Editing IPCC:AR6/WGIII/Chapter-15 (section)

==== 15.6.8.2 Nature-Based Solutions Including REDD+ ====

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Nature-based solutions are ‘actions to protect, sustainably manage and restore natural or modified ecosystems that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits’ ( [[#Cohen-Shacham--2016|Cohen-Shacham et al. 2016]] ). Nature-based solutions consist of a wide range of measures including ecosystem-based mitigation and adaptation.

The studies on investment and finance for nature-based solutions is still limited. However, frameworks and schemes to incentivise the implementation of nature-based solutions, such as reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries (REDD+), which contributes to climate change mitigation, has been actively discussed under the UNFCCC, with lessons from finance for REDD+ being available.

If effectively implemented, nature-based solutions can be cost-effective measures and able to provide multiple benefits, such as enhanced climate resilience, enhanced climate change mitigation, biodiversity habitat, water filtration, soil health, and amenity values ( ''high confidence'' ) ( [[#Griscom--2017|Griscom et al. 2017]] ; [[#Keesstra--2018|Keesstra et al. 2018]] ; [[#OECD--2019d|OECD 2019d]] ; Griscom et al. 2020; [[#Dasgupta--2021|Dasgupta 2021]] ).

Nature-based solutions have large potential to address climate change and other sustainable development issues ( ''high confidence'' ). Nature-based solutions are undercapitalised and the limited investment and finance, especially limited private capital, is widely recognised as one of the main barriers to the implementation and monitoring of the nature-based solutions ( [[#Seddon--2020|Seddon et al. 2020]] ; [[#Toxopeus--2021|Toxopeus and Polzin 2021]] ; [[#UNEP--2021|UNEP et al. 2021]] ) Finance and investment models that generate their own revenues or consistently save costs are necessary to reduce dependency on grants ( [[#Schäfer--2019|Schäfer et al. 2019]] ; [[#Wamsler--2020|Wamsler et al. 2020]] ).

'''REDD+.''' REDD+ can significantly contribute to climate change mitigation and also produce other co-benefits like climate change adaptation, biodiversity conservation, and poverty reduction, if well-implemented ( ''high confidence'' ) ( [[#Milbank--2018|Milbank et al. 2018]] ; [[#Morita--2018|Morita and Matsumoto 2018]] ). We use the term REDD+ broadly, not limited to REDD+ implemented under the UNFCCC decisions, including Warsaw Framework for REDD+ (Chapter 14), but include voluntary REDD+ projects, such as projects which utilise voluntary carbon markets. Finance is a core element that incentivises and implements REDD+ activities. Various financial sources are financing REDD+ activities, including bilateral and multilateral, public and private, and international and domestic sources, with linking with several finance approaches/mechanisms including results-based finance and voluntary carbon markets ( [[#FAO--2018|FAO 2018]] ). However, there is lack of sufficient finance for REDD+ ( [[#Lujan--2018|Lujan and Silva-Chávez 2018]] ; [[#Maguire--2021|Maguire et al. 2021]] ). REDD+ under the UNFCCC is implemented in three phases: readiness, implementation, and results-based payment phases. The Ecosystem Marketplace identified that at least USD5.4 billion in REDD+ in three phases funding has been committed through multiple development finance institutions so far ( [[#Maguire--2021|Maguire et al. 2021]] ), and public funds are main sources that are supporting three phases, and most of the REDD+ finance was spent on the readiness phase ( [[#Atmadja--2018|Atmadja et al. 2018]] ; [[#Lujan--2018|Lujan and Silva-Chávez 2018]] ; [[#Watson--2021|Watson and Schalatek 2021]] ). There is a significant gap between the existing finance and finance needs of REDD+ in each phase ( [[#Lujan--2018|Lujan and Silva-Chávez 2018]] ). Furthermore, private sector contributions to REDD+ are currently limited mostly to the project-scale payments for carbon offsets/units through voluntary carbon markets ( [[#McFarland--2015|McFarland 2015]] ; [[#Lujan--2018|Lujan and Silva-Chávez 2018]] ).

