1.1 Background

Nature-based solutions (NbS) are defined as “actions to protect, sustainably manage, and restore natural or modified ecosystems, that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits” (World Conservation Congress 2016).

In recent years, awareness has increased about the importance of investing in NbS to both mitigate and adapt to climate change (Griscom et al. 2017). Attention has focused on identifying promising approaches and developing initiatives that can scale finance for NbS for adaptation (NbSA), often through innovative mechanisms that blend public capital to catalyze and leverage private capital (see Box 1 for definitions used in this paper). NbSA projects are inherently complex, often delivering public goods that may imply longer-term returns on investment and entail bringing together a broad range of stakeholders to address systemic community and societal challenges (Seddon et al. 2020a). Nonetheless, the benefits of NbSA are significant (Figure 1) for their flexibility in terms of context, utility, and cost efficiency (UNEP 2021).

Figure 1 | Relationships between the Natural Environment and Climate Change Adaptation by Sector

Source: Global Commission on Adaptation 2019.

Furthermore, while awareness has grown, so has interest in funding and implementing these approaches. For example, 62 percent of all first NDCs (104 out of 168) include NbS as adaptation actions,⁷ and 63 percent of nationally determined contributions (NDCs) declare that the protection of ecosystems and/or biodiversity is the intended outcome of adaptation planning (Seddon et al. 2019). Additionally, 19 national adaptation plans (NAPs) submitted to the United Nations Framework Convention on Climate Change (UNFCCC) by March 2020 included NbSA and/or ecosystem-based adaptation (EbA; Terton and Greenwalt 2020).

There is a significant overall funding gap for adaptation, of which NbSA are a part. In its Adaptation Gap Report 2020, the United Nations Environment Programme (UNEP) identified adaptation investment needs of more than US$140 billion per year by 2030 (UNEP 2021). The Climate Policy Initiative (CPI) estimates that only $30 billion in (mostly public) funding flowed for adaptation in 2018 (Buchner et al. 2019).

Figure 2 | The Relationship between NbS Finance for Adaptation, Climate Finance, and Conservation Finance

Notes: NbS = nature-based solutions.

Source: UNEP 2021.

To date, there is no estimate of the total NbSA investment needed, although some estimates exist for related subsectors of NbSA (Figure 2 shows the relationship between these subsectors). For example, Financing Nature: Closing the Global Biodiversity Financing Gap estimated a current biodiversity conservation financing gap of between $598 billion and $824 billion per year (Deutz et al. 2020). Nevertheless, the report by the Global Commission on Adaptation (the Commission) highlighted access to finance as one of three key barriers that impede the scaling up of investment in NbS (Global Commission on Adaptation 2019).

In addition to the challenges of quantifying the NbSA funding gap, little analysis has been done of the amounts, types, and channels of public international funding to support NbS in developing countries. Given the importance of public capital in funding NbSA, a better understanding of these sources of funding is needed.

1.2 About This Working Paper

This paper provides an assessment of the landscape of public international funding for NbSA and seeks to help donor and developing countries better understand the current state of funding for NbSA. The findings in this paper are based on the sources in Box 2. This paper’s primary audience is public donors providing funding for NbSA; a secondary audience is developing countries looking to fund NbSA as part of their climate action plans, as a number of the findings and recommendations relate to enabling better, more efficient use of public expenditure for NbSA regardless of its origin.

This paper assesses the current landscape of public funding sources for official development assistance (ODA) available to developing countries for NbSA by

• estimating public international flows for NbSA;
• describing key funders and modalities of current funding sources;
• identifying challenges and barriers that may prevent increased funding for NbSA unless addressed; and
• illustrating through examples several promising approaches for programming public funding, including those that catalyze private investment in NbSA.

The paper concludes with actionable recommendations to improve the provision and application of public international donor funding for NbSA.

This assessment is meant to complement other ongoing research related to financing NbSA, including recent studies related to innovative financial instruments (e.g., insurance, results-based payments) and those assessing the potential to mobilize private investment for NbSA. It is also meant to complement other efforts to quantify climate finance flows writ large (e.g., CPI’s climate finance landscape).⁸

This assessment uses the Creditor Reporting System (CRS) database of the Organisation for Economic Co-operation and Development (OECD) to estimate a range (lower and upper bound) of public international funding for NbSA using 2012, 2015, and 2018 data sets of project commitments. The methodology for this assessment is described below and is further detailed in Appendix A, which describes which OECD data codes were used, how the methodology filtered out commitments for NbS that may not be for adaptation activities, and other issues.

Estimates are based on the OECD’s CRS database. All CRS projects are classified by sector, and some are tagged with the Rio markers (which indicate either the primary or significant intent of the funding, such as mitigation, adaptation, or biodiversity). Although sector classifications are exclusive—a funding flow cannot be tagged with more than one sector—markers are not exclusive, meaning funding flows can be tagged with more than one marker.

As a result, our lower-bound estimates represent a narrower assessment of funding flows for NbSA but do not include funding from and through the multilateral channels, such as multilateral development banks (MDBs) or climate funds, due to how multilateral data is reported to the OECD. Our upper-bound estimates represent a broader assessment that loosens restrictions on both sectors and Rio marker tags; as a result, they may include some funding that does not primarily support NbSA objectives.

Please see Appendix A for a full description of the methodology used in this paper. In addition, Box 3 describes the limitations of the methodology.

2.1 The Public international Funding Landscape

It is estimated that in 2018, public donor finance for NbSA accounted for, conservatively, approximately 0.6 percent of total climate finance flows, 1.5 percent of public climate finance flows, and 9.0 percent of overall adaptation flows (Figure 3).⁹

Figure 3 | Estimated ODA for NbSA in the Context of Total Climate Finance Flows in 2018

Note: The $42bn adaptation finance estimate refers to both adaptation-specific flows and those that have dual adaptation and mitigation benefits.

Source: Buchner et al. 2019.

Figure 4 provides an overview of the landscape of NbSA funding in 2018, highlighting the largest funders and channels for NbSA.

Figure 4 | The Landscape of ODA for NbSA Funding, 2018 (US$, millions)

Note: UB = Upper Bound, LB = Lower Bound

Source: Based on raw data from OECD.Stat database, Creditor Reporting System, modified by the authors.

