Campeche Mexico Ecuador

Guayaquil Guayaquil Miami USA

Colombia Tumaco

Cumana Venezuela Caripito Venezuela Delta Amacuro Venezuela

Cayenne French Guiana Amapá Brazil Belem Brazil Sao Luis Brazil

Bonthe Sierra Leone

Warri Nigeria

Port Harcourt Nigeria

Gabon Libreville Libreville Brass Nigeria Limbe Cameroon NATURE-BASED CLIMATE SOLUTION CLIMATE NATURE-BASED THE FOR CASE MANGROVES A AS FINANCING THE EARTH’S ASSETS

Mongla Bangladesh

Port Blair Andaman and Nicobar Islands

Indonesia

Dumai Dumai Myeik Myanmar Indonesia Batam

Indonesia Selatan Sumatera

Indonesia Pinang Pangkal

Indonesia Singkawang

Indonesia Kalimantan Selatan Selatan Kalimantan Kuching Malaysia

Indonesia rakan Ta Indonesia

Balikpapan Balikpapan Sandakan Malaysia

Puerto Princesa Philippines

Indonesia Kendari

Indonesia Ambon Kota

Indonesia Sorong Australia Brisbane

Indonesia Jayapura

Port Moresby Papua New Guinea Kerema Papua New Guinea

Port Moresby Papua New Guinea

Australia Darwin FINANCING THE EARTH’S ASSETS

Content Authors

Executive Summary 1 4 Finance Blueprint: 36 Earth Security guides investment The Mangroves 40 Cities decision-makers to align global capital 1 Mangroves as an Asset 5 Network and a Municipal with the value of the Earth’s assets. 1.1 Key facts: 6 Mangrove Bond Fund A valuable global asset 4.1 Creating the Mangroves 37 [email protected] 1.2. Hurry, half of the world’s 9 40 Cities Network earthsecurity.org mangroves are already gone 4.2 Accelerating municipal 44 finance for climate Copyright 2 The Size of the Prize 10 adaptation © Earth Security 2020 for Mangroves 4.3 The business case for 46 2.1 The prize for 11 a municipal mangrove Disclaimer mangroves bond fund The views and opinions expressed in this 2.2 Sovereign natural 16 report are only those of Earth Security. asset owners 5 Recommendations 50 5.1 Call to action 51 3 Mangroves in Investment 21 5.2 What investment decision- 53 Decision-Making makers can do 3.1 Five value drivers 22 for investment Appendix 56 3.2 Case Study: 24 Mangroves restoration 101 Zephyr Power Limited for investors: supporting 3.3 Five key markets 30 science-based mangrove for mangroves conservation and restoration

Acknowledgements 57

References 58

Sponsors We are grateful to the support of our funding partners: FINANCING THE EARTH’S ASSETS 1

EXECUTIVE SUMMARY WE NEED TO MOVE FASTER AND BE BOLDER IN INVESTING IN NATURE’S ASSETS

There is a window of opportunity Mangroves are dense coastal They also provide breeding to think on a bigger scale forests covering the planet’s grounds for thousands of about the role of nature-based tropical and sub-tropical belt. commercially-fished marine solutions in the fight against They are one of nature’s most species that sustain local climate change. This report productive carbon assets, and economies, particularly in Asia. presents the business case can sequester carbon up to 400% But for all their worth, 50% of and the practical proposals faster than land-based tropical the world’s mangrove assets are to mobilise global finance for rainforests. They are a vital asset already gone. nature-based climate solutions, for companies, investors and alongside the creation of more countries to deliver ‘net-zero’ What remains is disappearing agile institutions that can carbon commitments, while quickly under the weight of help align global economic halting the runaway extinction of unsustainable urban pressures development with the value of biodiversity. and of investment models in natural assets. agriculture, aquaculture and The value of mangroves goes infrastructure that do not well beyond carbon. By acting recognise their value. This report as protective coastal barriers provides the evidence to guide to cities, they save an estimated investment decision-makers USD 65 billion a year in storm and to embed these values in these flood damages. investments to achieve greater resilience.

