Corporate support for nature-based solutions has room to grow

From 2009 to 2014, four coastal districts in Bangladesh embarked on a project to raise 9,650 hectares of new mangrove plantations to help blunt the damage of tropical cyclones, flooding and erosion, while making the ecosystem more biodiverse. In Senegal, communities are replanting more than 4,775 hectares of mangrove trees for some of the same reasons: to protect against storms, improve biodiversity and protect the area’s long-term stocks of fish, agriculture and wildlife. In central China, a program to restore degraded land in the Three Rivers Headwater Region seeded 160,000 hectares with native grasses, restoring the local ecosystem and strengthening endangered species. These three projects — and many others around the world — are also functioning as massive carbon sinks, actively removing and storing hundreds of thousands of metrics tons of CO₂ from the atmosphere.

Actions like these to restore and protect ecosystems and sustainably manage them to address societal challenges are known as nature-based solutions (NbS). NbS often focus on helping the local area adapt to the physical risks of climate change. But while physical adaptation might also be accomplished through human-made barriers, engineering or infrastructure such as seawalls, those methods have few co-benefits, or contributions to solving other aspects of the interlinked crises of climate change and biodiversity loss. NbS can range from afforestation and sustainable land management to soil preservation to the protection of coastal wetlands and ecosystems such as mangrove communities and coral reefs. They can also succeed in urban areas, where tree canopies, parkland and riverfront green spaces can help cool cities to address the urban heat island effect and improve human wellbeing.

For companies, NbS can enter the picture as an aspect of the voluntary carbon market, in which projects generate carbon credits based on how much CO₂ they are expected to remove from the atmosphere. These offsets feature heavily in many corporate net-zero pledges as a way to neutralize hard-to-abate emissions. Investing in NbS can give companies direct access to carbon credits: The mangrove restoration project in Senegal received direct investment from Shell, and the company estimates the project will generate 1.7 million carbon credits.

Investments in NbS are limited, however, and they remain an underutilized tool despite their ability to simultaneously combat climate change and help reverse ecosystem losses. According to the United Nations Environment Programme’s State of Finance for Nature 2023 report, investments in NbS totaled approximately $200 billion in 2022, but finance flows to activities directly harming nature were more than 30 times larger.

S&P Global Sustainable1 data shows that few companies appear to grasp the potential of NbS. Corporate actions to restore or regenerate local ecosystems are rare outside of a few industry groups, according to S&P Global Corporate Sustainability Assessment (CSA) data. Few companies assess their operations’ impacts on biodiversity, and industry groups with high dependency on nature typically do not assess their biodiversity dependency risk, according to the S&P Global Sustainable1 Nature & Biodiversity Risk dataset. Taken together, these findings signal that the field is open for more companies to prioritize NbS and their co-benefits in their climate strategies.

More than net-zero progress

Scientists believe NbS have a key role to play in meeting the Paris Agreement goal of limiting temperature rise to “well below” 2 degrees C above preindustrial levels, because while cutting emissions remains the most important part of hitting the target, absorbing excess carbon in the atmosphere will also be needed. A study led by The Nature Conservancy in 2017 that remains widely cited found that the land sector’s ability to sequester carbon could provide as much as “one-third of the cost-effective mitigation needed by 2030” to keep global warming under 2 degrees C. The Nature Conservancy uses the term natural climate solutions to refer to a subset of NbS that are geared primarily toward climate change mitigation.

The physical risk adaptation benefits are also significant. Research cited by the IUCN estimates that mangrove ecosystems provide more than $65 billion in flood protection benefits and safeguard 15 million people against flooding across the world annually. The IUCN also cites research estimating that the protection offered by coastal ecosystems benefits more than 500 million people globally, with the benefits valued at more than $100 billion annually.

NbS intended to help address climate change are typically compared to technical solutions that have the same goal, such as building out renewable energy, installing carbon capture technology at fossil fuel power plants or other carbon capture, utilization and storage (CCUS) projects. While these technical solutions can succeed in reducing GHG emissions and improving air quality, they typically do not provide other co-benefits like adaptation to physical climate risks, improving biodiversity, improving ecosystem services like fresh water resources or improving other aspects of human health like wellbeing or recreation.

Little corporate action

Several questions in the CSA help answer the question of how much — or how little — attention the business world is paying to NbS as a component of climate and biodiversity strategies.

One of these questions assessed a subset of nine industry groups on what kinds of actions they have taken to mitigate their impacts and dependencies on nature, including biodiversity and ecosystem services. The CSA puts these mitigating actions into five categories: avoid, reduce, regenerate, restore and transform. The latter three align with the benefits NbS can create:

• Regenerate refers to actions taken to increase ecological productivity in relation to nature’s contribution to people, including nature-based carbon storage.
• Restoration measures aim to return an area to the original ecosystem that was present before impacts, including supporting species recovery or the ecological restoration of specific sites.               
• Transform refers to actions that a company takes in order to address the fundamental drivers of nature loss, such as new partnerships across supply chains and sectors or investment in the landscapes and seascapes where they operate.    

