3 Emerging Trends That Are Sharpening the Global Discussion on Natural Climate Solutions
Natural climate solutions (NCS) are an essential part of global climate action to achieve the goals of the Paris Agreement. And it is in the next ten years when nature can play an outsized role in terms of mitigating climate change. This simple, declarative statement is now widely endorsed by the climate and environmental communities.
Lying underneath this declaration, however, is a complex web of initiatives that are working in their own way to unlock the potential of natural climate solutions to provide a third of the climate mitigation needed by 2030. At times, these efforts can seem to operate independently, in silos, making it difficult for those working in this space, much less for casual observers, to both talk about and understand how these different pieces fit together into the bigger picture of natural climate solutions.
The good news is that in the past year significant progress has been made that is helping us connect the dots in such a way that a much clearer image is beginning to emerge. I would like to highlight three recent observations that I believe are enhancing and sharpening our discussion of natural climate solutions.
1/ Our Scientific Understanding Is Deepening
Most recently, the IPCC’s long-anticipated 6th Assessment report was released that reinforced the urgent need to slash greenhouse gas emissions, while actively removing CO2 from the atmosphere. Even for those of us who work on this on a daily basis – and who are no strangers to doom and gloom – this was a truly frightening warning.
Bolstered by the IPCC Report, the science about how protecting and restoring nature can deliver meaningful gains is clearer than it has ever been. [Read our blog post on the history of NCS science]. While there are still important details that warrant further scientific exploration, in the lead up to COP26, N4C will be working with our colleagues who are further developing the NCS Action Mapper to help provide greater clarity around the state of the latest NCS science.
2/ Our Understanding of the Finance-side of the NCS Story Is Drastically Improving
At the same time, there has been a raft of new research and analysis on financing for natural climate solutions, which outline existing funding gaps, discuss opportunities for a nature-positive economic recovery, and identify pathways for mobilizing capital at scale. This body of work encompasses the importance of deforestation-free investment, mobilizing investment toward nature-positive opportunities, work within supply chains and supplemental action through carbon market finance.
- June 2021: Vivid Economics: Fund Nature, Fund the Future
This report provides quantitative analysis of ten EU National Resilience and Recovery Plans (NRRPs) and finds that they miss a major opportunity to invest in a nature-positive recovery. The NRRPs aim to mitigate the economic and social impact of the COVID-19 pandemic and build a more sustainable and cohesive Europe-wide economy. While the NRRPs make some strides on climate, they do not form a coherent response to the multiple crises of biodiversity loss, the economic ramifications of COVID-19 and climate change.
- May 2021: Finance for Biodiversity: The Climate-Nature Nexus Implications for the Financial Sector
‘The Climate-Nature Nexus’ takes a practical look at where climate- and nature-related risks and opportunities do and don’t overlap; what that means for the investment potential of different sectors and solutions; and how much of the nature problem financial institutions address if they cover climate well. It offers recommendations on how the private financial sector can adapt its climate approaches to address nature and be robust to nature-related risks; and on how the policy community can support the financial sector to do so.
- May 2021: CERES: The Role of Natural Climate Solutions in Corporate Climate Commitments: A Brief for Investors | Ceres
A briefing document for investors to spur meaningful dialogue with companies on the role and use of natural climate solutions in delivering on those commitments. It provides clear guidance on how to facilitate engagements with portfolio companies and lays out expectations for climate disclosures—calling for transparency in critical steps along the way to net zero.
- May 2021: WEF / McKinsey: Nature and Net Zero
Building off the recommendations from the Taskforce for Scaling Voluntary Carbon Markets, this report sets out five actions to accelerate the scale-up of high-quality NCS implementation and unlock markets through the combined efforts of business leaders, policymakers and civil society.
- May 2021: UNEP / WEF / GIZ / ELD: State of Finance for Nature
The State of Finance of Nature tracks global trends in public and private investment in nature-based solutions, aiming to improve data quality and identify opportunities for governments, businesses and financiers. This year’s report calls for investments in nature-based solutions to triple by 2030 and to increase four-fold by 2050 from the current level. While an increase in public funding would help plug some of the gap, there needs to be a significant increase in private sector investment in nature-based solutions.
- May 2021: Finance Earth: A Market Review of Nature-Based Solutions
Commissioned by Green Purposes Company, Finance Earth undertook a global review of investments into nature-based solutions to map completed investments to determine market trends; to analyse common business models and investment structures to identify existing and emerging opportunities for investors; and to determine key barriers to investment and recommendations for institutional investors and policymakers in the UK and Europe to support the acceleration and scaling of investment.
- March 2021: Earth Security: The Blended Finance Playbook for Nature Based Solutions – Earth Security
Earth Security’s report provides a practical roadmap for public finance institutions and long-term investors to use blended finance to unlock investments in nature. Only 5% of blended finance transactions over the past 15 years have focused on nature. The report shows how public institutions can use their balance sheets more strategically and build the global capacity needed to link capital with nature’s assets.
3/ We’re Gaining More Clarity and Consensus on High-Integrity Use of Carbon Credits
Finally, there have been meaningful steps forward in the guidance for high-integrity use of carbon credits, including forest carbon credits, for voluntary purposes. Following the release of the report from the NCS Alliance, which prompted a long-form response from my colleague James Lloyd on the opportunities to move this discussion forward, the Voluntary Carbon Markets Integrity (VCMI) initiative was officially launched over the summer with an important consultation report, which includes ten principles to enable high integrity and high ambition corporate climate actions.
As the VCMI itself notes, this initiative builds on the work done by a range of other efforts. Among a broad sweep of thought-provoking analysis, the VCMI argues that “a shift is needed to address risks to integrity – on both the demand and supply sides – and build trust and credibility in VCMs which are fit for the future.”
At N4C, we couldn’t agree more. As James put it, “Poking holes in a ship in the hopes of sinking it is very different than pointing out holes in the hopes of plugging them.”
On the demand side, it was very good to see VCMI’s clear and concise thinking around the categorization for the legitimate use of carbon credits and related claims to ensure that stakeholders can easily understand the impact of a company’s actions; together with the “business case” for voluntary purchases of carbon credits. You can learn more about these complex issues if you take 30 minutes to listen to the Sustainable Development Impact Summit’s session on carbon markets.
We look forward to working with the VCMI and others, as part of our efforts to build trust in NCS, to promoting a new framework and terminology for defining corporate leadership in the NCS space that relies less on the old framework of “offsetting,” and more on support for NCS that is in addition to internal, science-based emission reductions, and is in support of the achievement of global climate and biodiversity goals. .
On the supply side, in addition to the work to clarify NCS science, listed above, N4C is working with many other organisations to highlight case studies of well-designed and implemented NCS in action, and to explore how technology and innovation can help enhance trust and credibility of NCS implementation.
When N4C was first formed four years ago – to support a global mobilization effort for NCS – funding into the area was minimal. Based on our improved scientific understanding, this is beginning to change – with public finance having risen from less than 3% to around 8%, and with private sector interest in NCS growing quickly. Our hope is that we can work constructively as a community to ensure these important investment opportunities are allowed to flourish – and are implemented in the right way.