For the past few decades, the European Union (EU) has seen a dramatic decline in biodiversity because of extensive agriculture, intensified management practices, urbanisation, pollution, and forestry.
Biodiversa+, the European biodiversity partnership for research on biodiversity, reports that there has been a 60% decline in farmland bird populations over four decades and an alarming nearly 80% decline in European insects. These are just some of the negative trends on biodiversity. Due to dependencies of our systems, the stakes go beyond ecological aspects and can hit our health and economy.
To tackle this, the EU introduced the Nature Restoration Regulation (EU 2024/1991) on 24 June 2024. This regulation aims to restore degraded ecosystems in EU countries. It aims to enhance food security, increase ecosystem resilience, and contribute to climate change mitigation and adaptation.
EU countries must implement restauration measures to jointly cover at least 20% of land areas and at least 20% of sea areas by 2030, and all ecosystems in need of restoration by 2050. These measures will significantly impact personal behaviour, how businesses operate, and investment choices.
If successfully implemented, the regulation can position the EU as a global leader in biodiversity conservation and climate action, setting a powerful example for other regions to follow.
This article looks at how the regulation will impact EU countries, businesses, and investments, focusing on regulatory compliance and opportunities for green finance. It also explores how restoring ecosystems ties into sustainable business practices.
The scope and objectives of the Nature Restoration Regulation
The Nature Restoration Regulation requires each EU country to design and carry out plans to restore ecosystems by 2050, with specific goals along the way. These plans will focus on important ecosystems like wetlands, forests, farms, and cities, which are crucial for biodiversity, climate control, and disaster prevention. Countries must also work together, especially when ecosystems cross borders.
These plans will have to be submitted to the EU Commission by 1 September 2026 and each Member State will receive feedback within six months. After that, Member States have another six months to finalise their plans.
The progress of these restoration efforts will be monitored and reported electronically to the EU Commission. Specific rules for reporting will be set by delegated acts.
Restoring various EU ecosystems like forests, grasslands, rivers, and lakes is expected to generate about around 1,860 billion EUR in benefits, with restoration costs estimated at around EUR 154 billion (EU Commission, 2022). The EU Commission estimates that for every EUR 1 spent on nature restoration, the return is between EUR 8 and EUR 38, owing to the broader benefits delivered through ecosystem services that support food security, human health and well-being, and climate mitigation and adaptation (EU Commission, 2022).
Challenges and opportunities for member state countries
The Nature Restoration Regulation brings both big challenges and great opportunities for EU countries. Financial constraints and the complexity of coordinating efforts across different regions and sectors are major hurdles. Additionally, setting up comprehensive monitoring and reporting systems requires considerable resources. However, the regulation also offers not only environmental and social benefits, but also economical, such as green job creation and sustainable development.
For example, one important part of the regulation is restoring urban ecosystems. Cities in the EU will need to expand green spaces, like parks, urban forests, and tree-lined streets. These green areas not only boost biodiversity but also help fight climate change by cooling cities and improving air quality. Countries are encouraged to use nature-based solutions like green roofs and urban gardens in their planning. These projects will create jobs in landscape architecture, urban planning, horticulture, and environmental engineering. Plus, maintaining these green spaces will provide long-term job opportunities, making cities greener and more sustainable.
New opportunities for businesses in the EU
Public money is, and will be, the dominant finance for nature restoration measures. However, companies in the EU will need to rethink their environmental business strategies and practices to match the Nature Restoration Regulation and the plans of Member States. In fact, while the regulation is not directly applicable to them, businesses are crucial for helping EU Member States meet their restoration goals. Corporate involvement is essential, combining resources, expertise, and networks to achieve them. Without business help, countries will struggle to meet their targets.
Businesses should adopt sustainable practices like using eco-friendly materials, reducing waste, purifying water, and improving energy efficiency. Innovation is key, as companies can develop new technologies and methods for nature-friendly practices, moving away from the usual ways of doing business. This regulation creates opportunities for startups and companies focused on environmental solutions and the circular economy. New businesses can emerge in areas like green construction, renewable energy, and eco-friendly products, aligning with the regulation’s goals. Businesses working with nature are more likely to prosper compared to those which exploit it.
To support restoration efforts, businesses can allocate funds and invest in environmentally friendly projects, providing the necessary financial resources for large-scale initiatives through direct funding or corporate social responsibility (CSR) programmes. Collaborating with governments and non-governmental organisations (NGOs) can amplify these efforts, leveraging the strengths of each sector to achieve common goals. Furthermore, businesses can also raise awareness about restoration, advocate for environmental policies, and educate consumers to drive collective action.