Mangroves dancing in the sunset in Walakiri Beach in East Sumba, Indonesia. Harry Pieters / Mangrove Action Project FINANCING THE EARTH’S ASSETS 2

EXECUTIVE SUMMARY A STEP-CHANGE IN NATURE INVESTMENT

Section 1 Section 2 Section 3

There are over 700,000 hectares Section 2 concludes that the Section 3 quantifies the financial of restorable potential for current price of carbon in value that mangroves offer mangroves globally. We estimate voluntary markets is not high to investors. It provides a that the investment needed enough to deliver the financing framework that can be directly to fully restore mangroves on that is needed for conservation embedded into investment this global scale is USD 11.1 and regeneration at scale. The decision-making, illustrated with billion over a 20-year period.1 carbon price must at least double a case study we developed in

A regeneration on this scale to USD 29/tCO2. collaboration with CDC Group. could capture 380 million tCO2 by 2040. At a carbon price scenario of The investment made by a wind

USD 60/tCO2, roughly four times power project in Pakistan to Just 25 countries account for most today’s price, the investment in restore mangroves on site could of the remaining mangroves, as full regeneration of mangroves return 20 times the value in the well as its restorable potential. could return a profit of USD protection of physical assets They should be seen as ‘sovereign 11.8 billion over 20 years. In the against coastal erosion, saving natural asset owners’. Indeed, short-term, project developers the project developer and its they can leverage the value of and intermediaries should focus investors up to USD 7 million over their mangroves to meet their on creating a premium price for the project’s 25-year timeframe. own decarbonisation targets or blue carbon. This can be done The materiality of mangroves to use them to earn income through by reflecting tangible values investment supports the work of carbon trading — especially as that mangroves provide ‘beyond the Task Force for Nature-related emerging bilateral carbon trading carbon’ — for example in climate Financial Disclosures (TNFD) in agreements that are expected adaptation, as this report describes 2021. to play a greater role in global in more detail. decarbonisation. This section explores further There also needs to be greater ways to invest in mangroves, However, in order to benefit, these market transparency, which builds in particular focusing on governments must recognise the the confidence of investors that the opportunities for nature-based value of their mangrove stocks funds are reaching conservation investment funds; the issuance in their Nationally Determined projects on the ground. This of blue bonds; the development Contributions (NDCs), as they section provides an important input of insurance and reinsurance update these for COP26 in 2021. for the Task Force for Scaling products; carbon markets; and the Voluntary Carbon Markets. use of strategic philanthropy. Nature-based carbon must trade at price levels that can generate the funding needed to sustain ecosystem regeneration activities and outcomes. FINANCING THE EARTH’S ASSETS 3 EXECUTIVE SUMMARY

Section 4 Section 5

In Section 4, we identify 40 To drive financing to these cities, locations around the world, we propose a mangrove-themed which together account for close municipal fund for climate to 70% of global mangroves still adaptation. Such a fund would standing, and outline a global mobilise financing for mangrove solution. We envision an agile regeneration on a global scale institution that can move faster while spreading investment risks. in aggregating conservation and regeneration efforts across the We document examples of green planet’s last mangrove frontier. municipal finance being used for mangrove regeneration. However, These locations include a diverse financing for adaptation remains group of cities, from Jayapura less than 5% of total climate in Indonesia, to Miami in the US, finance for cities. Green municipal Brisbane in Australia, Belem in bonds, a financial product that Brazil and Puerto Princesa in is familiar to investors, offer the Philippines. Despite their a way forward. A Municipal enormous differences, these cities Mangrove Bond Fund could give can all use mangrove assets to municipalities access to finance cost-effectively increase their for projects involving mangrove climate resilience. regeneration and cost-effective green infrastructure, and enable We recommend the creation them to provide blue carbon of the Mangroves 40 Cities offsets. Network (M40 Cities) to act as a global safety net that coordinates Such a fund would provide access the collective action of their to the 40 municipal locations mayors, accelerates knowledge holding mangrove stock globally, and replication on regeneration from Miami to Mongla (in projects and pathways — such as Bangladesh). The varying levels city masterplanning and the use of of municipal creditworthiness in mangroves as green infrastructure this diverse group would enable — and, crucially, facilitates the the fund to spread risk across aggregation and allocation of developed and emerging markets, municipal financing. and create a product suitable for global fixed income markets. FINANCING THE EARTH’S ASSETS 4

