Nature-based solutions have many functions, including carbon sequestration, biodiversity protection, the provision of sustainable livelihood opportunities for local communities and – by increasing resilience to extreme weather events such as flooding – disaster risk reduction. In turn, these functions contribute to many of the UN Sustainable Development Goals (SDGs), including SDG 1 (no poverty), SDG 8 (decent work and economic growth), SDG 12 (responsible consumption and production), SDG 13 (climate action) and SDG 15 (life on land).
When one function is prioritized at the expense of others (such as when carbon storage is accorded a higher priority at the expense of biodiversity protection), the overall outcome across all ecosystem functions is undermined. This is especially true in the case of forests. For example, over a 25-year period between 1986 and 2011, a government-subsidized programme of plantation expansion in Chile replaced native tree species with imported species in an effort to increase carbon sequestration. The scheme caused a 13 per cent decline in native species against an increase of just 2 per cent in carbon storage. This example demonstrates the importance of managing competing functions.
The IPCC estimates that more than 10 per cent of global ice-free land is suitable for reforestation that produces co-benefits for local challenges and climate change mitigation, without affecting food security.
This briefing paper focuses on nature-based solutions that support reforestation activities, which play an important role, alongside conservation and sustainable management practices, in delivering on global greenhouse gas reduction, nature restoration and biodiversity protection targets. The IPCC estimates that more than 10 per cent of global ice-free land is suitable for reforestation that produces co-benefits for local challenges and climate change mitigation, without affecting food security.
The IPCC also highlights the importance of sustainable reforestation, with the multiple functions of nature-based solutions kept in mind: it estimates in its 2019 Climate Change and Land report that afforestation (the planting of forest landscapes where there were previously none), reforestation and the use of land to provide feedstock for bioenergy could contribute to several gigatonnes of carbon dioxide removal in carbon sequestration – but goes on to state that chasing the maximum carbon storage potential would have massive knock-on impacts for land conversion, with ramifications for food production and biodiversity protection, and could be used as an excuse for continued carbon emissions. Instead, restoration (for example, planting with native tree species) that is integrated into sustainable landscapes ‘at appropriate scales’, leading to landscapes that deliver multiple environmental and social benefits, should be prioritized and should be conducted through active engagement with local communities.
Investments in nature-based solutions
Public sector organizations provide a disproportionately high share of investments in nature-based solutions compared to private sector finance. In 2022, according to UNEP, public sources accounted for 83 per cent of the estimated $154 billion in annual investments in nature-based solutions.
Increasing the overall amount and share of private sector investment in forest restoration as a nature-based solution remains a challenge. Many institutional investors perceive investing in nature-based solutions to be high-risk or have generally low expectations in terms of financial returns.
Among the commonly cited perceived risks involved in investing in nature-based solutions are, first, a lack of clarity for investors on current and future cash flows that will cover the cost of the investment and, second, a lack of ‘investible pipeline’ – in other words, a dearth of investible projects. The latter could be for a number of reasons: the amount of the upfront investment might be too small for large-scale investors; the complexity of many forest projects might call for high levels of technical knowledge on the part of potential investors; or there might be jurisdictional risks – such as unstable or ineffective regulation – or geopolitical and currency risks associated with forest projects proposed for frontier regions of emerging markets. Finally, investments in forestry often entail a higher reputational exposure to scrutiny by environmental interests.
There are many ways for nature-based solutions to provide investment returns. Some of these returns can be created by the implementation of forest functions, as when carbon credits are awarded in exchange for storing carbon dioxide, or when biodiversity credits are associated with protecting wildlife. Some of the ways in which nature-based solutions in the forestry sector can lead to revenue creation are shown in Table 1, below. Combining new and additional income streams from multiple functions can help to overcome investor concerns about cash-flow uncertainty when investing in nature-based solutions.
