How Nature Bonds Shape the Future of Sustainable Finance & Biodiversity
ICMA’s guidance on nature bonds provides a clear framework, aligning green bond proceeds with biodiversity objectives and supporting thematic impact finance.
The sustainable finance market continues to evolve rapidly, with green, social, and sustainability bonds now well-established as key instruments for channelling capital toward environmental and social objectives. In June 2025, the International Capital Market Association (ICMA) advanced this trend by issuing the Sustainable Bonds for Nature: A Practitioner’s Guide, which formally endorses the “nature bond” label as a subset of the green bond market. This initiative aims to respond to the global biodiversity crisis by scaling up financing for nature-related projects and providing clarity for issuers, investors and Second Party Opinion (SPO) providers.
What ICMA’s Nature Bond Guidance Means for the Market
ICMA’s guidance establishes a framework for identifying, structuring, and reporting on nature-related projects within the sustainable bond market. It links eligible use-of-proceeds to the Global Biodiversity Framework (GBF) agreed at the biodiversity COP15, introducing a secondary “nature bond” designation for green bonds whose proceeds are exclusively applied to nature-related projects. This approach mirrors the Guidelines for Blue Finance launched in 2022.
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The emerging market for nature focused financing represents a significant growth opportunity. Investor demand is shifting towards thematic sustainable instruments that offer clear, measurable, and location-specific impact, and this momentum is expected to accelerate as the global policy environment strengthens—particularly following renewed commitments to biodiversity and nature positive finance at the COP30 in Brazil.
Why Investors Are Turning Toward Thematic Impact Instruments
Investors are increasingly seeking focused, thematic sustainable bonds—such as blue, gender, and nature bonds—over broader green bonds, as these instruments offer greater transparency and enable more robust impact measurement. The Bank of Montreal’s experience with its Indigenous and Women in Business bonds illustrates that investors are willing to accept smaller, less liquid deals if the impact is clear and aligned with their objectives. Another example is the debut of the IDB Amazonia Bond, which directed proceeds toward Amazon ecosystem projects, attracting strong demand from major impact investors. The bond’s clear use-of-proceeds, robust impact reporting, and integration of social and environmental goals set a high standard for future issuances. Investors valued the ability to pinpoint exactly where funds are used, enhancing accountability and attracting capital targeted, place-based impact. The Amazonia Bond also achieved the integration of social and environmental objectives, particularly indigenous empowerment and cultural heritage preservation, which resonated with investors. Outcomes-based bonds, which tie returns to measurable sustainability outcomes, are also gaining traction and could be adapted for nature-related projects.
Key Features of the Nature Bond Label
Within this context, the ICMA guidance addresses market concerns regarding clear guidelines, credible project pipelines, and rigorous impact verification to avoid “greenwashing” or dilution of the label’s credibility, by specifying eligible project categories, linking them to global biodiversity targets, and encouraging transparent impact reporting.
In particular, for use-of-proceeds instruments, the ICMA guidance offers an indicative list of eligible projects and impact indicators, which can be used as benchmarks. For sustainability-linked bonds (SLBs), the guidance emphasizes that KPIs should be material to the issuer’s business and, where relevant, location-specific. With regard to impact reporting, the ICMA guidance encourages issuers to report on environmental and social co-benefits, using indicators linked to the GBF. For example, projects may report the number of species conserved, area of habitat restored, or improvements in ecosystem services. This level of detail supports investor due diligence and ongoing monitoring.
For investors, the nature bond label offers a new avenue to align portfolios with biodiversity and nature-positive outcomes. Thematic bonds allow for greater impact attribution, which is increasingly important for asset owners with sustainability mandates or regulatory reporting requirements. The ICMA guidance provides a clear taxonomy of eligible projects, making it easier for investors to assess alignment with their own biodiversity strategies and the GBF. This enables SPO providers to assess and validate nature-positive impacts with consistency, mirroring established practices for blue bonds. At ISS-Corporate, we have applied ICMA’s Guidance on Bonds to Finance the Sustainable Blue Economy since 2023, and are now equipped to bring the same level of rigorous, systematic scrutiny to nature-labelled issuances.
Early Market Momentum Signals Expanding Opportunities
The market for nature bonds is still in its infancy, but the foundation for potential growth has been laid. The ICMA guidance provides clarity and confidence for issuers and investors, while the success of early deals demonstrates investor appetite. The City of Nagoya’s issuance of the first ICMA-aligned nature bond last August, and the Japanese real estate company Tokyu Fudosan Holdings issuing a joint ‘climate- and nature-linked’ bond in December signals growing momentum. Financial institutions, like Lloyds in the UK, are exploring the issuance of nature bonds. Furthermore, the UK real estate sector seems to be looking at nature as part of Biodiversity Net Gain requirements—legislation in England and Wales requiring most developers to deliver a 10% net improvement to biodiversity either on-site or through off-site credits. Utility companies are also more advanced on issues such as water and could leverage this opportunity to issue nature labelled bonds.
The Road Ahead for Biodiversity Finance
As more issuers—including sovereigns, Multilateral Development Banks, and corporates—enter the market, the depth and diversity of nature bonds will increase. The outcome of the COP in Brazil has further galvanized international commitment to biodiversity finance, reinforcing the importance of robust frameworks and market discipline. Nature is moving to the centre of the sustainable finance agenda.