Can the EU taxonomy for sustainable activities help upscale investments into urban nature-based solutions?

We analyze the potential of the European Union (EU) Taxonomy (ET) for Sustainable Activities to mobilize investments for the sustainability transition toward urban nature-based solutions (UNBS). We map the current investment landscape of UNBS in Europe and combine this mapping with document analysis of UNBS inclusion in the ET to understand how the ET might help overcome the well-documented barriers to UNBS finance. We suggest that the ET has a legitimizing effect on UNBS as climate investments, which can support their uptake, but also conclude that only some UNBS subtypes are explicitly included when they fit with existing investment classes. In particular, the ET (1) disregards innovative -and specifically urban -UNBS types and (2) fails to provide incentives for investments that can deliver multiple sustainable objectives, which would enhance the investment case for UNBS. Since the current investment landscape of UNBS is characterized by a strong presence of public actors and a high incidence of co-financing, we recommend that public actors leverage the ET to obtain private funding for UNBS via (green) bond issuance and public-private co-finance instruments. Our analysis indicates that the ability of the ET to upscale investments for specific sustainability transitions depends on the interplay among their current investment landscapes, specific financing barriers, and explicit inclusion in the ET.

Automated summary

The EU Taxonomy has the potential to support urban nature-based solutions (UNBS) by legitimizing them as climate investments, but it may overlook innovative urban UNBS types and fail to incentivize investments with multiple sustainable objectives. Public actors may leverage the ET to attract private funding for UNBS through bond issuance and co-finance instruments.