As shown below in Table 1 and Figure 5, tracked public funding for NbSA has increased over the years analyzed, from $2.1–$4.1 billion in 2012 to $3.8–$8.7 billion in 2018. For the years analyzed, the top ODA funders of NbSA were also among the top adaptation funders overall. Germany and the United Kingdom contributed significantly to the increase in ODA for NbSA funding between 2012 and 2018 (see Figure 6). Notably, a significant proportion (over 50 percent) of Germany’s ODA in the analyzed sectors was for NbSA initiatives.

The lower bound estimates for multilateral organizations are assumed to be zero because these organizations did not use the biodiversity Rio marker. As noted in Box 3, the information presented includes only data reported within the OECD. As such, it may miss funding provided through or by some donors (bilateral or multilateral sources), and it may underreport some sources, such as the Global Environment Facility (GEF), for the years assessed.¹⁰

In fact, the MDBs, including the World Bank, Inter-American Development Bank (IDB), European Bank for Reconstruction and Development, and others, typically support NbSA. However, these institutions may be reporting NbSA projects under different categories, or they may not be reporting as comprehensively to show a full picture of the landscape of funding flowing from these organizations. Also, given the recent rise in interest in NbSA, a landscape assessment for 2020 might include a wider range of bilateral and multilateral funders.

For more details on how the upper and lower bounds were constructed, please see Appendix A.

2.2 Key Funding Modalities for NbSA

For the three years analyzed, up to 85 percent of all tracked funding was categorized as ODA grants, and those that are categorized by the OECD as ODA loans are deemed “concessional,” implying a significant grant-equivalent component (see Table 2).

2.3 Recipients and Uses of Funding

2.3.1 Recipients

The top regions for tracked ODA funding for NbSA in 2018 were Sub-Saharan Africa, Latin America and the Caribbean, and South and Central Asia (see Table 3 and Figure 7). A large proportion of ODA funding does not specify the recipient country or region, indicating that significant amounts of funding flow through bilateral or multilateral multicountry programs (classified as going to “unspecified developing countries” by the OECD).

2.3.2 Uses of Funding

Biodiversity, general environmental protection, and agriculture are the top three NbSA-related sectors by estimated volume of funding tracked in 2018 (see Figure 8).¹¹

For all of the graphs below, the solid line represents the upper bound, and the dashed line represents the corresponding lower bound.

Figure 5 | Total ODA Funding Flows to NbSA

Figure 6 | ODA NbSA Funding Flows from Top Donors

Figure 7 | ODA NbSA Funding Flows to Top Regions

Figure 8 | ODA NbSA Funding Flows into Selected Sectors (Lower-Bound Only)

Notes: DRR = disaster risk reduction; LAC = Latin America and the Caribbean; NbSA = nature-based solutions for adaptation; ODA = official development assistance.

Source: Based on raw data from OECD.Stat database, Creditor Reporting System, modified by the authors.

2.4 International Funding Channels

The primary funding channels listed for NbSA (as for adaptation in general) include generalist and specialist multilateral climate funds and MDBs as well as NbS-specific facilities. It should be noted that the figures for a fund’s “estimated amounts available” are for the entire fund and are thus indicative only; for some funds in Table 4, these estimated amounts are unlikely to be solely for NbSA. (Please see Table 4 for a listing with their modalities.)

Table 4 | List of Funds That Finance NbSA-Eligible Activities

Notes: a. Refers to water resources and water security; b. G = grants, CF = concessional finance; c. IFAD is an executing agency of the GEF and GCF; d. ASEAN = Association of Southeast Asian Nations; e. Using a euro to U.S. dollar conversion rate of 1:1.172.

Source: The authors.

In a background paper for the Commission, the UNEP World Conservation Monitoring Centre identified several building blocks to underpin the widespread adoption of NbSA (see Figure 9):

• Awareness and understanding of benefits among all stakeholders
• Knowledge and evidence base of the value and effectiveness of NbSA
• Policy and regulatory support or a good enabling environment
• Access to finance with sufficient volumes, from a wide range of sources, and in suitable types of financing instruments
• Technical capacity among all stakeholders to develop, design, fund/finance, and implement NbSA

Figure 9 | The Building Blocks for Scaling Up NbSA

Note: NbS = nature-based solutions.

Source: Modified from Kapos et al. 2019.

These building blocks are meant to illustrate key needs for scaling up NbSA, including the development of successful NbSA investments. This paper touches on three of these building blocks, each of which responds to specific but interconnected barriers:¹²

• Barriers impeding awareness and understanding of NbSA benefits among stakeholders, which are driven by three key knowledge-related issues: the lack of definitions, data, and metrics.
• Barriers preventing access to finance for NbSA with sufficient volumes, from a wide range of sources, and in suitable types of financing instruments.

The barriers and challenges listed in this section are derived from the sources listed in Box 2.

3.1 Barriers Impeding Awareness and Understanding

The lack of common definition, well-tagged information in the data sets, and clear metrics present significant overarching barriers to the adoption and scaling of NbSA (Figure 10). Interviewees consistently cited these issues, noting that they are interconnected and drive several other challenges related to NbSA financing.

3.1.1 No Common Definition of NbSA Exists

It was evident from the analysis of funding flows, and reinforced through interviews, that the definition of what qualifies as NbSA is unclear to many, suggesting that greater specificity and consistency is needed. One challenge is that project proponents often define such investments first and foremost by their core focus (e.g., biodiversity, water resources management) rather than in terms of adaptation outcomes. Box 1 lists several existing definitions of NbSA that may be helpful.

3.1.2 Clear Data on Funding for NbSA Is Lacking

Clarifying what qualifies as NbSA will help support better tagging and data collection, which in turn will improve the tracking of funding for NbSA (UNEP 2021). Without an NbSA tag in the existing databases, many projects that may contribute to adaptation outcomes are not counted. The methodology employed in this paper captures adaptation-related investments in specific sectors, but they may not be directly relevant to NbSA. The lack of a clear tag thus results in imperfect accounting, which makes it difficult to measure the amount of funding already flowing and to monitor its effectiveness, can make it difficult to fully meet the needs for NbSA and to raise additional funding (Somarakis et al. 2019).

