Nature-based solutions

Nature based solutions

Between 2015 and 2020, the IDB’s Infrastructure and Energy Sector and Climate Change and Sustainable Development Sector invested nearly USD 1.25 billion in 28 projects that included some component of nature based solutions (NBS) in their design. Out of this amount, the Bank provided USD 813.28 million directly (through both ordinary and concessional capital), while an additional USD 437 million was leveraged with partners, such as external donors and country counterparts. Partners included both bilateral and multilateral funds, such as the Nordic Development Fund, the United Kingdom’s Department for Environment, Food, and Rural Affairs, the Global Environment Facility, and the Green Climate Fund. 

The projects targeted different sectors – such as forestry, water, energy, and infrastructure – although often NBS projects are cross-cutting in their nature. 3 of the total 28 investments were targeted at technical assistance to support a network of 24 NBS projects in the Latin America and the Caribbean (LAC) region under the Water Funds Partnership. When taking this into account, the IDB has supported the efforts of at least 52 NBS projects (28 directly and 24 indirectly), meaning IDB-supported NBS projects amount to approximately a third of the total 156 NBS projects in the region.

More recently, the IDB and IDB Invest approved more than USD 2 billion in nature finance in 2023, comprising USD 1.33 billion for the public sector and USD 765 million for the private sector, and equivalent to nearly 13% of total approvals. More than half of this total met the higher threshold of being considered “nature-positive” financing. 2023 also marked the first year the IDB and IDB Invest tracked nature finance according to its green finance principles and the Common Principles agreed by MDBs. This represents progress in the implementation of the MDB Joint Statement on Nature, People and Planet and Kunming–Montreal Global Biodiversity Framework targets adopted by the convention on Biological Diversity in 2022 (COP15).

To facilitate this increased support for NBS projects at the institutional level, the Bank has established the Mainstreaming Action Plan for Environmental and Social Sustainability (2021–2025). This provides the framework under which the Bank transversally promotes NBS across its approvals, namely through: (1) climate action; (2) disaster risk management; and (3) natural capital. Under this action plan, the Bank will screen its pipeline of projects to identify high-potential opportunities where NBS could be included. Additionally, the IDB will devote technical assistance to raising awareness among clients regarding potential adoption of NBS opportunities in their development plans. Moreover, the Bank’s country level work is promoting the concept of natural capital through explicit inclusion in the institutional strategy, country dialogues, strategies, and programming.

In terms of external-facing leadership in this area, the Bank has been at the forefront of some of the most innovative NBS strategies in the region. These include: the aforementioned Latin American Water Funds Partnership; the technical guidance on increasing infrastructure resilience with NBS; and its flagship Natural Capital Lab (launched in 2018) which blends capital into novel financial mechanisms. During its 2023 Annual Meetings, the IDB announced a bilateral agreement with Canada for CAD 5 million to integrate upstream NBS financing in some pilot projects. The IDB later announced at COP16 that, with the support of Global Affairs Canada (GAC), the Bank will provide resources and technical assistance to Brazil, Colombia, Guatemala, and Mexico in implementing policy instruments aimed at attracting private investments in NBS. Furthermore, the IDB is working closely with Stanford on natural capital valuation.

Despite its leadership in this area, there is still room for improvement in terms of the Bank’s reporting practices. The Bank currently only tracks NBS expenditure during the project approval phase. Therefore, it is unclear whether any other projects incorporated NBS at the due diligence, final design, or implementation phase.

Biodiversity

The IDB is seeking to lead by example among MDBs in mainstreaming nature considerations into their planning, and is the first MDB with a dedicated natural capital and biodiversity mainstreaming action plan. This provides a framework for considering the risks and opportunities related to addressing biodiversity loss, and considering “where nature can support economic, social, and climate-smart development”. It is also worth noting that the IDB collaborated with other MDBs to release the common principles for tracking nature-positive finance at COP28.

The IDB is also currently developing a two-pronged system for tracking biodiversity investments, made up of: (1) a taxonomy-based approach; and (2) a process-driven approach, to deal with ambiguous cases. Both were scheduled to be published before the end of 2023.[1]

This push to raise ambition on nature is not just inward facing. The IDB is actively promoting the inclusion of biodiversity considerations in its member countries’ national planning processes, including through revision and implementation of National Biodiversity Strategies and Action Plans (NBSAPs). This is part of the Bank’s efforts in supporting countries to implement the UN’s Global Biodiversity Framework (GBF). Moreover, the Bank is championing the implementation of the IDB-led MDB Joint Statement on Nature, People and Planet announced at COP26. Under this pledge, the MDBs announced a four-part plan:

1. Promote green finance.
2. Channel resources to nature-positive investments.
3. Tackle biodiversity loss.
4. Generate co-benefits for the environment from its investments.

Beyond this, the joint MDB group also committed to help member countries implement national strategies in relation to the Convention of Biological Diversity.

Further evidence of the IDB partnering to promote nature financing is its work with the New York Stock Exchange and Intrinsic Exchange in 2021 to create a new publicly traded asset: “Natural Asset Companies”, and the IDB Lab’s 2022 call for proposals to identify solutions that make use of digital tokens to foster biodiversity conversation and climate action.

