Nature-based solutions

Explanation

Nature based solutions

Nature based solutions (NBS) are gaining traction within the WBG and across MDBs. Following increased momentum among MDBs during COP26 to expand their investments in nature, they have since agreed on a common set of principles for tracking nature-positive finance.

According to the WBG, “NBS are critical elements of the food, water and land systems transition”. In line with this, between 2012 and 2021, the Bank Group invested USD 5 billion dollars into NBS, highlighting its growing significance.

Despite this positive momentum, a clear process for systematically integrating NBS into existing project pipelines at the WBG is still lacking. Moreover, while the Environmental and Social Framework (ESF) does not explicitly identify nature based solutions as an area of priority, its Environmental Social Standard 6 (ESS 6) recognises the value in biodiversity and takes a differentiated risk management approach to habitats based on their sensitivity and value.¹

There are, however, efforts within the WBG to advance this agenda. The Global Program on Nature-Based Solutions for Climate Resilience is a cross-sectoral initiative to boost NBS funding across the board. This program supports WBG teams and national and city level government partners in identifying, planning, and implementing NBS projects. It also serves as a knowledge hub, collecting case studies, reports and other resources to aid in NBS project developments.

As part of the Global Program, the WBG, in collaboration with the Global Environmental Facility (GEF), launched the NBS Invest Project in 2023 – a USD 10 million initiative providing technical assistance, analytics, and capacity building to mainstream NBS funding in climate mitigation and adaptation projects in least developed countries. Additionally, the WBG has introduced the Nature-Based Solutions Opportunity Scan (NBSOS), an on-demand mapping tool designed to identify links between NBS and coastal resilience. This tool is currently being piloted in the Eastern Caribbean, where NBSOS targets issues such as coastal erosion and flooding across four islands.²

In addition to this program, the deployment of Country Climate and Development Reports (CCDRs) aims to support the WBG in helping countries identify natural capital opportunities. However, since natural resources vary significantly and are context-specific across countries, only a portion of CCDRs currently consider the role of nature based solutions in practice.

Despite the lack of a systematic process for mainstreaming the use of NBS, the Bank Group has nonetheless integrated NBS across projects in different sectors, ranging from wetland management to green urban infrastructure. For example, the WB is implementing a wetland conservation project in Colombo, Sri Lanka. With an investment of over USD 300 million, the project uses wetland ecosystem restoration to improve the city’s resilience against floods, while the restored ecosystems will absorb up to 90% of the greenhouse gases produced by the city.

Biodiversity

Nature finance plays a significant role in WBG operations, and the Bank Group works on three strategic areas for maximising impact: integrating nature into countries’ development policies, upscaling nature financing, and integrating nature components into adaptation and mitigation investments.

Through the Global Program on Sustainability (GPS), the Bank Group works to develop and protect natural capital, ecosystem services, and the economics of sustainability. The program builds on the previous experience of Wealth Accounting and Valuation and Ecosystem Services (WAVES), which was absorbed by GPS after its creation. Its objective is to “support the production and use of high-quality data, analytical tools and technical assistance for measuring and valuing natural capital and ecosystem services”. As such, GPS is grounded on three interconnected pillars: global data and analytics, country level support, and sustainable finance. The programme played an important role in the creation of the Kunming–Montreal Global Biodiversity Framework, adopted at COP15 in 2022, publishing three reports to support the effort. Combined, GPS and WAVES accounted for nearly USD 4.2 billion in investments through the end of 2023.

In late 2022, IFC published the Biodiversity Finance Reference Guide, updating their investment policies around biodiversity. It establishes that projects must include a clear description of the strategies for biodiversity protection, conservation, and restoration, as well as means for measuring progress, in order to be eligible. Beneficiaries are expected to develop the indicators early in the project, enabling biodiversity data to be reported against a baseline. The framework defines three types of projects across different sectors (most prominently AFOLU, but also water management) that are eligible:

1. Generating biodiversity co-benefits.
2. Biodiversity conservation and/or restoration.
3. NBS to conserve, enhance and restore ecosystems and biodiversity.

