Abstract
Introduction: Optimizing investment strategies for nature-based solutions is critical for addressing climate change and biodiversity loss while ensuring financial viability. Scaling restoration requires funding beyond public and philanthropic sources; nature markets can generate conservation-linked revenues. However, climate-related risks, such as cyclones, threaten ecological outcomes and financial sustainability. Despite progress in conservation planning and environmental finance, few tools integrate both perspectives under uncertainty.
Objectives: We develop and test an investment framework that optimizes financial returns from restoration projects that are exposed to climate risks. Investment returns are generated through a carbon market. We evaluate whether introducing flexibility in the timing and scale of investment improves financial and ecological outcomes.
Methods: We developed a value iteration model optimized using stochastic dynamic programming to identify year-by-year investment decisions for mangrove restoration over a 25-year horizon. The model incorporates carbon market returns, ecological vulnerability, and probabilistic cyclone disturbance. We compared the adaptive strategy to a traditional, upfront investment approach across different restoration unit sizes, disturbance frequencies, and discount rates.
Results: Adaptive investment strategies outperformed traditional approaches. On average, the optimized approach achieved approximately 15% greater financial return, reflected by a higher profitability index (1.21 vs. 1.03) and 7% higher environmental effectiveness. It also achieved a positive or zero net present value in 77% of cases compared to 47% under a traditional approach by enabling adaptive investment responses to extreme events. Investment was not recommended at discount rates above 11%, highlighting the importance of financing conditions in determining project feasibility.
Conclusions: Financial adaptability can improve both ecological outcomes and long-term viability of restoration projects. Adaptive strategies offer a more robust response to climate uncertainty than fixed approaches.