3.1.3 No Clear Metrics Exist to Value NbSA

Although there are some systems, standards, and tools currently in development (see Box 5 in Section 5.3), as of now, no commonly agreed upon set of performance metrics to determine the impact of NbSA investments (individually or collectively) exists. The lack of commonly adopted metrics, as well as methodologies that can value the economic and financial benefits of these investments, has contributed to the inability of countries, project developers, and investors to appropriately appraise NbSA as an investment proposition against other options. These metrics and methodologies would enable project proponents to understand a range of important issues related to funding NbSA investments, such as life cycle operational costs and the values of adaptation benefits, which are important in developing approaches to mobilize additional capital.

Figure 10 | Overarching Barriers: A Lack of Definitions and Metrics


Note: MDB= multinational development bank; NbS = nature-based solutions.

Source: The authors.

3.2 Barriers Preventing Access to Finance

Barriers identified in this section are specific to donor and other international (excluding domestic) public sources of funding—in particular, those barriers that impact the sources (donor funding), the channels (intermediaries and climate funds), and the uses (recipient countries). The following outlines key barriers at each of these points within the financing landscape.

3.2.1 Donor Sources of Funding Are Insufficient in Volume

There is clearly an overall funding gap for adaptation (at least $180 billion per year needed, against approximately $30 billion in current flows), of which NbSA is a piece; and an overall funding gap for NbS, of which NbSA is also a piece. As mentioned earlier, donor/ODA funding for NbSA accounts for only 0.6–1.4 percent, or $3.8–$8.7 billion of total tracked climate finance flows, and a small portion of overall adaptation flows (tracked at $42 billion).

3.2.2 Donor Sources of Funding Do Not Align with Needs

Donor funding is often provided in ways that may not meet the funding needs for NbSA investments in recipient countries. The assessment highlights the following specific barriers and challenges:

• Available funding and allocated funding do not explicitly identify NbSA as a focal area. This results in poor understanding by recipients of where to access funding for NbSA and poor tracking of funding flows for NbSA. The lack of clarity means that donors may be less able to understand the current levels of support for NbSA investments and to assess the effectiveness of existing funding and efficiently allocate additional funding.
• Funding is predominantly grant-based and does not maximize options for catalyzing NbSA investments. As previously noted, up to 80 percent of tracked funding was provided in the form of grants. Although grants are necessary and important—notably, to support capacity building, technical assistance, and project preparation—employing public capital in investment structures through both grant and nongrant instruments can allow for approaches that more effectively mobilize private investment.

3.2.3 Channels of Donor Funding Do Not Explicitly Promote NbSA

The channels of donor funding for climate action—and, by extension, NbSA—are key sources of information and funding for recipient countries. Although few funding channels explicitly promote NbSA investments, many large climate funds and multilateral agencies bundle NbS interventions under other adaptation-related sectors (e.g., disaster risk reduction or water), which can make it difficult to track NbSA investments. The following barriers prevent greater uptake of NbSA investments:

• Existing funding channels rarely promote NbSA as an explicit investment priority. Interviewees highlighted that funding channels do not clearly and consistently promote consideration or prioritization of NbSA options during project development phases. They noted that while broader NbSA-related options were discussed, it could be difficult to make a case for NbSA given the lack of clear definitions, metrics to assess costs and benefits, and incentives to choose NbSA over other options; in addition, NbSA options were not always prioritized by developing countries. Funding channels thus miss an opportunity to signal to recipients the potential value of developing such projects, and they miss the opportunity to support them in developing such projects, thus limiting pipeline development.
• Funding modalities do not match funding needs. Interviewees and research literature noted that for many NbSA investments, a mismatch exists between the modality of funding, either at the development stage (where primarily project development grants would be used) or at the investment stage, where a range of grant and investment instruments (e.g., debt, equity, results-based finance, etc.) could be useful (UNEP 2021). In particular, interviewees highlighted the need to support the relatively high operations and maintenance (O&M) costs of NbS projects over their lifetimes, especially in circumstances where NbSA projects have insufficient revenue streams to bear those costs.

3.2.4 Challenges in Developing the NbSA Pipeline Hinder Access to Financing

With more than 60 percent of all first NDCs including NbSA (Seddon et al. 2020b), there is clearly a latent demand for NbSA investment from developing countries. With the existing ambiguities around definitions and what “counts” as NbSA and the lack of clear signals within the system of funding (from both donors and channels), it is likely that the overall demand for NbSA investments is far greater than simply what exists within the collective NDCs today, yet the development of a pipeline that matches such demand is still lacking. The following is a list of barriers at the country level that prevent the development of a robust pipeline of NbSA investments in developing countries:

• A general lack of awareness and understanding of NbS often exists among key stakeholders (Somarakis et al. 2019). Governments must understand not only the benefits of NbSA but also how to mainstream NbSA into climate and development plans and how to develop, value, and structure NbSA investments. This is further compounded by the barriers around awareness and understanding because key stakeholders may not understand the (emerging) evidence around the potential uses of NbS; this is apparent, for instance, in how nonforest ecosystems are rarely included in NDCs (Seddon et al. 2019).
• A lack of coordination between stakeholders can be problematic because NbSA require relevant expertise to appraise and value the cobenefits across sectors. Interviewees noted that NbS often necessitates coordination and collaboration horizontally (across government departments), vertically (from policymakers to local communities and other stakeholders), and across geographical regions. This is challenging and increases the risk of failure if not executed well. Furthermore, government agencies most knowledgeable about NbSA are rarely those that make key planning and budgeting decisions.
• NbS are not prioritized among potential categories of adaptation investment, leading to more limited demand from developing countries (Egusquiza et al. 2019; Sarabi et al. 2020). Even when cited in NDCs and NAPs, NbS are often not prioritized in public budgets and investment plans. One reason for this is that government officials may feel pressure to deliver more immediate and tangible results, preferring familiar “gray” interventions that are easier to model in terms of benefits and are thus easier to structure from a funding perspective. Many interviewees noted that it was far easier to undertake a cost-benefit analysis for gray infrastructure projects than more comprehensive interventions like NbSA because of the lack of a common methodology for assessing the economic and financial benefits of NbSA and the cobenefits, even though NbSA can often be superior (Seddon et al. 2020a, 2020b).
• It is difficult to prepare NbS investments, including assessing and internalizing the range of economic and financial benefits resulting from an NbS project (Global Commission on Adaptation 2019). Many developing countries have difficulty assessing, valuing, and structuring NbS investments as well as undertaking the necessary stakeholder engagement to ensure successful investment and implementation.

