Nature based solutions

Explanation

Nature based solutions

In its Climate Bank Roadmap 2021–2025 (CBR), the EIB recognises that “Global investment in natural capital – carbon sinks, biodiversity, ecosystem preservation – remains insufficient”.  Moreover, nature protection is one of the 14 core themes of the European Green Deal and is outlined accordingly as a focus area in the CBR.

In the 2023 mid-term review of the CBR, the EIB commits to continue its work on supporting activities necessary for the uptake of a “nature-positive approach”, through:

• Understanding and measuring the value of nature as well as investing in data and analytics.
• Working with partners to explore how to mobilise additional funds at scale, speed, and with greater impact for biodiversity and ecosystems.
• Moving towards action by using all environmental sustainability objectives,[1] as well as climate action and development, to mainstream biodiversity and ecosystem co-benefits.

Under the CBR, the EIB committed to develop a product for natural capital financing under the InvestEU framework. This initiative aims to prioritise long-term ecosystem recovery, drawing on the Bank’s experience in managing the Nature Capital Financing Facility, which ended in 2022.[2] However, there is no indication – either in the mid-term review of the CBR or elsewhere – that this dedicated product has been developed. Moreover, while “nature and other environment infrastructure” is identified as a priority investment area under the “sustainable infrastructure” strategic policy area, it remains unclear to what extent this has been incorporated into the Facility’s activities.

The EIB’s commitments to nature-positive finance have evolved through a series of pledges at recent COPs. At COP26, the EIB signed the Joint MDB Statement on Nature, People and Planet, pledging to mainstream nature across its analysis, assessments, advice, investments and operations by 2025. At COP27, the EIB further committed to improve its accounting methods to better quantify exposure to nature-related risks and opportunities. It also announced plans to create new revenue streams to support nature-positive activities by developing nature markets.

Most recently, at COP28, the EIB and other MDBs published the MDB common principles for identifying and tracking nature-positive finance. MDBs are now piloting implementation of the principles. In line with the joint Viewpoint Note: MDBs Working as a System for Impact and Scale published in April 2024, MDBs are currently developing a draft taxonomy on nature-finance. The EIB is expecting to start reporting on nature finance in 2026 (for 2025 figures)[3].

Building on these commitments, the EIB has produced flagship reports on nature-related investments. These include a report on forestry investments, and more recently one on nature based solutions (NBS). These reports provide a comprehensive overview on the current use of NBS within the EU, including operational and financing challenges of nature-related investments, and recommendations to increase uptake of NBS financing. In April 2023, the EIB signed a memorandum of understanding with WRI to cooperate on work related to climate change awareness, biodiversity and NBS. It also works with other key partners including the Network for Greening the Financial System (on nature risk), the World Economic Forum (on Nature-based solutions in cities and biodiversity credits), and the UN Environment Programme (as partner to the UN Decade on Ecosystem Restoration).[4]

While the EIB is undertaking valuable work to promote and mainstream NBS across the financial system, it is difficult to assess whether these efforts have already led to an uptake of NBS financing in the EIB’s operations, as the Bank has yet to systematically report on NBS investments. This will change as EIB plans to start reporting on nature finance, with specific tags for NBS.[5]

Biodiversity

With regard to biodiversity, the CBR commits the EIB to support the implementation of the EU Biodiversity Strategy. Moreover, the Bank has also committed to:

1. Align its operations to support the goals of the post-2020 Global Biodiversity Framework.
2. Scale up nature-positive investments through:
   1. Mainstreaming biodiversity across policies, investments and operations.
   1. Assessing nature-related impacts, dependencies and risks.
   1. Scaling climate finance with nature-co-benefits.
3. Announce concrete initiatives, programmes, and partnerships with commitments to supporting biodiversity investments and/or biodiversity co-benefit.

The EIB’s 2022 Sustainability Report shows continued commitment on the above. It recognises that investments going to the “protection and restoration of biodiversity and ecosystems” remain small at around 1% of EIB global lending volumes.[6] The Bank aims to scale this up through dedicated financing, and through investments in nature-capital markets as well as measuring biodiversity outcomes to increase the effectiveness of nature finance. The report also refers to the EIB aiming to support the operationalisation of NBSAPs in the EU and beyond. In the EU, the EIB will engage with Member State to support the implementation of the Nature Restoration Plans, a requirement from the EU Nature Restoration Regulation. Biodiversity conservation goals are embedded in the Sustainability Report through investments targeting sustainable forestry, coastal protection and groundwater resource conservation.

The EIB’s Environmental and Social Standards (ESS) contain a specific provision on biodiversity and ecosystems. Specifically, the ESS recognise that “protecting and conserving biodiversity and ecosystems and maintaining the ecological functions and processes of such ecosystems is fundamental to environmental and social sustainability”. For this purpose, the EIB will ensure its projects are consistent with the “do no significant harm” principle inscribed in the EU Taxonomy. As a last resort, compensation measures may be implemented for any residual impacts of projects that remain despite safeguards, to ensure a net positive biodiversity impact is guaranteed. However, EIB does not allow for offsets to be used to achieve net gain in critical habitat.