The Bank promotes biodiversity finance through its country work. This is evidenced by the Barbados debt-for-nature swap, which was launched in collaboration with the Caribbean country in 2019. This pioneering initiative will see Barbados receive funding from the IDB to repay part of its external debt, in exchange for pledging to protect and restore its coastal and marine ecosystems. Some of these activities will take place in collaboration with local communities and civil society organisations (CSOs) and include establishing protected areas, improving coastal management practices, promoting sustainable fishing, and enhancing climate resilience. More recently, in 2023 the IDB supported Ecuador in closing the largest debt-for-nature swap in the world, comprising a USD 85 million IDB guarantee. In addition to the guarantee, the IDB provided support for strengthening policies for environmental and public debt management in the country.

In terms of crowding in private sector investment, the IDB has supported the creation of a new conservation trust fund in Peru which aims to attract private sector investment for biodiversity conservation projects in the country. The fund is expected to provide financing for conservation projects including in protected areas, and relating to sustainable forestry, and ecotourism.

Agriculture and livestock

In recent years the IDB has rolled out several initiatives, strategies, programmes and projects in the agriculture and livestock sector which aim to support the transformation of food systems in the LAC region. An example of this is the AgroLAC 2030 Initiative from 2020, which promotes sustainable and inclusive growth through innovation, digital technologies, and investments in infrastructure and human capital.

The Bank is also promoting the resilience of food systems through various initiatives to encourage the uptake of climate-smart agriculture practices, e.g., conservation agriculture, agroforestry and sustainable livestock management, such as the Climate-Smart Agriculture Fund (2015).[2]

The Bank has published a flagship thought-leadership study about food quantifying the mitigation effects of supply side options (e.g., yield improvements, silvopastoral schemes, agroforestry) and demand side options (e.g., food waste reduction, changes in diets) to achieve net zero by 2050. Although not the first report to highlight the mitigation potential of shifting diets, this 2022 study was a remarkable step in the process of raising awareness of what the transformation of food systems and consumption habits means in terms of emissions reduction in the region. However, despite the Bank’s work on this topic it has not pledged to eliminate agricultural commodity-driven deforestation from its investment and credit approvals.[3]

Forestry

As of the 2024 Institutional Strategy, the IDB Group has adopted “zero deforestation in the Amazon” as a strategic objective.[4] While this objective is limited to the Amazon rainforest (rather than all forests across IDB member countries) and is neither time-bound nor a binding commitment, it still represents a strong first step towards effectively safeguarding against deforestation resulting from IDB activities, and in the LAC region more broadly.

According to its website, the IDB supports measures: “to reduce emissions from deforestation and forest degradation by reducing open access to natural forests; fostering sustainable rural development; promoting economic activities to foster forest protection and conservation and research, impact evaluations and capacity building to improve understanding of policies that seek to reduce emissions from deforestation”. However, the IDB has no quantitative pledge in place to reduce deforestation. Instead, the IDB’s Environmental and Social Policy Framework requires that borrowers “engaged in the primary production or harvesting of living natural resources” (e.g. forestry, agriculture, husbandry, fisheries and so forth), utilise recognised standards for sustainable management. Borrowers are required “where feasible” to locate land-based agribusiness and forestry projects on unforested land or land already converted. Although this is a welcome step in the right direction, the inclusion of the open-ended feasibility qualifier, as well as an exclusive focus on direct deforestation, represent a risk that these requirements will in practice be insufficient to ensure zero net deforestation.  

In terms of specific initiatives, the IDB continues to maintain its long-standing Amazon Initiative  (running since 2004), with the aim of promoting the sustainable development and conservation of this region in South America. Since its inception, the IDB has invested over USD 3 billion in related projects, working in partnership with different governments (such as for example, Brazil, Colombia, Ecuador, and Suriname), as well as with civil society organisations, and the private sector. Furthermore, the IDB launched the Amazon Bioeconomy Fund under its Amazon Initiative in 2021. This new fund received USD 20 million in seed capital from the Bank and is implemented in cooperation with the Green Climate Fund.

The IDB was instrumental (alongside the Brazilian Development Bank BNDES) in launching the Green Coalition of 20 PDBs after the Amazon Summit of 2023 to catalyse sustainable development in the region. The Green Coalition has since committed to mobilise between USD 10 and 20 billion for this purpose in the period 2024–2030.

Recommendations:

• The IDB should: (1) establish a time-bound pledge to eliminate agricultural commodity-driven deforestation from its investment and credit approvals; and (2) establish a time-bound net zero deforestation commitment.
• The IDB should monitor and track NBS expenditure more comprehensively to include the full project cycle, beyond the current sole focus on the approval stage. Including the due diligence, final design, or implementation phases in tracking and reporting will provide a more complete picture of NBS use and expenditure.

[1] This information was received directly from discussions with the Bank. The IDB had previously published a scoping piece for this purpose, but it unclear whether this “two-pronged system” is now in place, particularly considering the Joint MDB Common Principles for Nature-Positive finance that were published at COP28.

[2] Furthermore, according to staff from IDB Invest, for a project to be Paris aligned under the new Paris alignment guidelines, livestock clients are asked to provide proof of traceability. Once the relevant sector guidelines become available, E3G will update this metric.

[3] The 2024 Agriculture Sector Framework Document refers to “reducing deforestation and biodiversity loss caused by the expansion of the agricultural frontier” but stops short of committing to ensuring none of the Bank’s approvals contribute to this.

[4] The decision to aim for “zero deforestation” rather than “zero net deforestation” is laudable.