Nature based solutions

Explanation

Nature based solutions

The Green Economy Transition (GET) 2.1 approach integrates nature considerations to some extent. The EBRD recognises the need for green economies to address market failures “through improved policies and legal frameworks aiming at accounting systematically for the inherent value of services provided by nature”. The Bank commits to promoting the deployment of nature based solutions (NBS) and natural capital, identifying this as a thematic area of focus for the approach. It highlights strong opportunities for NBS deployment in the Western Balkans for flood protection and remediation/reconversion of contaminated sites. Natural capital, as measured by NBS finance, is presented as an indicative thematic area metric. However, no financing targets are presented beyond the overarching green (climate and environment) finance target of 50% of total operations by 2025.

Under the EBRD Approach to Nature published at COP28 in 2023, the EBRD has established blue–green infrastructure as one of three key areas of action. The document sets out an intention to actively recover ecosystems using natural capital assets and nature based solutions as physical infrastructure to provide ecosystem services. To this end the Bank intends to employ direct and intermediated finance, technical assistance and policy dialogues. Again, however, no financing targets are associated with this priority. In the same document, the EBRD highlights the need for technical studies to understand the potential for blended concessional finance for nature based solutions, though it is unclear whether the EBRD is planning to provide such finance for this purpose.  

In 2021, the EBRD developed the Natural Capital Valuation (NCV) model. This tool enables the Bank to better understand the value of natural capital by quantifying a variety of services provided by nature and how they can be optimised for infrastructure projects. It does so by identifying and prioritising nature-positive investment opportunities and assessing and improving a project’s nature performance. The NCV model has three outputs:

• A nature-related risk heat map, charting key nature-related risks in a designated area against anticipated likelihood and impacts.
• A quantitative scenario analysis.
• A list of priority nature-related risk management actions and investment opportunities.

The model was tested in selected EBRD projects and is now being piloted in projects across the EBRD regions. It is also being taken up by other PDBs, such as the Asian Infrastructure Investment Bank (AIIB). This initiative has potentially transformative potential to set a new standard for affording monetary value to nature.

Biodiversity

Biodiversity is integrated within the EBRD’s Green Economy Transition (GET) 2.1 approach as a thematic focus area. As a result, “Protection and restoration of biodiversity of ecosystems” is included as a classification for GET2.1 assessment and finance attribution, though no financing targets or indicators are associated with that goal.

The EBRD’s Approach to Nature, published in 2023, goes further in detailing the EBRD’s approach on biodiversity. The Bank commits to supporting the implementation of the Kunming–Montreal Global Biodiversity Framework (GBF) and its adjoining strategy for resource mobilisation, including through the mobilisation of finance to halt and reverse the global loss of nature and biodiversity by 2030. To undertake this, the bank commits to:

• A focus on investments in three areas: blue–green infrastructure, pollution prevention and circular economy, and primary production and nature governance. However, no financing targets nor indicators are set for these areas of actions.
• Improved disclosure of nature-related data. This includes monitoring the Bank’s activities in support of nature including financial flows. It also includes enacting access to global biodiversity data through standardisation: the Bank will enhance technical cooperation and capacity building for clients’ nature-related risk disclosure under emerging standards such as the EU’s Corporate Sustainability Reporting Directive (CSRD), the Taskforce on Nature-related Financial Disclosures (TNFD) and the International Sustainability Standards Board (ISSB). The Bank launched in 2022 a pilot project to apply the recommendations of the TNFD framework. The Bank is also working with the Intra-American Development Bank (IDB) and Agence Française de Développement (AFD) on establishing common metrics and standards for the publication of biodiversity data in projects.
• Supporting countries in the development or enhancement of their National Biodiversity Strategies though technical assistance, support for frameworks to help corporates and governments align to the GBF, and support for the development of national level biodiversity-offset tracking and accounting tools

The EBRD’s exclusion list mentions that no activities “prohibited by host country legislation or international conventions relating to the protection of biodiversity resources …” will be financed. The 2024 Environmental and Social Policy (ESP) strengthens biodiversity-related safeguards compared to the 2019 ESP. This includes new provisions that emphasise achieving no net loss or a net gain in biodiversity and more stringent requirements for protecting critical habitats and priority biodiversity features. The policy also aligns with the Kunming-Montreal Global Biodiversity Framework. Additionally, the 2024 ESP mandates rigorous supply chain management, requiring clients to identify and mitigate risks of significant land-use conversion and to establish policies and verification practices to ensure suppliers adhere to sustainable management standards.