The ESS further establish common metrics and standards for measuring biodiversity data in projects. Relatedly, biodiversity and ecosystems are being integrated into the EIB’s economic appraisal of investment projects. This process is intended to gradually enable the Bank to integrate the intrinsic economic value of biodiversity and ecosystem services in its decision making processes (which the EIB’s scoping study identified as currently largely lacking).  

In the CBR, the EIB states it has developed a Biodiversity Risk Assessment (BRA) tool to be implemented in the second half of 2021. It further states, that “in the near term, the BRA […] systems will become part of an integrated Climate Risk Assessment System.” However, the Bank has since shared that the new BRA system will only be finalised in 2024, with application to EIB counterparts from 2025. This system will evaluate clients’ exposure to nature-related impacts, risks, and dependencies at the asset, company, and portfolio levels. Once implemented, this will mark a first-of-its-kind approach among MDBs, setting a best practice standard worthy of emulation.

In terms of financing levels, it remains unclear how much the EIB is currently disbursing in terms of biodiversity-related investments. The EIB seemingly does not disclose any data on biodiversity-related investments at the portfolio level, despite recognising the need for this in previous reports. Nonetheless, some relevant disaggregated data from across the Bank’s programmes is available. For example, data for InvestEU (one of EIB’s main financing instruments) shows that under 1% (EUR 5.9 million) of financing was committed over 2021–2023 for biodiversity mainstreaming. Furthermore, data on allocation of Sustainability Bond proceeds shows that in 2022 only EUR 100.5 million  was identified as fulfilling the “Protection and restoration of biodiversity and ecosystems” objective. This represented 2.2% of SAB disbursements and 0.6% of total Climate & Sustainability Bond allocations in 2022. In absolute terms this represents a significant uptake compared to EUR 61 million in 2021, even though the total share of SAB disbursements has remained similarly low (2.3% in 2021).

At COP28, the EIB was part of a group of development finance institutions which announced the launch of a taskforce to scale up credit-enhancement “swaps” for climate and nature-linked sovereign financing. Ahead of this announcement, the EIB completed its first debt-for-climate resilience swap in late 2024, collaborating with the IDB to provide a USD 300 million guarantee to Barbados to upgrade the island state’s water infrastructure. The EIB intends to pursue further similar deals, although it remains unclear on what scale and timeline.

Agriculture and livestock

In the CBR, the EIB commits to ensuring that “activities will not expand into areas of high-carbon stock or high biodiversity value”. For direct operations, this has been implemented through the adoption of the 2022 Environmental and Social Standards (ESS), which include provisions to ensure the protection of high-value biodiversity (as listed in the previous section). The EU’s 2023 Regulation on Deforestation-free products (EUDR) forbids the commercialisation of agricultural products on the EU market linked to deforestation or forest degradation. For counterparties, the PATH framework is responsible for alignment.[7]

The EIB has no dedicated agriculture and livestock sector strategy. Nonetheless, the Bank’s Environment Framework provides insights regarding how the EIB aims to address the dependency of agriculture on the natural environment. The framework recognises that “food security and biodiversity depend on soil ecosystems, climate, and availability of land and water”. The document further sets out the EIB’s intention to support projects that are: (1) aimed at reducing deforestation through a sustainable increase in agricultural productivity; and (2) supporting integrated solutions acknowledging the linkages between natural capital and economic sectors such as agriculture and fisheries. However, no further details as to how this approach will be operationalised are provided.

That being said, there is significant practical evidence of the EIB investing in agriculture and ecosystem restoration as a means to address the impacts of climate change. Most prominently, the EIB has committed to invest EUR 1 billion by 2025 in financing and technical assistance for 11 African countries under the Great Green Wall and Agroecologie du Sahel initiatives. These agriculture and ecosystem restoration activities are intended to help shield the Sahel from increasing desertification while also addressing biodiversity, climate vulnerability, poverty alleviation, food security and job creation.

Looking forward, the EIB’s publication on investing in NBS explores the current market for investment in NBS in agro-ecosystems, and establishes potential demand trends. The report emphasises the significant potential for NBS within the agricultural sector, as well as the EIB’s support for the targets set by the European Commission. These include legally binding restoration targets for agricultural ecosystems, implementation of the Pollinators Initiative, and EU Biodiversity Strategy for 2030 proposals to reduce chemical pesticide use and increase organic farming management. The report also suggests the reform of the EU’s Common Agricultural Policy (CAP) to “more directly fund nature based solutions in agricultural landscapes and reduce negative incentives for agricultural expansion into marginal agricultural areas”. However, despite showing thought leadership, the report falls short of committing the EIB to specific actions or targets.

