Why it’s time to rethink infrastructure and value nature

Nature as infrastructure, a transformative concept spearheaded by the Asian Infrastructure Investment Bank, or AIIB, prioritizes investment in building and enhancing nature.

“We have spent a long time degrading nature, so we have a responsibility to rebuild it,” said Erik Berglof, AIIB’s chief economist, and that involves rethinking traditional infrastructure and looking first at what nature can deliver in terms of services, for example, rivers that have served civilizations for millennia.

The approach is similar to that of biologists who, when looking at what an ecosystem can produce, benchmark the maximum biodiversity or natural capital that can be created, Berglof explained. But it’s not just a way of thinking — nature as infrastructure has specific operational implications, he stressed, and work is ongoing to establish the tools necessary to turn nature as infrastructure into an asset class. In the area of climate, these exist for greenhouse gas emissions, carbon footprint, scientific agreements, and financial sector agreements, but when it comes to nature, there is not a simple set of metrics, Berglof said.

With over 85% of wetland areas already lost around the world, and around one million species already facing extinction, AIIB’s 2023 Asian Infrastructure Finance report describes nature as mankind’s most critical infrastructure and highlights the benefits of harnessing nature’s capacity to provide essential services.

In a conversation with Devex, Berglof discusses the importance of accurately valuing these services and the role that multilateral development banks can play in promoting nature as infrastructure.

This conversation has been edited for length and clarity.

How could thinking about nature as infrastructure help countries close their infrastructure gaps in sustainable ways?

Many countries, particularly developing economies, have major natural assets that are still intact but not properly valued and, if they were, their creditworthiness would be enhanced. Conversely, boosting today’s GDP [gross domestic product] by unsustainably exploiting nature will harm future growth. We have a responsibility to help them value these properly, because these are assets that are valuable to all mankind. We’ll then have a clearer path for how we can have the sustainable growth and development that these countries deserve, and we can provide them with the tools to value nature and make these necessary investments.

Mangroves are an example of an undervalued natural asset. They bind carbon dioxide more than other forms of greenery, provide storm surge and tidal wave protection, and create opportunities for fish spawning. And the depletion of mangroves hurts poorer communities in particular. If properly valued, we would see more investments in planting and integrating mangroves into how we restore nature as infrastructure.

What new tools or instruments will be required for this shift?

We are introducing a tool for measuring the impact of natural capital in the context of individual projects. We’ve looked at some of the projects that we’re involved in to better understand what it is to really take a natural capital approach and value those services that nature provides and what is the impact of that project. The development process involved talking to local decision-makers, organizations, and stakeholders so they also can benefit from it.

This tool is a little bit too complex to immediately put as part of financial contracts. We can use it for our project analysis, but to really trade it as financial instruments, there needs to be simple metrics and that’s where we need more thinking. But there are a lot of very interesting ideas, such as the debt for nature swaps where a country that is heavily indebted can, by promising to protect some area of pristine nature or very valuable biodiversity assets, get a reduction in its debt. You also have performance-linked debt instruments. A country that, for example, made a commitment under the Paris Agreement to these nationally determined contributions and is doing more than they initially agreed could then go to the markets and ask for lower interests as long as it is sticking to its commitment. Uruguay, Chile, and Egypt have done this successfully, but again, we need to improve the tools for how to measure progress.

What questions are involved in defining the value of nature?

At the macro level, there’s built economic capital and depleted natural capital. If you take a consolidated statement where you look at these two things together, you get a completely different perspective on what economic growth represents. In the report, we do what is called growth accounting, breaking down the different components explaining growth. We find that natural capital is a very significant part of growth and a contribution really worth investing and integrating into national accounts. For poorer countries, it can have very important significance in terms of increasing their creditworthiness. There's also a risk dimension — if you have very large natural capital assets that could be impacted by climate change, such as wetlands drying out, you also need to look at what could happen to destroy the value.

As an infrastructure bank, it’s also important to understand that infrastructure investment, even in things like renewable energy, has implications for nature. When building a solar or wind farm, we need to look at alternative uses of that land and the impact on biodiversity. We have good measures on how to think of specific pieces of land, and that kind of information being integrated into investment decisions is going to be very important for countries going forward. In integrating nature and climate there can sometimes also be conflicts, so we also need to be conscious of that when making an investment and look at the trade-offs in a consistent and scientifically sound way.

Why is there currently so little investment in nature-based solutions?

There has generally been a neglect of the value of nature. For a long time, it was ignored or less prioritized in the interest of progress and taking people out of poverty. Unlike a water treatment plant, a tidal gate, or hard infrastructure, which are easier to delineate and construct, nature-based solutions are often cheaper but will be more diffused across the public space and will involve more stakeholders. Coordination is needed and nature-based solutions will truly involve public-private partnerships.

There is increasing awareness of the benefits of nature-based solutions. This awareness is now bringing different stakeholders together to ask how we can do better. Some leading countries are protecting and harnessing natural rivers instead of building more canals. China is investing to create green belts to prevent desertification and improve air quality in urban areas. These are all positive movements towards more investment towards nature-based solutions. 

What role can multilateral development banks, such as AIIB, play in mainstreaming this new approach?

There are a lot of opportunities for MDBs to promote these methods of valuing nature and provide proof of concept to specific types of solutions. In one country, we are helping the local community try to value a particular wetland and look at the services that it provides in terms of cleaning water, providing flooding barriers, and recreation. Trying to price those things is not something that is easy for this community to do. As an MDB we can help by bringing up these issues and provide the tools for analyzing them and showing this new way of thinking. And there's some evidence that many nature-based solutions are much cheaper than traditional grey solutions, and also have more benefits in capturing carbon. There are many other things that are important for us to convey to our clients as alternative ways to solving traditional infrastructure problems.

There are also opportunities for MDBs, in working with the investor community, to encourage investing in funds that specifically target climate investments in emerging developing countries and are trying to create these asset classes.