Nature is infrastructure; It's time we financed it that way
Every year, Malaysia spends billions of ringgit building and maintaining infrastructure. Roads connect markets. Power lines keep industries running. Water treatment plants support households and businesses. These investments are financed because policymakers understand a simple reality: when critical infrastructure fails, the economic costs are enormous. Yet some of Malaysia's most valuable infrastructure never appears in a national budget.
The forests of Taman Negara, the mangroves protecting our coastlines, the rivers flowing from our water catchments and the ecosystems supporting our fisheries perform essential economic functions every day. They regulate water supplies, reduce flood risks, store carbon, protect communities from storms and sustain livelihoods across the country.
Unlike highways or ports, however, these assets rarely receive financing that reflect the value they generate.
As a result, Malaysia faces a growing contradiction. The country depends on nature for economic growth, water security, food production and climate resilience, yet its financial system continues to treat natural capital largely as a free resource rather than a productive asset. This gap between economic dependence and financial recognition is becoming increasingly costly.
Against this backdrop, the International Day for Biological Diversity this year carries the theme “Acting Locally for Global Impact”. For Malaysia, the challenge is not symbolic. It goes to the heart of whether our financial system is aligned with the ecological systems that underpin the economy.
Malaysia is one of only 17 megadiverse countries in the world. Few nations possess such extraordinary natural wealth. Yet despite the economic value of these assets, biodiversity financing remains heavily dependent on public budgets, grants and project-based interventions. These funding streams are important, but insufficient relative to the scale of need.
According to Malaysia's National Policy on Biological Diversity, the country faces an estimated biodiversity financing gap of RM4 billion. At the global level, the United Nations Development Programme's Biodiversity Finance Initiative (UNDP BIOFIN) estimates the biodiversity finance gap exceeds US$700 billion annually.
The gap exists because conventional economic measurements capture only part of nature's value.
National accounts can quantify timber exports, agricultural production and tourism revenues. They can record the contribution of forestry and agriculture to GDP (gross domestic product). What they often fail to capture are the services that ecosystems provide without charging anyone: water filtration, flood mitigation, soil fertility, carbon storage and climate regulation.
Malaysia's forests cover approximately 18.3 million hectares. Every day, they perform functions that would cost billions to replicate through engineered solutions. Yet because these services remain largely invisible in financial decision-making, they are routinely undervalued.
The consequences of ecosystem degradation do not remain confined to the natural environment. They surface instead in the wider economy, often far from where the damage occurs.
They appear as higher water treatment costs when catchments are degraded. They appear as more severe flood damage when wetlands and forests lose their buffering capacity. They appear as agricultural losses, biodiversity decline and increasing climate vulnerability. While environmental degradation occurs upstream, the economic burden is ultimately borne downstream by households, businesses and public finances.
This is precisely where Malaysia’s challenge becomes structural rather than sectoral. The issue is no longer only about conservation outcomes, but about how effectively the financial system recognises and prices the economic services that nature provides.
Over the past two decades, UNDP has partnered with the Government of Malaysia to strengthen biodiversity conservation and sustainable natural resource management. Through the Global Environment Facility (GEF) and other partnerships, support has been provided for protected area financing, conservation of the Central Forest Spine and wildlife protection initiatives.
These investments have delivered meaningful outcomes. They have strengthened institutions, built technical capacity and demonstrated that targeted investments in nature can generate measurable economic and environmental returns.
However, project-based interventions alone cannot resolve a systemic financing gap. The underlying issue is not the absence of initiatives, but the absence of a financing framework that consistently values and rewards the protection and restoration of natural assets in economic decision-making.
What Malaysia therefore needs is a financial system that integrates nature into the same logic that governs roads, power grids and water infrastructure — through budgets, incentives, pricing and investment decisions.
This is precisely the ambition of UNDP BIOFIN, which works with governments to embed biodiversity considerations into public finance systems, fiscal policy and private investment decisions.
The results to date are encouraging. Across 41 participating countries, BIOFIN-supported reforms have helped unlock more than US$3.3 billion in finance for biodiversity. In Malaysia, Ecological Fiscal Transfers (EFT) represent a particularly important innovation. By creating direct fiscal incentives for states to maintain forests and protected areas, EFT allocations have reached approximately RM1.1 billion cumulatively by 2026.
The significance of nature finance extends well beyond conservation. Increasingly, it is becoming a matter of economic resilience and financial stability.
The joint Bank Negara Malaysia, World Bank and UNDP BIOFIN report, A LEAP for Nature, which was launched earlier this month found that more than half of Malaysia's GDP is highly or very highly dependent on ecosystem services. At the same time, 54% of commercial bank lending is concentrated in sectors with high or very high dependencies on nature.
This means that biodiversity loss is no longer solely an environmental concern. It represents a material economic and financial risk.
When forests are degraded, water supplies become less reliable. When coastal ecosystems disappear, communities become more exposed to climate shocks. When ecosystems decline, businesses face operational disruptions and financial institutions face increased credit risk.
In other words, nature risk increasingly translates into financial risk.
This reality is also beginning to reshape global regulatory expectations.
The International Sustainability Standards Board, working alongside the Taskforce on Nature-related Financial Disclosures (TNFD), is expected to advance nature-related disclosure requirements in the coming years. Investors, lenders and insurers are already asking more detailed questions about nature dependencies and ecosystem-related risks.
Companies that understand these risks early will be better positioned to compete in an increasingly sustainability-focused global economy.
The policy implications are clear. Protecting water catchments should be viewed as infrastructure investment. Restoring mangroves should be viewed as climate resilience investment. Conserving forests should be viewed as an investment in economic stability, disaster risk reduction and long-term productivity.
Equally important is ensuring that fiscal incentives, public spending and development planning are aligned with Malaysia's biodiversity commitments. Given that state governments hold significant authority over land and forest management, they must be equipped with the financial resources and technical tools necessary to act as full partners in this effort.
For the private sector, the task is equally straightforward. Nature-related risks should be integrated into lending, investment and insurance decisions in the same way that climate risks increasingly are today.
Malaysia is well positioned to lead. It has strong financial institutions, a forward-looking central bank, an active sustainability agenda and one of the world's most developed green sukuk markets. The foundations are already in place.
The renewable energy transition became investable because governments, regulators and markets aligned standards, incentives and financing mechanisms. Nature finance is approaching a similar turning point.
For more than 130 million years, Malaysia's forests, rivers and wetlands have quietly supported national prosperity. They have protected communities, secured water supplies, sustained industries and absorbed environmental shocks without sending an invoice.
The question is no longer whether nature has economic value.
The question is whether our financial system is prepared to value it before the costs of neglect become impossible to ignore.
Edward Vrkic is Resident Representative of the United Nations Development Programme (UNDP) Malaysia, Singapore and Brunei Darussalam.
The article was initially published at The Edge Malaysia