Agriculture and livestock

The GET 2.1 approach recognises the impacts of agriculture on climate change mitigation and adaptation. “Sustainable food systems” is established as a priority area for action. The EBRD commits to strengthening sustainable investments in food and agriculture, with value chains, food production, and agriculture land and water as emerging areas of focus. It will do so through deepened engagement with existing clients and the establishment of new business relationships. However, no financing targets are set. The Bank further commits to limiting production systems with detrimental effects on water and biodiversity, though it is unclear how. The Bank also commits to supporting the deployment of product certification sustainability standards to boost resilience of food value chains. Other areas of innovation the Bank lists include supply chain digitalisation, food waste precision agriculture, alternative proteins, seed improvement and enhanced crop protection. Such goals are reiterated in the EBRD’s Approach to Nature, without additional information as to targets or indicators to monitor the work being undertaken under these areas.

Forestry

Within the GET 2.1 Approach, there are some mentions of forestry and the promotion of reforestation under the natural capital thematic area. However, no mention is made of deforestation within the GET 2.1 Approach. Within the EBRD’s Approach to Nature, deforestation is mentioned only in the context of biodiversity and ecosystems decline. The document identifies collaboration with clients to reduce biodiversity loss resulting from activities including forestry as a priority. Within these strategy documents, the EBRD does not commit to any dedicated forestry-related targets, nor to a zero net deforestation pledge.

Notably, according to its Environmental and Social Policy EBRD has no exclusions in place for any products related to forestry, including those that involve logging in primary forests. According to the ESP, projects involving large-scale logging or deforestation of large areas are to be labelled as Category A projects which have potentially significant environmental and social impacts and therefore are required to submit an Environmental and Social Management Plan (ESMP). Such projects are subject to monitoring requirements proportional to the nature of the projects and associated risks and impacts. Furthermore, according to ESP, specific requirements are to be implemented for projects which involve the primary production of living natural resources (including natural or plantation forestry). This includes the requirement for clients to manage living natural resources through the application of national regulatory requirements and “relevant EU substantive environmental standards” at the project level. While it is not explicitly stated, it may be assumed that those standards include the EU Regulation on Deforestation Free Products (EUDR).

Blue economy

The EBRD has been actively engaged in blue economy activities. The Bank is fund manager of the Northern Dimension Environmental Partnership (NDEP). Established in 2002, the EUR 348 million fund aims to promote systemic environmental degradation in the Baltic and Barents Seas through investment in wastewater treatment, solid waste management and nuclear waste management. The Blue Mediterranean Partnership, launched at COP27 in 2022 by EBRD alongside the EIB, the Union for the Mediterranean and several bilateral development agencies, aims to replicate the NDEP’s experience. This multi-donor fund aims to mobilise at least EUR 1 billion in investments to develop blue economy projects in the Southern Mediterranean and Red Sea regions, with the first financing operations identified in May 2024.

Alongside other institutions,[1] the EBRD has been tasked with co-leading the Global Environment Facility (GEF)’s Clean and Healthy Ocean Integrated Program. The program aims to curb coastal pollution through USD 115 million in grants earmarked for investments and technical assistance in policy and regulations, infrastructure and nature based solutions.

The EBRD also joined the Clean Oceans Initiative in 2022. The signatories committed to support EUR 4 billion in investments in marine pollution prevention with a focus on plastics. The extent to which the EBRD is contributing financially to this target is unclear. The Bank is also a signatory to the Sustainable Blue Economy Finance Principles since 2020.

Recommendations:

• The EBRD should release a timeline for the full implementation of the Nature Capital Valuation Model, and should consider developing further partnerships to socialise the NCV tool throughout the PDB ecosystem.
• The review of the GET approach should lead to an explicit commitment to zero net deforestation across the portfolio, accompanied by related targets for emissions reduction, agriculture commodity-driven deforestation and supporting clients in ensuring sustainable forest management. This should be supported by stronger exclusions within the Bank’s safeguards, such as the inclusion of primary forest logging within the Bank’s exclusion list. The targets set under the GET approach should also include explicit financing targets for NBS.

[1] Such as the Asian Development Bank (ADB), Development Bank of Latin America (CAF), Food and Agriculture Organization of the United Nations (FAO), and the Intergovernmental Oceanographic Commission of UNESCO (IOC-UNESCO).