Several examples have been identified through both interviews and research that highlight ways to address these barriers and contribute to the building blocks needed for scaling up the implementation of NbSA. These promising approaches can provide useful lessons and insights to funders, channels of funding, and developing countries (see Figure 11).

Figure 11 | Four Promising Approaches to Scale the Implementation of NbSA

Note: NbSA = nature-based solutions for adaptation.

Source: Modified from Kapos et al. 2019.

4.1 Policy and Regulatory Support

• Mainstream NbSA to address adaptation priorities. Early identification and consideration of NbS options are essential to their implementation. Helping countries develop “green” and “gray/green” adaptation approaches alongside traditional “gray” solutions is a useful exercise; NbS approaches can be more cost-effective, have additional benefits (Seddon et al. 2020a, 2020b), and can also complement gray infrastructure by reducing risk, lowering operational and capital costs, and providing redundancy benefits (Browder et al. 2019).
• Engage local and international stakeholders early in the process. The crosscutting nature of NbSA necessitates robust and coordinated stakeholder engagement, including the following actions:
  • Engaging local communities, indigenous title holders, and others to incorporate their perspectives.
  • Involving policymakers and decision-makers from across relevant ministries and levels of government.
  • Effectively coordinating donors to ensure funding is aligned with country needs and preferences.

4.2 Access to Finance

• Provide public funding in a manner that aligns with project and/or investment needs. Interviewees noted the particularities of NbSA that may require different funding approaches than those employed for traditional “gray” solutions. These approaches include the following:
  • The potential for results-based approaches (for example, payments for ecosystem services; see Appendix B for others) to deliver funding that has proved effective in catalyzing private investment.
  • The need to fund both capital expenditures (e.g., project development) and O&M expenditures. Some NbSA projects have little or no revenue streams to cover ongoing O&M costs, discouraging investment.
  • The potential use of public funding to anchor and/or de-risk project finance structures and, where possible, the use of blended finance approaches to enable NbSA investment.¹³

4.3 Technical Capacity

• Assess and value NbSA benefits. Given the gaps in knowledge about the economic, resilience, health, and other benefits of intact or restored ecosystems, NbSA options may be underappreciated by decision-makers, financiers, and beneficiaries. Resources are often needed to quantify value and measure outcomes.
  • Quantify value. Conduct quantified ex ante and ex post assessment/valuation and cost-benefit analysis to enable appropriate economic comparisons between NbSA and other investment options. This can help some stakeholders to recognize the systemic value that NbSA brings to different beneficiaries. See Box 5 in Section 5.3 for more details.
  • Measure outcomes. Track, monitor, and measure outcomes to strengthen the evidence base for the effectiveness and efficiency of NbSA. Coupled with strong valuation approaches, this will assist in building awareness and understanding of how NbS approaches (such as conservation and ecosystem restoration) can contribute to adaptation and other benefits.

The following examples illustrate how these promising approaches have been implemented.

Public international sources of capital can help build the necessary foundations for the successful implementation and scaling up of NbSA, address critical barriers preventing all types of funding from flowing, and accelerate the development of an investment pipeline. The recommended actions described below (and in Figure 12) are aimed at two primary stakeholder groups:

• Donors. Public international donors that provide ODA and climate finance for NbSA as well as some related technical assistance and capacity building.
• Channels. Institutions like MDBs and international climate funds that are important channels of NbSA funding and can encourage countries to integrate NbSA into investment plans and undertake NbSA investments while helping them build the knowledge and capacity to do so.

Some of the recommendations also apply to developing countries insofar as those countries have a similar need to adopt definitions, metrics, and methodologies for NbSA and to develop and design fundable NbSA investments.

The recommended actions flow from the barriers identified in Section 3 and the promising approaches described in Section 4, which resulted from analysis of the data on funding flows as well as from interviews with key stakeholders, including donors, developing countries, and others. They also build on the Commission’s Adapt Now report, focusing on specific recommendations for public international donor funding of ODA to support greater scale and effectiveness of NbSA. They are meant to complement recommendations from other recent reports, including those that focus on issues necessary to increase the mobilization of private capital for NbS more generally (see Box 4 for more details).

Figure 12 | This Paper’s Recommendations (as They Relate to Previous Analysis for the Global Commission on Adaptation)


Notes: NbSA = nature-based solutions for adaptation; ODA = official development assistance.

Source: Modified from Kapos et al. 2019.

 

5.1 Action #1: Scale and Better Track ODA Funding for NbSA

Given the likely significant funding gap between estimated flows and overall investment needs for NbSA, donors should prioritize and scale up their climate finance and ODA commitments for NbSA. The following is a list of actions specifically focused on how donors and channels of NbSA can scale and better track public international funding for NbSA, with the involvement of developing countries.

 

Actor	Recommended Actions
Donors	Define. Adopt common definitions of NbSA and apply the Rio markers more rigorously and consistently. Demand and promote better measurement. Ensure that channels of ODA for NbSA measure investments effectively. Accurately track NbSA investments, even when they are crosscutting with and/or embedded in other development impact areas or undertaken for a different primary purpose (such as biodiversity, forestry, or water management. Adopt consistent methodologies, such as the International Institute for Sustainable Development’s Sustainable Asset Valuation (SAVi) tool, to enable greater measurement of cobenefits as well as impacts and successes from NbSA. Allocate more climate finance/ODA for NbSA. Increase allocations to MDBs and multilateral climate funds and/or specific dedicated NbS funding mechanisms, particularly those that can deploy capital most efficiently and with speed, particularly to meet latent and future demands for NbSA. Actively monitor results. Ensure that channels for NbSA and broader NbS funding integrate indicators for NbSA cobenefits within monitoring and evaluating (M&E) frameworks; and monitor and track NbSA results, including as part of crosscutting interventions.
MDBs/ international climate funds and other channels	Prioritize and identify NbSA. Support and engage in the ongoing development of emerging criteria and standards for NbSA best practices,14 and apply them to support the identification of promising NbSA projects in the pipeline. Actively monitor results. Ensure that countries specifically: integrate indicators for NbSA cobenefits within M&E frameworks; and monitor and track NbSA results, including as part of crosscutting interventions.
Developing countries	Prioritize and identify NbSA. Work with donors, MDBs, and civil society on the development of criteria and standards for NbSA best practices and apply them to support the identification of promising NbSA projects that are aligned with national climate plans (e.g., NDCs and NAPs).