Complementing this approach, the WBG has outlined its strategy for addressing biodiversity challenges in its Approach Paper on Biodiversity for a Livable Planet. The Bank Group recognises biodiversity as fundamental to sustainable development and human wellbeing, acknowledging its critical role in providing ecosystem services and supporting livelihoods. Accordingly, its approach is multifaceted. It encompasses conservation and restoration activities, mainstreaming biodiversity in productive sectors, applying environmental and social safeguards, engaging stakeholders (especially Indigenous Peoples), supporting knowledge and innovation, and scaling up biodiversity financing and partnerships. This comprehensive approach by the WB, combined with IFC’s Biodiversity Finance Reference Guide, demonstrates a concerted effort across the WBG to address biodiversity challenges through various interventions. This ranges from direct conservation activities to mainstreaming biodiversity considerations in productive sectors and promoting innovative financing mechanisms.

To further reinforce this commitment and measure progress, the WBG has integrated biodiversity and nature into its institutional performance metrics. Notably, the New WBG Scorecard FY24–FY30 will use the indicators “biodiversity” and “nature” as dimensions of a liveable planet, measuring the institution’s support to these areas. Other notable areas to be assessed under the Planet pillar are “water and sanitation” and “sustainable food systems”. A methodology for measuring the impact of Bank Group-funded operations on “areas under enhanced conservation and management” (including forests, grasslands, waterbodies, wetlands, etc.) is currently under development.

Biodiversity protection and conservations are fundamental to sustainable development, as stated in the WB’s Environmental and Social Standard 6 (ESS6). The ESS6 is applied to projects deemed to “[potentially] affect biodiversity or habitats” and/or those that “involve primary production and/or harvesting of natural living resources”. This is decided by a preliminary environmental and social assessment, determining baseline conditions and potential impacts.³ Borrowers facing significant risks and adverse effects on biodiversity must develop and implement a Biodiversity Management Plan.

ESS6 allows for the use of offsets as a last resort in a limited set of circumstances where all feasible avoidance, minimisation, and restoration measures have been exhausted. Their use is nonetheless excluded when the “affected area is unique and irreplicable from a biodiversity standpoint”. However, the Bank Group does not go into detail on how the determination of a critically affected area is defined or categorised.

The WBG’s biodiversity approach also notably includes dedicated consideration of ecosystem services. When affected, clients must determine which ecosystem services are a priority. If nearby communities are affected, the community will also take part in the process to determine priorities. When impact on ecosystem services is impossible to avoid, mitigation measures will be implemented.

Agriculture and livestock

In FY2024, the WB approved commitments of USD 3 billion in new financing

towards the agriculture and food sector. The Bank Group’s work on food and agriculture spans the following:

• Climate-smart agriculture: The Bank Group strongly emphasises climate-smart agriculture (CSA, elaborated on further below). With CSA, the Bank Group aims to strengthen resilience to climate-related risks and reduce greenhouse gas emissions in food production. The Bank Group has significantly increased funding for climate-smart agriculture since the Paris Agreement.
• Food and nutrition security: The Bank Group recognises the interconnectedness of food security, climate change, and sustainable development. The Bank Group aims to build resilient food systems while addressing climate challenges, particularly in fragile and conflict-affected situations.
• Data-driven digital agriculture: The Bank Group promotes the use of data and digital technology to transform agri-food systems, aiming to increase efficiency, reduce waste, and decrease harmful emissions.
• Mobilising capital for development in agriculture and food: The Bank Group focuses on creating an enabling environment for private investment in sustainable agribusiness, with an emphasis on smallholders and SMEs. The Bank Group recognises the need for large-scale investment to transform food systems, reduce carbon emissions, and achieve sustainable development goals.
• Public policy and expenditure: The Bank Group advocates for repurposing agricultural policies for green innovation and enhancing climate resilience. It also promotes the redirection of public support towards more sustainable and climate-friendly agricultural approaches.

In particular, CSA is established as an actionable priority aimed at improving productivity and resilience, and lowering emissions within the CCAP 2021–2025. Currently, the WB funds around USD 3 billion per year on CSA related projects. According to the CCAP 2021–2025, IFC will be guiding CSA related operations through three strategic themes: 

• Supporting productivity increase while reducing GHG emissions, focusing on precision farming and regenerative/conservation agriculture.
• Increased productivity of livestock while making production more sustainable.
• Post-harvest loss reduction in supply chains at the global level.

