As AIIB participates in the Convention on Biological Diversity (CBD) COP16 in Colombia Oct. 21-Nov. 1, 2024, this blog discusses the opportunity for MDBs, including AIIB, to demonstrate action on financing “nature as infrastructure.”
The Asian Infrastructure Investment Bank (AIIB) has made progress on its journey to explore the core concept formulated in its Asian Infrastructure Finance 2023 report “Nature as Infrastructure.” Having started by incorporating nature-based solutions (NBS) into its infrastructure projects, the next step is to identify and develop and invest in project opportunities through a range of financing instruments.
By demonstrating the financial feasibility, impact and scalability of investing in nature as infrastructure (NAI) through proof-of-concept projects, multilateral development banks (MDBs), including AIIB, can mobilize capital toward green infrastructure with climate change and biodiversity co-benefits, and play a role in promoting greater regional and global action for nature.
The dual crises of climate change and biodiversity loss are inextricably linked. To solve either, both must be addressed together.
WWF’s 2024 Living Planet Report details an average 73% decline in wildlife populations since 1970. The Asia-Pacific boasts mega-diverse countries including Australia, China, Indonesia, Malaysia, Papua New Guinea and the Philippines, but has already lost 60% of its wildlife populations. Among this nature and biodiversity are examples which provide vital infrastructure services, like coral reefs and mangrove forests for coastal protection, wetlands for watershed services, and rainforests as carbon sinks.
Billed as the biodiversity equivalent of the Paris Climate Accord, the Kunming-Montreal Global Biodiversity Framework (GBF) aims to halt and reverse biodiversity and nature loss. Its goals and targets include addressing the USD700 billion gap in annual biodiversity funding by 2030. Integrating biodiversity considerations into infrastructure project-level decision making can help achieve GBF targets, including protecting 30% of land and seas by 2030.
Infrastructure demand across the Asia Pacific is expected to grow rapidly. Meanwhile, the World Economic Forum estimates 29% of threats to biodiversity are linked to infrastructure development. Managed well, it is possible to go beyond avoiding, minimizing, restoring and offsetting the negative impacts on biodiversity, and make positive impact by implementing relevant safeguards and incorporating NBS and NAI into infrastructure planning.
NAI can be interpreted as the strategic use of largely or entirely natural solutions to address infrastructure needs that would otherwise be addressed using conventionally engineered infrastructure. Examples include coastal mangrove reforestation instead of using seawall for coastline erosion protection, coral reef conservation and restoration as reductors of wave energy, and the restoration and construction of wetlands to purify water—and as a flood sink—instead of water-treatment plants or constructed flood barriers. NAI can provide equally effective and more resilient infrastructure at up to 50% the cost.
Financing NAI brings opportunities for making simultaneous positive impacts on biodiversity conservation and climate change mitigation and adaptation, and minimizing trade-offs, given the ecosystem services provided by nature. The Paulson Institute found that in 2019, some 20% (USD27 billion) of global financial flows going to biodiversity conservation came from natural infrastructure and that this could rise to up to USD138 billion in 2030.
While we focus here on opportunities, the challenges to investing in NAI and NBS are considerable:
- Valuing nature is not new, but it is complex, location specific and data intensive. Capacity and awareness are low.
- Investment amounts have generally been small and complex.
- Investment horizons are long, requiring long-term finance similar to traditional infrastructure.
- Lack of common taxonomy, standardization and regulation on nature finance.
- Technical and political environment tends to show a bias toward grey infrastructure.
There is a role for MDBs, as a bridge between public and private financing, to help overcome these barriers by demonstrating a holistic, systems-based approach to nature and biodiversity, contributing knowledge, derisking investments and mobilizing further funding.
Nature finance is expected to grow significantly to meet the annual investment needs in NBS to limit climate change and halt biodiversity loss. However, before such financing growth can occur, the investment case for financing nature, including NAI, must be better established. MDBs can support this transition by demonstrating financial viability through successful projects.
MDBs could work to crowd in private financing through various financing structures being used in the nature market, including:
- Nature and biodiversity loans and bonds
- Debt for nature swaps
- Sustainability/performance linked loans
- Nature based carbon credits
- Blended finance.
MDBs have an opportunity to demonstrate leadership through impact by using these innovative financing instruments at scale to mobilize private capital and finance NAI projects. They can also influence the market by creating joint taxonomies, such as the MDB Common Principles on Tracking Nature-Positive Finance launched at the COP28.
As an infrastructure-focused MDB, AIIB has a unique opportunity to develop a portfolio of NAI projects, opening markets to mobilize private capital and create greater impact and opportunities. AIIB could provide early-stage, concessionary or risk-mitigating financing that catalyses the development of infrastructure projects that support conservation efforts. One aspect would be the demonstration effect – incubating high-impact NAI projects – which could mobilize institutional investors and define NAI projects as an asset class in the long term.
For further discussion on the issues covered in this blog, read AIIB’s report “Investing in Nature as Infrastructure: The Opportunity” here.