5.2 Action #2: Better Align ODA Funding That Is Flowing

Public international funding for NbSA is primarily provided in the form of grants.¹⁵ Although important, this reliance on grants may limit opportunities to catalyze other forms of capital for NbSA, including by using concessional finance to crowd in private capital. Interviewees noted two potential additional ways that public international funding can be useful for NbSA projects:

• Grants for long-term O&M costs. Interviewees noted potential mismatches between funding available for capital costs and the need for NbSA to cover longer-term O&M costs. This mismatch is particularly challenging for projects with low or no revenue streams to cover these costs. Lack of visibility on how these O&M costs are covered can be decisive in investment decisions.
• Concessional and nongrant instruments. Utilizing public international funding through nongrant instruments (e.g., guarantees, concessional debt, and equity) to help crowd in private capital is common among many climate-related sectors. Many interviewees suggested that innovative approaches to catalyze private investment in NbSA would benefit from greater access to public international funding.

The following actions specifically focus on how donors and channels of NbSA, as well as developing countries, can better align public international funding for NbSA project needs.

 

Actor	Recommended Actions
Donors	Broaden (funding) support. Provide guidance on risk tolerance and authorize funding channels, where possible, to use funding in both grant and nongrant investment instruments to support all relevant costs, including long-term project costs, such as O&M costs; and taking greater risk/higher risk tolerance in order to crowd in private investment. Coordinate and align. Improve the coordination among donors and donor-led initiatives to ensure NbSA-related funding is aligned with country needs, especially through the early engagement of national and local stakeholders.
MDBs/ international climate funds and other channels	Align with country needs. Ensure support provided to developing countries is aligned with national plans and budgets and promote the mainstreaming of NbSA to address adaptation needs. Facilitate NbSA project planning. Given the crosscutting nature of NbSA, help countries coordinate NbSA project planning and development among agencies. Ensure the early engagement of local communities, relevant ministries, and other stakeholders and levels of government as appropriate. Mobilize. Actively employ blended finance approaches to leverage, crowd in, and otherwise mobilize private and philanthropic capital into NbSA investments. (See examples in Appendix B.) Broaden (funding) support. Ensure instruments that address funding and financing gaps in NbSA projects, including those that employ results-based financing approaches, allow for payment of both capital expenditures and O&M costs. Build capacity. Fully fund, through grants, important technical assistance, awareness and knowledge, capacity building, and project development efforts.
Developing countries	Be strategic with, and maximize the impact of, ODA received to accelerate NbSA investments. Take a strategic view on how best to utilize ODA and other public funding to accelerate NbSA investment, including employing approaches to blend public capital that mobilize private capital for eligible projects where feasible.

5.3 Action #3: Define, Quantify, Value, and Measure NbSA Benefits

The absence of clear definitions, guidelines, and metrics and methodologies to track, quantify, and value NbSA benefits may contribute to the relative scarcity of the right types of capital (both grant and nongrant/investment capital), which in turn may significantly inhibit the development of a robust pipeline of NbSA-related investments by public and private sectors.

Thus, the single most important technical gap that, if addressed, may facilitate greater NbS financing is the need to develop, adopt, and accelerate a common approach to define, quantify, value, and measure NbSA benefits in ways that are meaningful for investment decision-making, including quantifying (economic and financial) values for NbSA outcomes for public and private investors and countries. Such a framework (e.g., monitoring, reporting, and verification [MRV] for NbSA) will be foundational to increase evidence and awareness, shift planning and policy, and stimulate pipeline development and financing for NbSA; thus, it is a critical component for scaling up these types of investments.

Several efforts are attempting to develop methodologies for quantifying NbS benefits (see Box 5), including for adaptation. The following table provides recommendations for how donors and channels, as well as developing countries, can support the development of these approaches and accelerate their adoption.

 

Actor	Recommended Actions
Donors	Value/quantify. Fund the development and adoption of approaches (e.g., MRV for NbSA) that articulate metrics and quantify avoided costs and/or the value of protecting nature, including those that build financial modeling capacity within both public and private investors. Fund/support the expedited development, adoption, and application of the Task Force on Nature-related Financial Disclosures approach to quantifying nature-related financial risks (or others), which can help public and private investors integrate financial measures into structuring decisions.
MDBs/ international climate funds and other channels	Employ methodologies that quantify NbSA benefits for public stakeholders, including developing country governments that often need to quantify costs and benefits in economic development terms over long time horizons; and private investors, including lenders and others whose funds may be mobilized and who often need to quantify financial returns of their investments over shorter time horizons relevant for their investment approaches and return expectations.
Developing countries	Engage and adopt. Work with donors, MDBs, and civil society on the development of useful and relevant methodologies for quantifying NbSA benefits, testing and piloting best practices and frameworks where appropriate. Adopt these methodologies, when possible, to inform project/pipeline development, continuing to build the evidence base for NbSA.

 

Notes: a. See NCFA’s ENCORE website, https://encore.naturalcapital.finance/en; b. Note that although CPIC does not explicitly focus on nature-based solutions for adaptation, conservation can bring mitigation and adaptation benefits as well.

Sources: Bassi et al. 2019, 2020; Cooper and Trémolet 2019; CPIC n.d.

5.4 Action #4: Mainstream and Build the Pipeline of NbSA Investment in Developing Countries

There is clearly latent demand for NbSA funding given the number of countries including such projects in their NDCs and NAPs. However, whether those projects can be realized and whether countries are expanding the application of NbSA to address adaptation needs is unclear. Funding should help countries develop and strengthen NbSA concepts to make them a reality and build a pipeline of new and additional NbSA investments. The following table provides suggestions for how both donors and channels can target grant funding for critical capacity building—both at the national and subnational levels—to increase the pipeline of NbSA investments.

