The International Day for Disaster Risk Reduction was started in 1989 to spark global awareness of disaster risk and to mobilize actions that reduce the loss of lives, livelihoods, and health due to disasters. At the Pan American Development Foundation (PADF), we celebrate all people and communities taking bold steps toward making our hemisphere safer for all. Among the ways we are tackling disaster risk and the harm caused by climate change and disasters is by strengthening the ability of governments in the region to effectively leverage data to monitor hazards, assess vulnerability, and implement early warning systems. PADF is also supporting the adoption of nature-based solutions (NBS). This blog describes our collaboration with World Resources Institute (WRI). We have brought together investors, donors, and civil society to learn about opportunities to grow the number of NBS projects in Latin America and the Caribbean. We call on others to join us in this effort to boost investment in NBS and disaster risk reduction for resilience.
A fund that conserves water sources in Quito, Ecuador; a shift to sustainable production to enhance water security in Colombia; and a fund that supports land restoration in Brazil. These are just a few examples of nature-based solutions (NBS) projects in Latin America and the Caribbean (LAC).
NBS can help build resilience towards a range of challenges, including water insecurity, flood risk, or coastal erosion. These innovative solutions are “actions to protect, conserve, sustainably manage, and restore natural and modified ecosystems that address social, economic and environmental challenges and provide ecosystem services” according to United Nations Environment Programme.
LAC is well positioned to continue these projects and advance NBS for climate resilience. However, NBS projects in the region are severely underfunded.
WRI and the Inter-American Development Bank recently published a series of reports on NBS projects in LAC. The reports found that, out of 156 NBS projects in the region, 45% solely rely on grants and only a third are operational. Additionally, 60% of the projects identified are currently searching for new financing strategies that tap into public or private investment to fully fund and sustain their activities.
To increase investment, including from the private sector, these projects need to generate investor confidence. NBS project developers should highlight the benefits and return on investment that these projects can deliver. Many of these projects are integrating cash-flows into their project design to create investment opportunities and showcase that these projects can have financial returns. By integrating cash-flows, these projects are showing that it is possible to monetize project benefits.
NBS projects that are seeking private investment need to be designed in ways that are technically, socially, and legally feasible during the project preparation phase prior to implementation. They also need to conduct financial analysis to define a financially optimal plan. These projects also need to secure buy-in from key stakeholders. This includes properly identifying the benefits of the project, including social benefits, and quantifying and monetizing them to show that the project does have a return on investment.
Three projects in the region have made progress on designing financing strategies that are making investors interested in collaboration. These projects are already integrating cash-flows into their design to create investment opportunities for investors, diversifying income streams to guarantee the long-term sustainability of interventions, and supporting projects become investment ready. All these factors help generate investor confidence, which can lead to increased investment, including from the private sector.
Through its Conservation Corridor in Chingaza, Sumapaz, and Guerrero, Colombia, Conservation International works with communities to mitigate the degradation of ecosystems by shifting to sustainable and nature-compatible production models. For example, some communities have already shifted to sustainable milk and honey products, which have a high value in the market, therefore increasing sustainable business model opportunities.
This project aims to conserve and strategically restore natural ecosystems and promote sustainable agriculture practices in high mountain ecosystems to enhance water security and protect downstream water supply from the effects of climate change. Conservation International is also partnering with the local water utility to evaluate how much the urban water supply will benefit from this shift to determine if the utility can also provide resources for NBS.
In Ecuador, the Fund for the Protection of Water (FONAG) created an endowment fund that conserves and restores critical water sources in Quito. FONAG’s constituents include organizations like Quito’s water bottling company, water utility, electric company, and the national brewery. It also receives funds from grants and public and private donors.
FONAG diversified its income stream by investing constituent contributions in capital markets, growing the endowment from approximately US$21,000 in 2000 to US$21.1 million in 2020. FONAG uses dividends to pay for annual natural infrastructure projects and monitoring to calculate the benefits of these projects. This enables FONAG to prove a return on investment for NBS projects.
In Brazil’s Guanabara Bay, the Boticario Group Foundation Agua Viva Movement developed a fund that supports sustainable businesses that restore degraded lands and transition land cultivation to agroforestry and organic agriculture. The Foundation helps these businesses strengthen their business models and become investment-ready for private investors.
The project will also help unlock capital through peer-to-peer investment for which the Foundation is currently building a portfolio of businesses that will be allowed to access loans.
Several investors are ready to support this type of projects. For example, R20 creates financial vehicles to deploy capital for subnational infrastructure in the energy, water and wastewater, urban development, and agriculture sectors. It has organized a subnational climate facility that operates as an equity fund to invest in mid-size (between US$5-75 million) green-gray infrastructure projects. The World Bank is also supporting innovative solutions such as hybrid green-gray projects for the water sector.
There is an opportunity to strengthen collaboration among sectors and stakeholders — such as project developers, donors, investors, and government leaders — to accelerate the deployment of NBS projects in LAC. More dialogue and engagement amongst NBS project developers, donors, and investors is needed. WRI and PADF have started to bridge this gap by bringing together investors and donors interested in NBS, as well as projects developers, national and subnational governments, and civil society. In May, we held two events for these groups to discuss successful projects in the region, current financing strategies for NBS projects and challenges. We hope these events and more create an ongoing dialogue between projects developers, donors, and investors needed to increase investment in these critical projects.
Published on October 24, 2022.
Aaron Van Alstine
Senior Program Manager for Disaster Resilience