Current main challenges of REDD+ finance include the uncertainty of compliance carbon markets (which allow regulated entities to obtain and surrender emissions allowances or offsets to meet regulatory emissions reduction targets) ( [[#Maguire--2021|Maguire et al. 2021]] ), as well as limited engagement of the private sector in REDD+ finance ( ''high confidence'' ). With regard to the compliance carbon markets, at the international level, integrating climate cooperation through carbon markets into Article 6 of the Paris Agreement and including REDD+ has potential to enable emission reduction in more cost-effective ways, while the links between carbon markets and REDD+ under Article 6 is under discussion at the UNFCCC ( [[#Environmental%20Defense%20Fund--2019|Environmental Defense Fund 2019]] ; [[#Maguire--2021|Maguire et al. 2021]] ) (Chapter 14). At the national and subnational levels, although compliance carbon markets such as in New Zealand, Australia and Colombia allow forest carbon units, how REDD+ will be dealt in the national and subnational government-led compliance carbon markets is uncertain ( [[#Streck--2020|Streck 2020]] ; [[#Maguire--2021|Maguire et al. 2021]] ). As for limited engagement of the private sector in REDD+ finance, there are various reasons why mobilising more private finance in REDD+ is difficult ( [[#Dixon--2015|Dixon and Challies 2015]] ; [[#Laing--2016|Laing et al. 2016]] ; [[#Golub--2018|Golub et al. 2018]] ; [[#Ehara--2019|Ehara et al. 2019]] ; [[#Streck--2020|Streck 2020]] ). The challenges include the needs of a clear understanding of carbon rights and transparent regulation on who can benefit from national REDD+ ( [[#Streck--2020|Streck 2020]] ); a clear regulatory framework and market certainty ( [[#Dixon--2015|Dixon and Challies 2015]] ; [[#Laing--2016|Laing et al. 2016]] ; [[#Golub--2018|Golub et al. 2018]] ; [[#Ehara--2019|Ehara et al. 2019]] ); strong forest governance ( [[#Streck--2020|Streck 2020]] ), and implementation of REDD+ activities at national and subnational levels. Other challenges are associated with the nature of forest-based mitigation activities, the costs and complexity of monitoring, reporting and verification of REDD+ activities, because of the need to consider the risks of permanence, carbon leakage, and precisely determine and monitor the forest carbon sinks ( [[#van%20der%20Gaast--2018|van der Gaast et al. 2018]] ; [[#Yanai--2020|Yanai et al. 2020]] ). Although REDD+ has many challenges to mobilise more private finance, there is discussion on exploring other finance opportunities for the forest sector, such as building new blended finance models combining different funding sources like public and private finance ( [[#Streck--2016|Streck 2016]] ; [[#Rode--2019|Rode et al. 2019]] ), and developing enhanced bonds for forest-based mitigation activities ( [[#World%20Bank--2017|World Bank 2017]] ).

'''Private finance opportunities for nature-based solutions.''' The development of nature-based solutions faces barriers that relate to the value proposition, value delivery and value capture of nature-based solutions business models and sustainable sources of public/private finance to tap into ( ''high confidence'' ) (Toxopeus and [[#Polzin--2017|Polzin 2017]] ; [[#Mok--2021|Mok et al. 2021]] ) ''.'' However, the demand for establishing new finance and business models to attract both public and private finance to nature-based solutions is increasing in a wide range of topics such as urban areas, forestry and agriculture sectors, and blue natural capital including mangroves and coral reefs (Toxopeus and [[#Polzin--2017|Polzin 2017]] ; [[#EIB--2019|EIB 2019]] ; [[#Cziesielski--2021|Cziesielski et al. 2021]] ; [[#Mok--2021|Mok et al. 2021]] ; [[#Thiele--2021|Thiele et al. 2021]] ; [[#UNEP--2021|UNEP et al. 2021]] ). Furthermore, the recognition of the needs of financial institutions to identify the physical, transition and reputational risks resulting from not only climate change but also loss of biodiversity is gradually increasing (De Nederlandsche Bank and PBL Netherlands Environmental Assessment Agency 2020; [[#Dasgupta--2021|Dasgupta 2021]] ; [[#TNFD--2021|TNFD 2021]] ). Development of finance and business models for nature-based solutions needs to be explored, for example through utilising a wide range of financial instruments (e.g., equity, loans, bonds, and insurance), and creating standard metrics, baselines and common characteristics for nature-based solutions to promote the creation of a new asset class ( [[#Thiele--2021|Thiele et al. 2021]] ; [[#UNEP--2021|UNEP et al. 2021]] ).

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