 

Actor	Recommended Actions
Donors	Build capacity. Ensure sufficient funding for technical assistance and capacity building efforts for all countries and project developers to design NbSA investments.
MDBs/ international climate funds and other channels	Help countries mainstream NbSA. By leveraging existing tools and technical assistance support, expand the resources and support available to help countries to mainstream NbSA, including at the national level, into existing country strategies and plans related to adaptation and development, including post-COVID recovery plans; and at the subnational level, into infrastructure investments being made by municipalities and local communities, where appropriate. Develop explicit capacity building programs to help developing countries integrate NbSA into NDCs and adaptation policies and plans; provide project preparation funding and technical assistance to help countries and subnational entities design NbSA projects, including technical design, impact analysis, and valuation of NbSA benefits (economic and financial); and provide specific support to help countries and subnational entities develop the financial structuring and investor proposition for NbSA, including life cycle analysis and operating costs. Provide grants and technical support for countries and subnational entities to ensure comprehensive stakeholder engagement for NbSA investments.
Developing countries	Strengthen the mainstreaming of NbSA to meet climate adaptation objectives, especially through the integration of NbS and NbSA in updates to country NDCs, NAPs, and other “green economy” or climate-related planning. Work with donors, MDBs, and other funding channels to develop a tangible pipeline of NbSA investments, moving from conceptualization to design, structuring, and implementation.

The results of this research show there is a long way to go to improve overall flows for NbSA and, in turn, to see NbSA investments realized and implemented in developing countries. Although the funding landscape shows low levels of funding today, donor and country interest in NbSA has accelerated rapidly in recent years. It is likely that future assessments will paint a different picture, including where funding is flowing from and which countries and regions are receiving support.

Research and interviews have highlighted how much work is needed to define and quantify NbSA at the project investment level, and there is growing interest across the donor and multilateral development community to invest in the necessary methods, tools, and approaches that can support scaling up NbSA investment. It is widely accepted that investments in NbSA support public goods that enhance the ability of countries and communities to adapt to climate change and to better withstand disasters when they occur.

For developing countries where domestic budgets may be constrained, an immediate and important opportunity exists to integrate NbS investments (writ large) into post-COVID economic recovery planning to reap a range of immediate and long-term climate resilience benefits. Furthermore, doing so has the potential to bring about a more robust (and resilient) post-COVID recovery, increase economic growth, create jobs, and yield other long-term positive development impacts.

Today, public capital is often still a decisive factor in determining whether an NbSA project is implemented and its benefits realized. Investing in NbSA at scale will require both greater investment levels from public and private sources and, importantly, improved coordination among many stakeholders, including developing country policymakers and planners, project developers, and communities, all of whom have diverse interests and incentives. This coordination is key, in part because the crosscutting nature of NbSA can make such interventions more complex. The need to build the capacity of all of these stakeholders to develop investable NbSA project pipelines cannot be overstated.

This paper’s recommended actions provide an initial road map that can help each of these stakeholders build the right systems, approaches, and tools to enable the scaling up of NbSA investments while maximizing both the effectiveness of donor funding for NbSA and the ability of developing countries to become resilient in the face of climate change.

This paper seeks to estimate donor funding for NbSA through traditional development assistance channels. Estimates are based on the OECD’s CRS database, which tracks ODA and nonconcessional development finance flows. These include the bilateral outflows provided by donors, primarily the OECD’s Development Assistance Committee (DAC) members, and plurilateral/multilateral fund and institution outflows to recipient countries.

CRS projects are classified by sector. Donors and donor agencies tag some of these projects with the Rio markers, which indicate either the primary or significant intent of the funding, such as mitigation, adaptation, or biodiversity. Sector classifications are exclusive—a funding flow cannot be tagged with more than one sector. Markers are not exclusive—funding flows can be tagged with more than one marker.

The authors used the following methodology to estimate total NbSA flows:

• A list of sectors was selected that encompasses likely NbS projects (see Table A1 for the full list of sectors).
• Projects were filtered from these sectors, counting those marked with both adaptation and biodiversity markers to produce a lower-bound estimate.
• Projects tagged as adaptation only were used to produce an upper-bound estimate.
• Committed flows for NbSA were then calculated for 2012, 2015, and 2018 (the most recent year available).

The lower-bound estimates do not include funding from and through multilateral channels, such as MDBs or climate funds, given how multilateral data is reported to the OECD.

When reporting climate finance data, additional coefficients are sometimes applied to discount projects marked as significant versus those marked principal. For example, some donors report 100 percent of the commitment for projects marked as principal, while a smaller share (varying between 0 percent and 100 percent) is reported for significant flows (OECD n.d.). Following the practice of these donors, 100 percent of amounts for flows marked principal have been reported, whereas a coefficient of 50 percent was applied to flows marked significant.

In summary, the upper and lower bounds were constructed as follows:

• Lower bound:
  • Projects marked with both adaptation and biodiversity Rio markers.
  • All reported at 100 percent unless both markers are significant, in which case the project value is discounted 50 percent.
• Upper bound: The upper bound encompasses the lower bound as a baseline; in addition, the following flows were added:
  • Projects marked as having either a principal or significant focus on adaptation and no focus on biodiversity.
  • Projects marked principal were reported at 100 percent.
  • Projects marked significant were reported at 50 percent.

These bounds are summarized in Figure A1.

Figure A1 | Summary of Reporting Coefficients for Upper-/Lower-Bound Analysis

Source: Climate Finance Advisors.

Without a clear definition or marker for NbS writ large, this methodology can only estimate flows toward projects that are likely related to NbSA; thus, all flows derived are not necessarily representative of actual flows for NbSA projects.

The following is a list of innovative ways to use public capital to mobilize private capital for NbSA as suggested by those interviewed for this paper and through our literature review.

Results-based finance (RBF): Mechanisms by which funds are disbursed when specific results are met after independent verification. Results-based climate finance would thus refer to RBF for specific climate change mitigation or adaptation objectives. A 2017 report by the World Bank indicated that results-based payments are well suited for mitigation projects because greenhouse gas (GHG) emissions are well-defined and measurable (WBG and Frankfurt School of Finance and Management 2017). The same report also noted the potential for results-based payment projects for adaptation. Some examples of RBF are listed below.

• Payments for ecosystem services: Direct or indirect transactions between the providers and beneficiaries of ecosystem services. In Section 4, this concept is represented by Example 2 for Peru (GEF 2014).
• “Feebate” concept for forestry: Fees for firms with emissions rates above a baseline level and subsidies for those with emissions rates below the baseline level. A 2019 paper by the International Monetary Fund (IMF) assessed feebate (tax subsidy) schemes as a potential fiscal instrument to promote GHG mitigation through forest carbon storage (IMF 2019).
• Monetizing water savings: Monetizes the efficient use of water in a “pay for performance” scheme, similar to how an energy service company monetizes the efficient use of energy (Global Innovation Lab for Climate Finance 2020).