Regeneration and restoration projects can both function as NbS, as both can generate co-benefits alongside the way they benefit nature and biodiversity. Both can improve carbon absorption and storage, improve an area’s resilience against climate hazards like flooding and drought, and engage with local communities.

Restoration is often done to comply with regulations around the world that require companies to perform environmental impact assessments during their license application and to create environmental management plans to mitigate their impacts on the local environment and restore the area after operations end. Based on an assessment of 981 companies in the CSA, restorative actions are relatively common for a handful of industry groups that typically need to comply with these rules: Between 40% and 50% of companies in the Utilities, Energy and Materials industry groups took actions to restore nature impacted by their operations.

Corporate regenerative projects, on the other hand, are typically voluntary and seek to make an area more resilient to climate impacts and more biodiverse while retaining its business use, rather than restoring it to a fully natural state. In the same analysis of companies in the CSA, the Food, Beverage & Tobacco industry group has one of the highest rates of performing regenerative actions (21%). Sustainable agricultural practices, such as using groundcover crops to reduce erosion, choosing different tilling methods that release less carbon, and encouraging biodiversity in planting fields, would be regenerative because they have benefits from both a nature and a business perspective.

Overall, the low response rate in restoration and regeneration projects signals that there may be room for companies to increase the attention and investment they direct toward NbS that heal the landscapes and seascapes they operate in and that contribute to their corporate decarbonization and climate resilience efforts.

To take a wide-angle view beyond these industry groups, consider the prevalence of public biodiversity commitments that companies make. These commitments are rare to begin with. Pledges to make a “net positive impact” are even less common than those to create “no net loss” to nature in a company’s operations. No net loss means that damages linked to business activity are offset by at least equivalent gains, avoiding a net loss of biodiversity and ecosystem services. But net positive impact typically goes further and indicates that corporate actions to protect or enhance biodiversity or ecosystems are greater than the damaging impact from its business activity.

The comparatively lower response rate for net positive impact in many industry groups signals that most companies commit to restoring damage they cause rather than going further in optimizing the positive impact on the relevant ecosystem services and local biodiversity with a longer-term focus.

NbS and nature dependencies

Another co-benefit NbS can provide is protecting the ecosystem services companies rely on. Investing in NbS at or near a company’s assets and operations could help preserve natural resources such as fresh water and enhance the benefits that nature provides to that area, such as erosion control from vegetation root systems.

Globally, $44 trillion of economic value generation, or more than half of the world’s total GDP, is moderately or highly dependent on natural assets and their ecosystems, according to the World Economic Forum. Understanding ecosystem dependencies — how much an organization relies on certain ecosystem services to function — can help a company understand the risk it would face if that ecosystem service declined or stopped. Ecosystem or nature dependencies will vary based on location and the services a company provides. For example, a company with operations in a flood-prone area will be more dependent on flood and storm protection. Investing in Nbs such as restoring wetlands or water channels, or building natural dams, could protect that company’s operations.

The first step for many companies will be understanding what ecosystem dependencies they have in the first place. Data from the CSA shows that most industry groups are more focused on identifying their impacts on nature than their dependencies. In the Utilities industry group, for example, about 29% of companies are assessing their biodiversity impact risk, while 14.8% assess their dependency on nature.

No more than 20% of companies in any industry group assess their biodiversity dependency risk. That is even true of the industry groups with medium or high nature dependency risk, based on the S&P Global Sustainable1 Nature & Biodiversity Risk dataset. The Food, Beverage & Tobacco industry group, for example, has a nature dependency risk score of 0.75 — near the cusp of very high — due to its reliance on flood and storm protection, erosion control, surface and ground water, soil quality and other ecosystem services. Yet only 9.7% of assessed food and beverage companies have assessed their nature dependency risk.

Similarly, the Real Estate industry group has a high level of nature dependency risk, but fewer than 10% of assessed real estate companies have evaluated their dependency risks. Real estate companies, particularly those that own resorts, destination hotels and waterfront properties, could benefit from NbS that improve the climate resilience of their assets and protect the biodiversity of local ecosystems — potentially also creating added value for recreation.

Taking the long view

NbS can provide companies with a cost-effective way of removing carbon emissions from the atmosphere and adapting to a changing climate. These solutions can also alleviate a company’s impact on nature and reduce its nature dependency risk by protecting ecosystem services that are vital to many companies’ operations.

NbS require careful planning and often need years to develop to provide the intended benefits. Best practices for afforestation, for example, recommend reflecting the natural diversity of tree species native to a given area rather than a monoculture such as fast-growing pines. Planting a carbon-sink forest in a region where the local climate does not naturally support large numbers of trees could put the project at risk of failing due to drought, wildfire or other hazards. The market for nature-based carbon offset credits has faced challenges with assurance and verification, meaning that companies seeking to use these credits must have full confidence in their credibility and scientific merit.

Even so, NbS represent a significant opportunity for corporate climate action. According to the United Nations Environment Programme’s State of Finance for Nature 2023 report, finance flows for NbS total $200 billion currently, representing just a third of what is needed to attain climate, biodiversity and land degradation targets by 2030. However, the vast majority of the funding, 82%, comes from governments. That means the field for increased public-private partnerships is wide open to expand the use of NbS as a part of decarbonization and adaptation strategies.