risks can be mitigated by prioritising early-stage feasibility assessments, hydrogeological surveys, and robust Monitoring, Reporting, and Verification (MRV) systems. Infact, deploying hybrid MRV models that combine satellite data/IoT sensors with community-based monitoring builds credibility, ensures long-term performance accountability, and increases investor confidence.
What financial mechanisms can de-risk early-stage NbS projects?

Early-stage NbS projects are marred with high perceived performance risks and a lack of immediate cash flows. To overcome this, interventions can leverage blended finance structures where philanthropic or concessional capital can act as guarantors to absorb initial project development costs, feasibility assessments, and baseline MRV setup. This underwrites debt facilities extended by commercial or impact investors against future verifiable revenue streams, such as Carbon Removal Units (CRUs) traded on voluntary or compliance carbon marketplaces.
Why do Payment for Ecosystem Services (PES) models face valuation and demand-side challenges in Indian urban watersheds?

Establishing PES models requires accurate economic valuation of non-market ecological assets through avoided-cost methodologies such as calculating savings in municipal water treatment, pump maintenance, and dredging costs resulting from reduced upstream siltation and agricultural runoff. However, demand articulation is frequently constrained by the political economy of urban water utilities. Highly subsidised municipal water tariffs distort unit economics, making it difficult for downstream utilities to levy additional water cesses or premiums to compensate upstream land managers without explicit regulatory mandates or significant cost-benefit demonstration.