For example, companies in real estate and urban development can use nature-based solutions to meet the regulation’s requirements. This includes green infrastructure like green roofs and walls to support urban biodiversity. Additionally, businesses can gain a competitive edge by aligning their operations with the member state’s plans, positioning themselves as leaders in sustainability.
What does this mean for investment funds?
The Nature Restoration Regulation could change how investment funds in the EU select investments, bringing both new opportunities and challenges. As governments focus on restoring ecosystems, fund managers need to check if their investments, match the new biodiversity, and restoration goals to secure positive returns.
The growing importance of biodiversity in environmental and social metrics and financial analysis – also demonstrated by the Task Force on Nature-related Financial Disclosures (TNFD) - will significantly impact investment decisions across various sectors. Investors who care about sustainability will find opportunities in assets that align with the EU’s restoration goals. Companies working on nature-based solutions, reforestation, and sustainable farming will likely see more demand. Investments in natural capital-friendly solutions will most likely offer better returns than not sustainable solutions, and green bonds, biodiversity-linked loans, and environmentally related financial instruments are expected to become more popular.
While the regulation creates opportunities in green finance, it also introduces risks for sectors highly dependent on natural resources, such as agriculture, energy, and real estate. Investors need to carefully consider the environmental risks in these industries, as failing to meet restoration targets could lead to penalties or damage to their reputation, affecting financial returns. The regulation also raises the issue of stranded assets—investments that might lose value or become useless because they do not fit with new restoration measures. In other words, investments in assets that harm natural habitats or depend on non-renewable resources might lose value.
Therefore, the Nature Restoration Regulation adds a layer of complexity to ESG evaluations and ESG due diligence, putting a stronger focus on biodiversity. Among other considerations, fund managers will need to assess how well targeted companies are positively or negatively contributing to ecosystem restoration and sustainability, integrating these considerations into their investment strategies.
In addition, fund managers need to consider that nature restoration projects are associated with high risks and have very long-time scales, and there is uncertainty about when and to what extent the benefits will be achieved so that there is some financial return. For these reasons, it is of key importance having experts within investment companies who can estimate the return on investments that can be achieved through biodiversity-friendly assets.
And for Luxembourg?
As a leader in sustainable finance and investment funds, Luxembourg is well-positioned to benefit from the expected growing demand for green investments. The country’s investment industry already supports green financial products like green bonds and sustainability-linked loans, as well as funds focused on environmental and social issues.
By backing projects that match EU restoration goals, Luxembourg-based funds can attract investors. The Nature Restoration Regulation offers a big investment opportunity for these funds. Portfolio managers need to consider biodiversity-related aspects, especially for EU investments, and navigate new opportunities and risks. They also need to be aware of the potential for stranded assets and make sure their portfolios can adapt to changing regulations.
Creating a pipeline of investable restoration projects is key. Investment funds can work with restoration businesses to develop solid business plans with attractive risk-return profiles. Ongoing monitoring and evaluation will help track the success of restoration efforts, ensuring that investments provide meaningful and sustainable environmental benefits.
PwC and how we can help, or something else?
The Nature Restoration Regulation marks a significant shift in how the EU handles biodiversity and ecosystem management. By setting ambitious restoration targets, it addresses the urgent need to reverse biodiversity loss and integrates environmental sustainability into economic and social frameworks. This regulation challenges Member States, businesses, and investors to rethink their strategies and practices, fostering a collaborative effort towards a greener future.
For businesses, this means adopting sustainable practices and innovating in areas like green construction and renewable energy. Investment funds must align their portfolios with biodiversity goals, balancing opportunities with the risks of stranded assets. Luxembourg, with its strong focus on sustainable finance, is well-positioned to lead in this transformation, offering attractive investment opportunities that support the EU’s restoration objectives.
All these players also need to understand the risks that biodiversity loss poses to their profits and portfolios. These threats are not just physical, they are also regulatory, legal, and reputational.
Our experts are well-positioned to support asset managers in identifying, monitoring, and managing biodiversity-related risks and opportunities from the early stages of investments. Our ESG due diligence experts can help ensure that your investment strategies align with the Nature Restoration Regulation and other sustainability goals. By leveraging our expertise, you can navigate the complexities of biodiversity-focused investments, mitigate risks, and capitalise on opportunities for sustainable growth.