EXECUTIVE SUMMARY A CALL TO ACTION

The report is a call to action to We encourage leaders and Such is the diversity of the invest in mangroves as a global decision-makers in these ecosystem needed to bring asset. It sets out the business institutions to use this report to about a step-change in nature case; multiple pathways to advocate internally and to pursue investment. integrate their value into at least one of the recommended investment decisions; and actions for their sector throughout We have worked closely with our innovative proposals that could 2021. sponsors, the Swiss Agency for align global investment with the Development and Co-operation, protection of this global natural Earth Security engaged with HSBC, the UBS Optimus asset. more than 100 people in 60 Foundation and CDC Group. institutions across finance We are grateful for their support The recommendations in and investment, policy and for our 2020 programme and Section 5 offer practical steps conservation science. The their partnership. The views and for various types of investors. consultation involved interviews opinions expressed in this report This section outlines specific roles and webinars with champions remain solely those of Earth and actions that can be taken by and leaders from banks and Security. philanthropists, banks, investors, investment funds, insurance companies, insurers, reinsurers, and reinsurance, multilateral and global climate funds to take finance and development finance these recommendations forward. institutions, conservation NGOs and foundations active in nature financing, municipal mayors in climate vulnerable regions, and carbon project developers and intermediaries.

Mangroves and coral reef in Southeast Misool, Raja Ampat, Indonesia. Burt Jones / Maurine Shimlock Secret Sea Visions / Mangrove Action Project FINANCING THE EARTH’S ASSETS 5 1 MANGROVES AS AN ASSET

Aerial view of the largest mangrove forest in the world in the Sundarbans, Bangladesh. Mahmud Alam/Shutterstock FINANCING THE EARTH’S ASSETS 6 MANGROVES AS AN ASSET

1.1 KEY FACTS: A VALUABLE GLOBAL ASSET

1 Mangroves are one of nature’s carbon A carbon sequestration sequestration powerhouses — fixing powerhouse carbon through their roots underwater. But their value goes far beyond carbon. Every year, mangroves sequester They can be up to 50 times more cost- 32 million tonnes of carbon.2 Worldwide, restoring deforested mangroves could effective than cement seawalls at store an extra 380 million tonnes of carbon over 20 years: 61 million tonnes protecting coastlines against extreme in above-ground biomass and 319 million 3 weather and they are a safe breeding tonnes of soil organic carbon. The world’s mangrove forests hold ground for thousands of marine species around 4.2 billion tonnes of carbon.4

Destroying them releases more CO2 that support local economies. per hectare than any other type of deforestation.5 In the Dominican Republic, converting one hectare of mangrove forest to shrimp farming

releases the same level of CO2 emissions as converting 11.5 hectares of tropical dry forest to cattle pasture.6

Between 2000 and 2012, global carbon emissions due to mangrove clearance may have been as high as 317 million tonnes, or 24 million tonnes annually.7 Together, Indonesia, Malaysia and Myanmar accounted for 77% of the global loss in mangrove organic carbon stock loss over this period.8

“ In 2017, mangroves prevented USD 1.5 billion in flood damages in Florida, protecting over half a million people during Hurricane Irma. Damages were 25% lower in counties where mangroves were present.” 25 FINANCING THE EARTH’S ASSETS 7 MANGROVES AS AN ASSET

2 3 4 A protective shield against A safe breeding ground for An infrastructure for water weather extremes marine biodiversity and food security

