The importance of forests and other habitats in halting climate change has long been recognised. However, investment in natural climate solutions – such as protecting threatened forests or restoring degraded lands – has been complex and thus, relatively neglected despite the emissions reduction potential. A new wave of interest from the private sector poses a significant opportunity to address deforestation, improve lives and help meet the Paris Agreement.
The imperative of natural climate solutions
Deforestation and forest degradation account for 11-15% of greenhouse gas emissions.
The stark findings of the latest IPCC report and the ambitious Paris Agreement goal of staying below 2°C warming demand we ramp up financing of natural climate solutions such as REDD+ projects, which incentivise developing countries to protect and develop forests and other habitats. A 2017 paper estimated that natural climate solutions can provide over one-third of the cost-effective climate mitigation needed between now and 2030 to stabilise warming to below 2°C. The market is growing – according to Forest Trends, forestry and land-use was the most common type of voluntary offset issued between January to March 2018.
Natural climate solutions offer a wide range of other benefits to biodiversity and local livelihoods. Tropical deforestation remains a huge problem, with the last two years having the highest amounts of tree cover loss according to WRI. Biodiversity loss is rampant and impactful: WWF’s latest Living Planet report documents a 60% decline in wildlife since 1970; our economy, society and ecosystem resilience are threatenedby species loss. Communities struggle to lift themselves out of poverty. If designed and implemented right, REDD+ projects can help address these and other challenges, plus sequester carbon.
The private sector steps up
The current levels of multilateral, bilateral and civil society funding are inadequate to protect the world’s forests and achieve the targets set out in the Paris Agreement. Only 3% of public funding for climate change goes to natural climate solutions. Greater private finance is needed.
There has been a growing interest from companies. According to Forest Trends an estimated $430 million has been invested by the private sector in REDD+ projects. A recent mapping of REDD+ Finance conducted by the Environmental Defense Fund shows that private sector interest is primarily at later stages of REDD+ projects, once carbon credits are issued (as opposed to funding earlier REDD+ efforts to build local capacity on forest management and other infrastructure).
Apple is the latest company to support natural climate solutions with the announcement of its blue carbon projects in partnership with Conservation International. This investment focuses on coastal ecosystems, such as mangroves and wetlands, whichcan store up to five times more carbon than terrestrial forests.
The mining company BHP has been a significant leader, also partnering with Conservation International on its Finance for Forests initiative to encourage wider business engagement by sharing its experience with REDD+. In 2016 BHP provided a price-support mechanism for the groundbreaking $152 million IFC Forests Bond, which was a milestone for scaling private sector investment in REDD+. Other companies that have supported REDD+ projects include Microsoft and Disney, as well as United and Quantas Airlines.
In fact, the airline industry is considering how to expand its engagement in REDD+ projects. Two years ago, the industry launched the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a market-based measure designed to help the aviation industry achieve its climate change target of keeping emissions capped at 2020 levels. Airlines will be required to offset any emissions above the 2020 cap through the acquisition of emission reduction units. REDD+ projects could offer a critical source of emission reductions for the sector.
Why more business should engage
Leadership, or at the very least action, on climate change is necessary for companies’ licence to operate. Offsets from REDD+ projects can be purchased in voluntary markets and there is growing demand from compliance carbon markets. Companies are expecting more regulation as countries work to meet their Nationally Determined Commitments (NDCs) to the Paris Agreement (though the details are unclear on how exactly NDCs emerging from Paris will incorporate REDD+).
Investors are also pressuring companies more on climate change, with the Task Force on Climate-Related Disclosures and other initiatives gaining momentum. Other stakeholders calling for action include NGOs, customers and employees. Companies must focus first on credibly reducing their own carbon footprint, however, some short- and medium-term emissions will be inevitable in our current energy system and REDD+ projects offer an immediate solution to reducing emissions.
Recently there’s been an evolution in companies’ mindsets around these projects. Adam Schoenberg, Senior Director, Corporate Partnerships at Conservation International, explained: “In previous years, interest has stemmed from voluntary carbon neutral goals. It’s shifted in the last year to 18 months (post-Paris) to looking at natural climate solutions as more of an investment. It’s exciting that companies are now coming to us and asking questions about how to sustainably finance REDD+ and other natural climate solutions.”
Why haven’t more companies engaged in natural climate solutions? There may be lingering perceptions that offsetting is about companies trying to “buy their way out” of their climate responsibility – when in fact, a 2016 Forest Trends study of CDP Climate reporters found that companies that offset are morelikely to carry out other emission reduction activities.
Other challenges lie in project design. The risk of “leakage” (i.e. deforestation shifting to another area) is often pointed out, but high-quality standards such as Verified Carbon Standard address this issue. A report by the Norwegian government found that the country’s REDD+ efforts “have uncertain feasibility and effect, and that the risk of fraud is not well-managed.” Carbon monitoring, reporting and verification are critical to minimize risks.
Another barrier has been inconsistent communication of the value. A new multi-stakeholder coalition, Nature4Climate, has been formed to ensure coherent and compelling messaging on the importance of natural climate solutions. This should help with expanding private sector awareness and interest.
One area that presents both a challenge but also an opportunity is diversification of the finance options available for companies. “With increasing interest in natural climate solutions and REDD+, wenow have the challenge of developing more mechanisms for funding,” said Adam.“We’re working to demonstrate bankable investments through mechanisms like the Forests Bond.” Current options include purchase of bonds, payments through trust funds and direct investment in forest-based emissions reductions, but these can be improved, and others created.
Urgent action necessary
We simply do not have time to spare in our fight against climate change. Emission reductions generated via REDD+ projects and other natural climate solutions present significant opportunities for immediate action that support companies’ sustainability commitments while also helping to achieve the Paris Agreement and the Sustainable Development Goals. It’s in companies’ best interest to step forward in supporting forest conservation, biodiversity, local communities and the climate.