To encourage the development of CSA projects, the WBG developed Climate Smart Agriculture Investment Plans (CSAIPs) in cooperation with a range of different partners.[4] The Bank Group has committed to finance over USD 2.5 billion on projects aligned with CSAIPs. These will also feed into countries’ ongoing national development strategy processes.

Forestry

The WBG is currently working to reduce deforestation under the New York Declaration, through which it has acknowledged the need to address the drivers of deforestation. Its Forest Sector paper introduced the exclusion of commercial logging in tropical forests as early as 1991. The most recent dedicated sectoral strategy, the Forest Action Plan, was published in 2016 and outlined an approach until 2020. However, no updates to the plan have been published since.

Landscape management is also part of the sectoral five-year targets for 2025, aiming to increase “integrated landscape management in up to 50 countries, covering up to 120 million hectares of forests”.  However, the WB has not made a commitment to zero net deforestation within its portfolio. The Inter-American Development Bank (IDB), for instance, has made leading progress in this regard among MDBs through adopting “zero deforestation in the Amazon” as a strategic objective.

In 2024 the WBG launched the Global Challenge Program for Forests (GCP Forests). This cross-Group programme aims, through the creation of a joint task force, to centralise efforts relating to market creation, capacity building, private finance mobilisation and de-risking. It aims to develop joint investment strategies at country level which will feed into CCDRs and CPFs. GCP Forests also identifies opportunities for scaling carbon finance, innovative financial mechanisms and opportunities for bringing in the private sector. The GCP Forests coordination team acts as a knowledge hub which feeds into regional programs, as well as distinct deforestation-free value chains, bio-economy and economic diversification programs. This holistic programme is a welcome addition to the WBG’s toolkit and has the potential to become a transformational initiative in mainstreaming forestry investments throughout the Bank Group’s operations.

According to the Bank Information Center’s “MDBs and Global Forest Commitments: What’s the Score?” report, published in 2020, the WBG supports growth patterns that significantly reduce deforestation and increase carbon sinks while addressing livelihoods for forest-dependent people. The WB has also stated that “the thoughtful management of the world’s remaining forests and trees is critical to achieving these goals”. Consequently, the WB’s Global Partnership for Resilient and Sustainable Landscapes (PROGREEN), a Multi-Donor Trust Fund supported by Germany and Sweden, aims to strengthen forest management, reduce deforestation, and support sustainable agriculture, with seed funding from the German government.

IFC’s exclusion list for financial intermediaries determines that the Bank will not support “commercial logging operations for use in primary tropical moist forests” nor “production or trade in wood or other forestry products other than from sustainably managed forests”. Notably, this is only mentioned for intermediaries and not for direct investment.

According to the WBG safeguards, investments in forestry must ensure sustainable forest management. For projects involving large-scale commercial forest harvesting operations, independent forest certifications for sustainability are required. Conversely, for smaller-scale projects led by local communities, sustainability criteria will be defined in consultation with the affected parties.

It should be noted that the WBG forest and landscapes portfolio comprises a total investment of over USD 8.6 billion, with 58% belonging to IDA. In the period 2016–2021, an average of 15 forestry sector projects were approved per year, yet the average net commitment per project increased by 300% from 2016 to 2021, from USD 13 million to USD 52.8 million per project. In 2022, the approvals rose to 27 projects, translating to USD 2.6 billion invested. Based on OECD statistics listed in its Forest Action Plan, the WBG ranked first in the list of multilateral financiers of forest activities.

Much of the Bank Group’s work to support the development of carbon pricing measures and carbon markets is explicitly focused on forest carbon. Its Engagement Roadmap for Carbon Markets aims to support the supply of high integrity credits through the Forest Carbon Partnership Facility. It also manages the Emissions Reductions Payments Agreements, an ecosystem service scheme which consists of bilateral agreements between the WBG and 15 countries with extensive forest resources. This is intended to “reduce carbon emissions by tackling deforestation and forest degradation”, unlocking over USD 720 million on result-based payments through the delivery of verified carbon credits, and aiming to reduce 145 million tons of carbon emissions by 2025. The Bank Group’s Climate Change Management Fund Unit independently houses several other initiatives, including the BioCarbon Fund Initiative for Sustainable Forest Landscapes.