100 metres of mangrove forests along Mangroves provide breeding grounds Few people associate mangroves with the coast can reduce the intensity of for marine biodiversity. 80% of global freshwater and food security. However, tidal wave energy by almost 70%, and fish populations depend on healthy mangrove depletion is a key driver of contain the flooding depth of a tsunami mangrove ecosystems.13 In South East saltwater intrusion in coastal agricultural by 30%.9 Mangroves are at the frontlines Asia, some commercial prawn species regions. The salinisation of groundwater of coastal protection: in tandem with are entirely dependent on mangrove occurs when overuse of groundwater coral reefs and seagrass, they reduce the forests to survive.14 Over the past 20 is coupled with seawater encroaching power of tidal waves and storm surges, years, global aquaculture production has into land due to coastal erosion. The containing coastal erosion. expanded by 50% and shrimp aquaculture salinisation of soil is a major threat to is now the world’s fastest-growing global food production. Without mangroves, flood damages protein source.15 globally would cost an additional USD Densely populated delta regions 65 billion, and 15 million more people In Vietnam, shrimp farmers more that rely on agriculture will be most would be at risk of floods each year.10 than doubled their income by adopting affected by mangrove loss – this They are cost-effective structures for integrated mangrove-shrimp farming includes countries such as Vietnam, coastal protection, which could yield USD practices.16 These practices use India and Bangladesh.20 50% of 1 trillion in net benefits between 2020 and mangroves to increase the productivity, Vietnam’s population and most of its best 2030 for climate adaptation.11 profitability and resilience of shrimp agricultural land are in the Red River and farms. In the Gulf of California, Mexico, Mekong River deltas. In Bangladesh’s Mangroves are a key asset for climate each hectare of mangrove generates coastal belt, home to 35 million people, vulnerable countries: in the Philippines, up to USD 50,000 a year in mangrove- 105.6 million hectares of arable land are they reduce annual damages to associated fish and blue crab, bringing affected by salinization, with levels of property from extreme weather events an estimated USD 19 million in income salinity on course to increase between by 28%, saving up to USD 1 billion. annually to local fishers.17 now and 2050, in some areas by nearly In Florida, mangroves prevented USD 70%.21 1.5 billion in flood damages and protected The largest mangrove ecosystem over half a million people during in the western hemisphere, the In the lower Mekong Delta in Vietnam, Hurricane Irma in 2017. In counties where Everglades National Park in Florida, saline intrusion affects 100,000 mangroves were present, damages were USA, generates USD 135.5 million/year hectares of paddy rice fields every 25% lower.12 in tourism revenues, supporting nearly year, out of a total 650,000 hectares. 2,000 local jobs.18 In the six countries In 2015, farmers lost USD 45 million to of the so-called ‘Coral Triangle’ in the salinity.22 Saltwater intrusion is expected Pacific Ocean tourism was expected to to hit agricultural yields in coastal areas quadruple in value by 2025 as a result of of Africa, which account for 9% of the the demand for eco-tourism, in estimates continent’s rice production.23 Saltwater drawn before the Covid-19 pandemic.19 intrusion can also undermine the integrity of buildings and infrastructure, increasing maintenance and repair costs. In coastal Bangladesh, spending on road maintenance could rise by as much as 252% due to increased salinity.24 FINANCING THE EARTH’S ASSETS 8 MANGROVES AS AN ASSET

CASE STUDY AN INTEGRATED NATURE-BASED SOLUTION: CARBON, CLIMATE RESILIENCE, WATER & FOOD SECURITY

Aerial view of mangrove forest in the Saloum Delta National Park, Joal Fadiout, Senegal. Curioso.Photography / Shutterstock