Green bonds and other types of debt:

• Green bonds: Bonds issued to raise finance for environment- and climate-related projects, which can be printed by various issuer types, including governments, financial institutions, and nonfinancial corporates. In 2019, the Dutch government issued almost $7 billion worth of bonds for low-carbon development and sustainable water management, with plans to specifically incorporate NbS (Almeida 2020; Anderson et al. 2019).
• Climate impact bond: Merges the idea of RBF with bonds, where an investor provides upfront capital to a service provider to deliver the targeted climate resilience outcome. Upon achievement of results, the outcome funder (typically a public sector agency or government) repays the investor at a premium (Puri and Khan 2019).
• Debt-for-nature swaps: A portion of a (developing) country’s foreign debt is forgiven in exchange for investments in environmental protection and/or conservation. See Example 3 (Seychelles).
• Carbon offsets and taxes: In some countries and regions, revenues from carbon pricing/taxes are deposited into a fund (or otherwise earmarked) to further reduce carbon emissions and GHGs. For instance, California’s Cap-and-Trade Program deposits its revenues into the state’s Greenhouse Gas Reduction Fund (California ARB n.d.). However, research by the IMF indicates that only 15 percent of the world’s carbon tax revenues have been used for environmental purposes. It is possible that these funds could begin to include adaptation (and NbSA) among their objectives. Carbon offsets could provide some of the revenue streams necessary to finance NbSA projects, though this would require scaling and strengthening of the global carbon markets.

Others:

• Parametric insurance for natural capital: A service provided by nature or an ecosystem is commodified, assigned a value, and insured. See Example 4 on coral reef insurance in Mexico.
• Restoration Insurance Service Company: Combines both the risk reduction value of natural capital with revenue from the trading of carbon credits (Global Innovation Lab for Climate Finance 2019).

BMU	Federal Ministry of Environment, Nature Conservation and Nuclear Safety of Germany
CBD	Convention on Biological Diversity
CFA	Climate Finance Advisors
CPI	Climate Policy Initiative
CPIC	Coalition for Private Investment in Conservation
CRS	Creditor Reporting System
DAC	Development Assistance Committee
DANIDA	Danish International Development Agency
DGIS	Directorate-General for International Cooperation
DRR	disaster risk reduction
EbA	ecosystem-based adaptation
Eco-DRR	Ecosystem-based disaster risk reduction
ENCORE	Exploring Natural Capital Opportunities, Risks and Exposure
GCF	Green Climate Fund
GEF	Global Environment Facility
GHG	greenhouse gas
GIZ	Deutsche Gesellschaft für Internationale Zusammenarbeit
IDB	Inter-American Development Bank
IFAD	International Fund for Agricultural Development
IISD	International Institute for Sustainable Development
IMF	International Monetary Fund
IUCN	International Union for Conservation of Nature
LAC	Latin America and the Caribbean
M&E	monitoring and evaluating
MDB	multilateral development bank
MRV	monitoring, reporting, and verification
NAP	national adaptation plan
NbS	nature-based solutions
NbSA	nature-based solutions for adaptation
NCFA	Natural Capital Finance Alliance
NDC	nationally determined contribution
NORAD	Norwegian Agency for Development Cooperation
O&M	operations and maintenance
ODA	official development assistance
OECD	Organisation for Economic Co-operation and Development
RBF	results-based finance
SAVi	Sustainable Asset Valuation
SeyCCAT	Seychelles Conservation and Climate Adaptation Trust
TNC	The Nature Conservancy
UNDP	United Nations Development Programme
UNEP	United Nations Environment Programme
UNFCCC	United Nations Framework Convention on Climate Change
WRI	World Resources Institute

Biodiversity: The variability among living organisms from all sources, including, inter alia, terrestrial, marine, and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species, and of ecosystems (CBD n.d.).

Donor: For the purposes of this paper, donor refers to organizations and institutions that primarily provide international assistance and support. In most cases, this includes national governments and multilateral development agencies, but in some cases, it may also include international/national NGOs or philanthropic foundations.

Ecosystem: The dynamic complex of plant, animal, and microorganism communities and their nonliving environment interacting as a functional unit (CBD n.d.).

Ecosystem-based adaptation (EbA): The use of biodiversity and ecosystem services as part of an overall adaptation strategy to help people adapt to the adverse effects of climate change. EbA aims to maintain and increase the resilience and reduce the vulnerability of ecosystems and people in the face of the adverse effects of climate change (SCBD 2009).

Ecosystem-based disaster risk reduction (Eco-DRR): “The sustainable management, conservation and restoration of ecosystems to reduce disaster risk, with the aim to achieve sustainable and resilient development” (Estrella and Saalismaa 2013).

Ecosystem services: The benefits people obtain from ecosystems, which the Millennium Ecosystem Assessment has classified as including provisioning services, such as the supply of food, fiber, timber, and water; regulating services, such as carbon sequestration, climate regulation, water regulation and filtration, and pest control; cultural services, such as recreational experiences, educational, and spiritual enrichment; and supporting services, such as seed dispersal and soil formation (Millennium Ecosystem Assessment 2005).

Gray infrastructure: Involves human-built and human-engineered assets that provide one or multiple services required by society, such as dams, levees, reservoirs, treatment systems, and pipes (Browder et al. 2019).

Natural capital: Natural assets such as forests, water, fish stocks, minerals, biodiversity, and land. It is from this natural capital that humans derive a wide range of services, often called ecosystem services, which make human life possible (World Forum on Natural Capital n.d.).

Natural infrastructure: Refers to land networks or ecosystems that provide services inherent to those geographical areas while also perpetuating active conservation efforts and the enhancement of those environments (Bassi et al. 2019).

Recipient: An organization or country that primarily receives funding and implements projects domestically. In most cases, it refers to developing countries that receive funding, but in some cases, it may also include organizations or institutions that receive funding and implement/manage projects.