Blue economy

The World Bank Group aims to lead the effort to develop and operationalise the concept of blue economy, and has released several institutional documents on how to apply a “blue economy lens”, including a framework for developing a blue economy for its country members. These documents recognise climate change as a major threat to oceans and coastal communities, highlighting the need for climate-resilient development and the role of oceans in climate change mitigation through carbon sequestration. In addition, they emphasise the need to incorporate climate change in all future investment decisions related to oceanic sectors and highlight the potential of blue carbon initiatives and NBS for climate mitigation and adaptation.

Besides its institutional approach, the Bank Group has since 2018 developed an ocean portfolio through its PROBLUE programme, which is focused on sustainable marine and coastal resources development. It was designed to support the implementation of SDG 14⁵ and is composed of four pillar areas: fisheries and aquaculture (1), marine pollution (2), oceanic sectors (3) and seascape management (4). As of 2023, the overall portfolio of technical activities amounts to USD 144 million, supporting over 180 activities across the globe and informing nearly USD 1.4 billion in direct WB lending. During the same year, PROBLUE focused on supporting capacity building, financing and policy development. Currently, a guidance note is being developed with the Global Facility for Disaster Reduction and Recovery (GFDRR) to help identify nature based solutions and opportunities for preventing coastline erosion.

As mentioned above, as part of PROBLUE the WBG supported the development of the Nature-Based Solutions Opportunity Scan (NBSOS), an on-demand mapping service used to identify synergies between NBS and coastal resilience. This is now being piloted on four islands in the Eastern Caribbean, focusing on coastal erosion and flooding. To track progress, PROBLUE has set quantitative targets for 2026, such as reaching 105 operations – up from the current 32 – and achieving USD 9 billion of delivered WB resources informed by PROBLUE, up from the current USD 5.7 billion. Other targets include policy reform support and increasing the number of operations that will support specific climate positive goals.

IFC has its own dedicated guidelines for blue finance published in 2022. Its main purpose is to help guide IFC’s blue investments in line with the Green Bond Principles and the Green Loan Principles. Throughout the document, eligible project areas are identified to ensure efficient contribution to marine conservation (SDG 14) and sustainable water management (SDG 6). As yet, it is unclear how implementation of these guidelines is fairing.

Recommendations:

• The WBG should establish a clear framework for the systematic identification of nature co-benefits and mainstreaming NBS opportunities across its project pipeline. In developing this, the WB can draw on existing examples such as the IDB’s Mainstreaming Action Plan for Environmental and Social Sustainability (2021–2025). It should pursue this through a phased approach which prioritises national planning processes and the most relevant sectors, and makes use of existing mainstreaming tools such as the CCDRs and the Global Program on Nature-Based Solutions for Climate Resilience.
• The WBG should further enhance the granularity of the ex-post identification of NBS benefits delivered through its operations beyond the indicators adopted in the New WBG Scorecard FY24–FY30. This could in turn inform the establishment of targets for NBS deployment against which progress can be tracked. In this regard, the WBG could consider adhering to Taskforce on Nature-related Financial Disclosures reporting to enhance its reporting mechanisms, as for instance Agence Française de Développement (AFD) has.
• The WBG should define within its ESS6 the criteria through which it establishes whether an affected area is “unique and irreplicable from a biodiversity standpoint”.
• Although the WBG lists some activities related to deforestation in its project exclusion list, given the significant size of its portfolio, it is crucial for the WBG to strengthen its policies for forestry conservation. This should include adopting a zero net deforestation commitment, particularly aimed at safeguarding against commodity-driven deforestation. The IDB, for instance, has demonstrated leadership among MDBs through its adoption of “zero deforestation in the Amazon” as a strategic objective, and the Bank Group could build on this approach. The Bank Group should also develop and release an up-to-date Forest Action Plan.

¹ Categorising habitats into three types: modified habitat, natural habitat, and critical habitat.

² For further details, see the “Blue economy” sub-heading under this metric.

³ This is typically conducted by the Borrower, with oversight by the Bank. Independent specialists or experts may be involved if deemed necessary to verify results.

⁴ Such as the Adaptation for African Agriculture (AAA) Initiative, the International Center for Tropical Agriculture (CIAT) and the International Institute for Applied Systems Analysis (IIASA).

⁵ “Conserve and sustainably use the oceans, seas and marine resources for sustainable development.”