Changes in biodiversity can profoundly affect climate, especially through impacts on nitrogen, carbon, and water cycles, as highlighted in the first joint report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services and the Intergovernmental Panel on Climate Change. 

Many economies and livelihoods in Asia and the Pacific are dependent on agricultural development supported by natural resources and their associated ecosystem services. This has alleviated poverty and expands and sustains inclusive economic development. Unfortunately, natural resources are under serious stress from their unsustainable use and climate change.

Small-scale farming households are the most vulnerable to the combined impacts of climate change and the degradation of ecosystem services. They also have the least access to finance and resilience measures.

Adapting to climate change and mitigating ecosystem degradation, taking into account their full social impacts, requires transformative change on a scale never attempted previously. What is needed is an integrated nature-based approach that uses biodiversity and ecosystem services to help people adapt to the adverse effects of climate change so that climate, nature, and pandemic crises can be tackled together. In this regard, there are three approaches to deliver tangible results.

First, we must target conservation to sustainably manage and restore ecosystems, while simultaneously enhancing human well-being, ecosystems and biodiversity, and climate adaptation. For example, water-sensitive urban design is a relatively new approach in developing Asian cities. It uses the natural environment (e.g., land use, water management, and vegetation) to respond to diverse climate challenges.

By integrating water flows in urban design and considering all aspects of the water cycle – including storage, reuse, treatment, retention, and infiltration of runoff water – it is an effective nature-based solution to manage flood risks, improve water quality, and store groundwater.

In Vietnam, the cities of Vinh Yen, Hue, Ha Giang, and Ho Chi Minh City integrated nature-based solutions through the rehabilitation of their ponds, parks, and rivers, thereby greatly increasing resilience to climate impacts and creating more livable cities.

Second, create incentive mechanisms to engage farmers and agribusiness enterprises in climate-resilient and ecosystem-based projects. This is probably the most challenging as it requires a business case for investing in nature and adaptation projects. When designing nature-based solutions, it is critical to highlight co-benefits in comparison with a business-as-usual scenario.

Land conservation and restoration activities can promote water quality and quantity improvements, more reliable water flows, food production, biodiversity enhancement, and cultural services. However, these benefits need to be quantified, and measures prioritized based on their cost-effectiveness and efficacy in delivering the proposed objectives.

Economic and financial analyses are required to assess their viability. Analytical methodologies may also need adjustment in terms of time horizons, discounting, and the ability to fully capture all co-benefits. The framework also needs to be in place to develop specific policies, institutional coordination mechanisms, and capacity to ensure successful implementation, monitoring, and feedback for adjustments.

A green incentive mechanism set up in Anhui province in the People’s Republic of China promotes green tea farming practices. The mechanism incentivizes ecological and environmentally friendly farming with an output-based eco-compensation scheme. Farmers receive cash grants for reducing the dosage of fertilizer and pesticide applications that improve water and soil quality. The resulting organic products are certified and sold on the market to provide alternative and more sustainable sources of rural livelihoods.

Providing incentives for climate-resilient agricultural practices to increase carbon storage is only part of the solution. Eliminating harmful subsidies, such as those that encourage over-fertilization or unsustainable groundwater use is paramount to achieve lasting results. Water funds and transfer mechanisms can create alternative livelihood opportunities for upstream farmers and reduce water pollution and sediment caused by traditional agricultural practices. This can help reduce the cost of conventional water treatment downstream, helping municipalities supply drinking water at a cheaper cost and improving the quality of the environment.

Third, to fund climate-resilient and sustainable projects on a larger scale, capital markets represent an underutilized but viable mechanism. Accelerating the flow of private capital will increase the size and impact of environmental protection projects. Small and medium enterprises in agribusiness suffer from a lack of access to commercial financing due to the risk of investing in green projects associated with internal rates of return.

Catalytic funds can facilitate equity financing to qualified enterprises if they meet eligibility criteria for green development and climate adaptation targets. Activities to be financed may include organic farming, rural demonstration projects for improving the local environment, water resources rehabilitation, and solid waste management.

Commercial banks, impact investors and insurance companies can be engaged by applying de-risking instruments, including bundling of projects, credit guarantees, first loss structuring, and more overall concessional terms. A new type of Sustainable Development Goal Accelerator Bond aims at helping Southeast Asian countries tap into global capital markets for the Sustainable Development Goals and nature-positive outcomes. The accelerator will standardize the risk-return structure for attracting investors and helping local governments and new state-owned entities access funds.

Solving both the biodiversity and the climate crises can be supported through a nature-based recovery from the pandemic. Such an approach must include relevant, attainable targets to maintain and restore ecosystem services while generating economic returns and alternative sustainable livelihoods. A nature-positive recovery is fundamental to rebuilding better and greener for more a sustainable future.

Authors:

Thomas Panella is Director for Environment, Natural Resources, and Agriculture in the East Asia Department at the ADB

Silvia Cardascia is ADB Young Professional