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1. 1This assessment of official development assistance (ODA) and climate finance funding flowing for nature-based solutions for adaptation (NbSA) tracks funds committed in 2018. It does not assess domestic public financing or private investment as these data are difficult to obtain and, where available, are widely inconsistent. It may not capture all ODA that supports adaptation investments or investments that have adaptation cobenefits but are tagged as “mitigation” investments. Donors and funding channels listed are not exhaustive but represent the more significant contributors as identified for the relevant year.
2. 2This assessment focuses specifically on the use of NbSA outcomes, including ecosystem-based adaptation (EbA) along with EbA disaster risk reduction (DRR). Together, these cover the use of biodiversity and ecosystem services as part of an overall strategy to help people adapt to climate change as well as the sustainable management, conservation, and restoration of ecosystems to reduce disaster risk. Collectively, this paper labels these activities as NbSA.
3. 3NbSA was estimated to account for 5.8–13.5 percent of total public climate finance flows to developing countries in 2018 (which totaled $64.3 billion) (OECD 2020a).
4. 4Includes both adaptation-specific flows and flows that have dual adaptation and mitigation benefits (Buchner et al. 2019).
5. 5Reliable estimates for total financing needs for NbSA (specifically) are not available.
6. 6Such as environmental policy, laws, regulations, and economic instruments; site preservation; and environmental research.
7. 7Forty-two percent refer to ecosystem-based adaptation actions, 20 percent to traditional conservation.
8. 8Since 2012, CPI has tracked overall climate finance flows, including those for mitigation and adaptation. Although CPI tracks overall adaptation flows as well as flows for “agriculture, forestry, land-use and natural resource management,” neither provides a clear picture of funding flowing for NbSA. CPI data shows that approximately 3 percent of overall climate finance flows are in the agriculture, forestry, land-use, and natural resource management category, but this also includes mitigation-focused investments. In both CPI’s tracking and in this assessment, the lack of explicit definitions and tags in the ODA databases, inconsistencies in definitions, and reporting challenges may result in underestimated figures.
9. 9Referring to both adaptation-specific flows and flows that have dual adaptation and mitigation benefits in the CPI’s Global Landscape of Climate Finance 2019 (Buchner et al. 2019).
10. 10The scale of GEF investment in NbSA, and NbS writ large, over the past 30 years is substantial, and there are also relevant funds coming through the Adaptation Fund and the Pilot Program for Climate Resilience. Some multilateral delivery channels may not be reporting consistently within the OECD databases (and/or may not report to the OECD at all); thus, this data may not fully capture their contributions to NbSA.
11. 11For details and descriptions of the sectors, please see Table A.1 in Appendix A.
12. 12Because this paper focuses on public international donor sources of funding for NbSA and the channels for those funds, the barriers covered in this section relate most closely to the building blocks on “knowledge,” “awareness,” and “financing.” Although other building blocks are also important, the recommended actions have focused on “policy/regulatory” and “technical capacity” because donors fund actions related to those building blocks.
13. 13Such as guarantees to attract more risk-averse investment capital.
14. 14For example, the International Union for Conservation of Nature has been leading the development of a global standard for NbS writ large, and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) supported the development of a framework for defining criteria and standards for NbSA in 2018 (see FEBA 2017).
15. -1This paper primarily focuses on making ODA and public sources of capital for NbSA more effective and efficient. Innovative approaches for mobilizing private capital are illustrated in Appendix B.

Stacy Swann is the Chief Executive Officer and Founding Partner of Climate Finance Advisors (CFA), BLLC.

Laurence Blandford is a Partner at CFA with a track record of over 20 years working on economics, finance, and environmental policy at the international level.

Sheldon Cheng is an Associate at CFA whose work focuses on climate mainstreaming, climate-smart strategies, and advancing investments in resilience.

Jonathan Cook is a Senior Associate in WRI’s Climate Resilience practice and helped to lead the Global Commission on Adaptation’s action track on Nature-Based Solutions.

Alan Miller is a lawyer with more than 40 years of experience working on global environmental issues, including 16 years in the World Bank Group.

Dr Rhona Barr is an environmental economist with over 15 years of experience in natural resource management and policy.

The authors would like to acknowledge the Governments of Canada and Denmark for their financial support.

We would like to thank the following reviewers for their helpful comments: Marie-Caroline Badjeck (Government of Canada), Aloke Barnwal (GEF), Valeria Cruz Blancas (Government of Mexico), Carter Brandon (WRI), Christina Chan (WRI), Daniela Chiriac (CPI), Birte Derrix (BMU), Sonja Djukic (Government of Canada), Angela Falconer (CPI), Amb. Patricia Fuller (Government of Canada), Todd Gartner (WRI), Ben Hart (WRI), Valerie Hickey (World Bank), Sumalee Khosla (UNEP), Alex Mackaness (UK Department of Environment, Food & Rural Affairs), Veronica Galmez Marquez (GCF), Kerry Max (Government of Canada), Federico Mazza (CPI), Gabriela Morales (WRI), Ivo Mulder (UNEP), Ana Cristina Tovalin Plascencia (Government of Mexico), Frances Seymour (WRI), Jason Garth Spensley (GEF), Rod Taylor (WRI), Joe Thwaites (WRI), German Velasquez (GCF), and Alex White (UK Department of Environment, Food & Rural Affairs).

The authors would also like to thank the following interviewees for their time and insights: Keith Alger (GCF), Gerard Alleng (IDB), Chizuru Aoki (GEF), Maryam Nava Assad (Government of Mexico), Aloke Barnwal (GEF), Birte Derrix (BMU), Mauricio Diaz (Government of Peru), Daniel Frans van Gilst (NORAD), Alfred Hans Grunwaldt (IDB), Gloria Cuevas Guillaumin (Government of Mexico), Fareeha Iqbal (GEF), Brendan Jongman (World Bank), Veronica Galmez Marquez (GCF), Yitebitu Moges (Government of Ethiopia), Ivo Mulder (UNEP), Roberto Piselli (Government of Peru), Ana Cristina Tovalin Plascencia (Government of Mexico), Cindy Patricia Quijada Robles (NORAD), Nathaly Abadia Salinas (Government of Peru), Diego Adrián de León Segovia (Government of Mexico), Hyunjeong Shim (GCF), Jason Garth Spensley (GEF), German Velasquez (GCF), and Mariana Carolina Silva Zuniga (IDB).

We would also like to thank Lauri Scherer for copyediting; Shannon Collins, Rosie Ettenheim, and Romain Warnault for assistance with design and layout; and Nisha Krishnan, Leo Luo, Steven Moser, Karen Piñeros, Nate Shelter, Emilia Suarez, and Carolyn Turkaly for their contributions.

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