Forestry

Over 2012–2021, the EIB lent EUR 15 billion to the forestry sector globally. Despite this, the Bank does not have a standalone forestry sector strategy. According to the CBR, the EIB aims to strengthen its support for long-term investment in the forestry sector, with a focus on environmental protection, nature conservation and commercially oriented activities. The CBR also mentions a future update to its approach to the forestry sector, but the mid-term review included no indication of progress on this front. Relevantly, in 2022 the EIB published a report on forestry investments. More recent activities by the EIB in the forestry space included projects in Morocco, Moldova and Côte d’Ivoire. However, while the report addresses the role of PDBs to develop the sector and provides an overview of the EIB’s actions, it falls short of establishing a strategic approach to the sector that features quantifiable targets and indicators.

Nonetheless, the EIB’s forestry sector approach aligns with the EU policy framework for this area, including the New EU Forest Strategy for 2030 (which is itself strongly interlinked with the EU Biodiversity Strategy for 2030) and the 2021 Regulation on Deforestation-free Products (EUDR). The CBR commits the EIB to “seek to support the fulfilment of their goals and help implement concrete measures to support “deforestation-free” value chains”. The mid-term review of the CBR further outlines changes made to the EIB bioeconomy strategy and the PATH Counterparties Paris Alignment Framework, to reflect changes adopted by the EUDR.

According to the Bank’s forestry sector webpage and the 2022 report “Forests at the heart of sustainable development”, the EIB’s lending to the forestry sector targets eligible projects in:

• Sustainable forest management, including NBS and natural capital management that promote sustainable practices (e.g. afforestation, reforestation, forest rehabilitation and protection, erosion/flood control, infrastructure).
• Sustainable renewable wood-based materials production in the wider bioeconomy (e.g. primary and secondary processing, renewable energy, energy efficiency, and research, development, and innovation).
• Restoration after major natural hazards (e.g. wildfires, flooding, wind throws, pest outbreaks).

Priority is foremostly given to investments in wood industries producing long-term circular materials and products, and (secondly) to the pulp and paper industries and the use of sustainably harvested wood in the construction sector. However, it is unclear how this prioritisation is being enacted in practice, as no criteria are provided. The EIB further identifies engineered wood products and high-value wood materials, resource efficiency operations, and digitalisation and innovation as promising EIB investment areas for the forestry sector. It is not made explicitly clear the extent to which the EIB will seek to intentionally build local value chains with regards to these operations.

1. According to the EIB’s exclusion list, it will not finance projects which can lead to the conversion of natural forests into plantations, through logging, clear cutting, or degradation of tropical natural forests or high conservation value forest globally.

While the Bank does also finance biomass for energy, this is categorised as energy sector financing. Biomass power generation projects are subject to the same efficiency criteria as other energy sources, namely 250 gCO₂e/kWhe. Additionally, the EIB requires that all biomass for energy projects are compliant with sustainability of sourcing and security of biomass supply (as set out in EU’s Directive 2018/2001) which aims to prevent incentivising further deforestation.

Recommendations:

• To enhance the impact of nature-positive investments, the EIB should monitor and track its investments in the sector. To that end, the EIB should swiftly operationalise the MDB Common Principles for tracking nature finance to provide portfolio-level disclosure of investments in NBS and biodiversity (as key components of this). The Bank could also draw on existing best practice approaches such as the IDB’s Mainstreaming Action Plan for Environmental and Social Sustainability (2021–2025). The EIB should further set time-bound, quantifiable targets for scaling up nature-positive investments, and communicate on progress as part of a TNFD disclosure.
• In light of the EU’s commitment to deforestation-free products, the review of the Climate Bank Roadmap 2021–2025 should integrate an explicit commitment to zero net deforestation across the portfolio. The Intra-American Development Bank (IDB), for instance, has made leading progress in this regard among MDBs through its adoption of “zero deforestation in the Amazon” as a strategic objective.
• While the revised 2022 Environmental and Social Standards  are a positive development and represent a good first step towards mainstreaming biodiversity in the EIB’s operations, the EIB should aim to go beyond the “do no significant harm” principle and consider adopting the need to “do good beyond no harm”, and reflect this accordingly in the biodiversity-related requirements for projects.

[1] These include sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.

[2] The Nature Capital Financing Facility was a pilot financial instrument with blended finance from the EIB and the European Commission backed by an EU budget guarantee. It provided funding and technical assistance for projects promoting the conservation, restoration, management and enhancement of natural capital for biodiversity and adaptation benefits. The goal was to establish a replicable intervention pipeline, demonstrating the attractiveness of investing in nature capital. As of June 2022, the NCCP had disbursed EUR 82 million across 11 projects within the European Union, including projects in peatland restoration in Finland and reforestation in Portugal.

[3] Information obtained directly form the Bank

[4] Information obtained directly from the Bank

[5] Information obtained directly from the Bank

[6]This volume reflects EIB’s “substantial contribution” or nature-positive investment for biodiversity and ecosystems and is a subset of the overall nature finance volume.

[7] Please see the “Integration of climate in key sectoral strategies” metric for detailed coverage.