Opportunities for Impact Investors Seeking Additionality in Nature-based Solutions
By Yu Lin Foo
In a forest in West Kalimantan, Indonesia, a community-based patrol unit surveys the reserve to detect illegal logging and remove wildlife snares. Off the coast of Maldives, a diver sets a coral frame on the seabed in hopes of restoring an area of damaged or bleached reef. On the steppes of Mongolia, communities of nomadic herders agree on pasture rotation and learn about ways to measure wildlife numbers to earn additional income while protecting grassland habitats.
Through our research “Catalysing Nature-based Solutions: Perspectives and Practices for Developing High-Quality Projects,” conducted in collaboration with EnviroStrat and with funding from the UBS Optimus Foundation, we explored how various successful nature-based solution projects documented in the Asia Pacific region can contribute to multiple outcomes, including climate change mitigation and adaptation, biodiversity conservation, and improved socioeconomic conditions.
Challenges and opportunities in catalysing NbS
Investments in nature have the potential to contribute to various SDGs and should be of interest to impact investors with a wide range of impact goals. However, there exist various gaps – and opportunities – in scaling NbS to attain such outcomes and contribute to the fullest extent possible in addressing the multiple environmental crises we face today.
Minding the gap in resources deployed for marine ecosystems
A key recommendation emerging from our research was to “[s]upport the development of standards, measurements and technologies to protect and restore marine ecosystems.”
Current finance into ocean sustainability projects and marine conservation are but a drop in the ocean, with the majority of funding going towards forests and other terrestrial projects. A report by Deloitte highlighted the miniscule amount of resources directed to marine NbS projects: the ocean receives less than 1% of existing climate finance, and NbS ocean-related scientific studies account for a mere 0.04 to 4% of global research expenditure. Our conversations with marine scientists and project developers revealed the need to scale marine conservation projects through better data and knowledge about marine ecosystems. This includes fostering the development and deployment of scalable marine data analytics technologies such as Planblue or Proteus Ocean Group, or open-access infrastructure that supports the liberation of ocean data e.g. OBIS, Ocean Data, ODAC. There is currently a large gap in the market, and the development of such technologies will enable the proper valuation and monetization of marine ecosystem services.
Additionally, carbon standards are relatively established for green carbon (i.e. terrestrial projects), but we need more blue carbon (i.e. marine and coastal projects) standards that will incentivize the protection of our oceans by including them in carbon and ecosystem markets. Particular ecosystems that require more focus for climate mitigation goals include seagrasses and mangroves, and there are emerging methodological frameworks for such blue carbon ecosystems by Verra and the IUCN. Various organizations are also developing biodiversity credits for marine ecosystems due to the higher relevance of biodiversity in coral reefs.
A snapshot of startups and organizations in the marine space
Funding mechanisms and platforms
Opportunities that enable private investments into nature include carbon credits, payments for ecosystem services, and more recently, biodiversity credits as seen in the case of the Bosque de Niebla-El Globo Habitat Bank. However, as emphasized in our report, a good quality project is one that is science-based and monitored. Tapping into the rising demand for transparency, several platforms have emerged to provide high-quality carbon and ecosystem credits (e.g. verified credits), credit rating services, and project transparency traceability.
A snapshot of startups and organizations advancing nature-backed credits
Beyond the carbon and biodiversity credit markets, other opportunities include funds for natural assets and biodiversity. For instance, the World Bank’s five-year $150M Wildlife Conservation Bond, better known as the “Rhino Bond”, channels private capital to biodiversity conservation activities that combat illegal wildlife trade. Another financing vehicle (also explored in the report) is the Blue Abadi Fund, which is a conservation trust fund for the Bird’s Head Seascape in Indonesia, where the funds are directed to sustainable management of marine resources by local communities. Additionally, Capital for Climate has also compiled a list of several funds and vehicles that contribute to an area of NbS.
Scaling MRV (measurement, reporting and verification) and adopting long-term monitoring
MRV is key to assess if a project has truly achieved its intended outcomes. Besides project design and implementation, there is a need to allocate funds for long term monitoring and evaluation after project completion to assess impact in the long run. There is usually a time-lag between the intervention and ecosystem restoration outcomes. Yet, existing methods of measuring biodiversity and social impact can be time-consuming and costly. Several emerging technologies that seek to scale MRV and reduce the associated costs have been highlighted in an earlier blog. In addition, some startups have created solutions for investors to monitor and assess their natural assets portfolio, such as Cecil and Restor.
Supporting project developers providing solutions for capacity building and equitable benefit sharing
Project developers and implementers are pivotal in the design and execution of projects. For instance, GroundUp Conservation facilitates grassroots action and capacity building on the ground, while reNature provides technical assistance with access to carbon markets for regenerative agriculture. Although the majority of project developers tend to be non-profit or non-governmental organizations, companies such as Pur Projet have also demonstrated a business case for developing NbS. While the aforementioned areas do provide opportunities for additionality, the success of high quality, inclusive NbS projects ultimately depends on stakeholders and custodians on the ground – i.e. the local community, grassroots organizations and project developers. As such, capacity building programs and mechanisms that enable equitable benefit sharing – i.e. direct investments and resources to reach custodians on the ground – are opportunities for both philanthropists and impact investors.
It can be difficult for projects – particularly those that are of a smaller scale – to obtain access to funding and other resources. Solutions such as the Open Future Coalition and Key Conservation emerged to “match-make” projects to their specific needs such as expertise and funding.
The market for nature-based solutions is on the rise, with many exciting opportunities for impact investors to contribute to multiple sustainability goals. While we have explored various avenues for creating additional impact, the crux of the issue ultimately lies in scaling NbS projects; we need a larger quantity of quality projects, and bankable NbS that can leverage private finance. Read our report to find out more about assessing the quality of NbS projects, and we invite like-minded investors and individuals to connect with us!