Environmental markets have largely evolved through government grant programs. This results in a system where every funding round feels like a new adventure. Each project tells a unique story which is pitched to the government proclivities of the day, they are then acquitted and reported with a new, usually incomplete and cumbersome framework. We spend a remarkable amount of effort moving information around but surprisingly little effort making environmental investments easy to engage in.

The consequence is not just administrative overhead. High transaction costs make environmental capital harder to attract and deploy. They reduce comparability, increase due diligence costs and discourage participation from the private sector. If we are serious about attracting larger pools of private investment, environmental markets need to become easier to navigate.

Most mature markets have spent decades reducing this friction. Think about house purchasing or an infrastructure project, there are standardised steps; the flow of cash is clear and predictable, the reporting requirements are known upfront, the risks are easy to interpret, due diligence is routine.

In developing Natural Capital Suite, we have been trying to learn from the experience of other markets to reduce the friction between capital and outcomes. Success is pretty easy to define:

• Help investors to identify where funding is likely to generate the greatest return.
• Make risks easy to identify and qualify.
• Make projects easy to compare.
• Standardise the measurement of expected outcomes.
• Simplify reporting and performance tracking.
• Replace bespoke processes with common frameworks.

None of these ideas are particularly novel. Financial markets, logistics markets and procurement markets solved the same problems years ago. Standardisation lowers transaction costs. Lower transaction costs attract participation. Participation attracts capital.

This all looks pretty obvious and reminds me of one of my favourite quotes:

“Every complex problem has a solution which is simple, direct, plausible–and wrong” (H. L. Menken – but often credited to Mark Twain). The main way that we can be wrong is to feverishly pursue efficiency and lose the great rigour and science driven nature that is a feature of the environmental industry. It is not about less science, less accountability or less rigour, but “less yacking and more whacking” (another favourite – Homer J. Simpson).

Environmental projects and their outcomes will never be simple—nature is complex. But investing in environmental outcomes should be. The challenge is not to remove rigour, science or accountability. It is to remove unnecessary friction so that more capital reaches credible projects and more effort is spent delivering outcomes instead of administering them. If we can achieve that, environmental markets stop being a niche activity and start becoming an investment class.