In Senegal, the NGO Océanium and the The new trees will store 600,000 tonnes Rice paddies that had been impacted by food company Danone partnered in of carbon over the project’s 20-year saline intrusion saw yields increase by an 2009 on what has become one of the lifespan, which Danone — and now average of 10%, while 15% of fields that world’s largest mangrove regeneration other companies investing through The had been abandoned due to excessive projects. Livelihoods Fund — can use to reduce salt were restored to cultivation. Local their global carbon footprint while having people catch 4,200 more tonnes of fish, The project has replanted 10,000 a significant local impact. shrimp and oysters every year.26 Verra, hectares with 79 million mangrove trees, the carbon certification body, has certified mobilising 350 local villages and 200,000 The protection the mangroves offer that the project has already sequestered local people. The Livelihoods Fund against saltwater intrusion is helping more than 160,000 tonnes of CO2 out of the provided USD 4 million in upfront funding communities rehabilitate abandoned rice 600,000 tonnes expected over its 20-year for project preparation, replanting and fields, strengthening local livelihoods lifespan.27 scientific validation and will finance and food security for artisanal project monitoring and evaluation until fishermen. Following the restoration of 2029. mangroves in the Casamance and Sine Saloum estuaries of Senegal, 84% of households reported lower saltwater intrusion into their rice fields. FINANCING THE EARTH’S ASSETS 9 MANGROVES AS AN ASSET

1.2 HURRY, HALF OF THE WORLD’S MANGROVES ARE ALREADY GONE

Despite their potential, mangroves are Southeast Asia contains almost half Climate change is exacerbating this one of the planet’s most threatened of the global mangrove area, but is a loss. In Bangladesh, Cyclone Amphan ecosystems and are currently being hotspot for mangrove deforestation.30 recently damaged 40% of the country’s lost at a rate of 2%/year, faster than Mangrove losses account for up to 10% mangroves, reducing their ability to act coral reefs and all other forest types, of global emissions from deforestation as a critical defence against sea level including tropical and sub-tropical and annual economic losses of USD rise and typhoons.33 In Australia in 2015, forests.28 29 4—19 billion.31 The Global Mangroves extreme heat and drought led to the Alliance reports that 50% of the world’s worst mass dieback of mangroves ever mangroves have been lost in the last 50 recorded, affecting 2,000 km of coastline years.32 in the Gulf of Carpentaria.34

The drivers of mangrove destruction

Aquaculture Rice and palm oil Urban development Climate change

Aquaculture is estimated Rice production accounted Mangroves are being lost Changes to air temperature, to account for one-third of for more than 20% of total as land is cleared for rainfall patterns and ocean global mangrove loss, mainly mangrove loss in South East infrastructure and real estate acidification can hinder due to the impact of shrimp Asia between 2000 and 2012. projects, or illegal logging for mangroves’ ability to survive. farms.35 Over the past 20 The conversion of mangroves fuelwood and construction. Abrupt and gradual changes years, global aquaculture to oil palm plantations in Pollution, including fertilizer in sea level also cause production has expanded Malaysia and Indonesia is runoff and siltation from significant losses. In 2015, up by 50%. In South East Asia, also a major threat. Between land-based activities, is a to 2,000 km of mangroves were aquaculture, including shrimp 2000 and 2012, some 38% major factor. The resulting damaged or died near the Gulf and fish farming, accounted of mangroves in Malaysia, sediments, solid waste and oil of Carpentaria in Australia’s for 30% of mangrove loss 40% in Thailand and 16% in smother and block the aerial Northern Territory, due to between 2000 and 2012.36 Indonesia were converted roots that mangroves rely extreme heat, a temporary fall In Indonesia, home to 17% to oil palm plantations. In on for oxygen. An estimated in sea level, drought and two of the world’s mangroves, Myanmar, 2.2% (14,619 ha) of 64% of the world’s mangrove cyclones. This was the worst aquaculture, primarily for existing mangrove has been forests are within 25 km of a mass dieback of mangroves shrimp production, was lost per year since 2000. 88% large urban centre, placing recorded.41 responsible for 50% of of this was due to conversion them at critical risk from mangrove deforestation to rice agriculture.38 future urban development.39 during the 1980s and Singapore, which has 1990s.37 increased its territory by 24% in the last 50 years through land reclamation, has seen mangrove area decline from an estimated 6,340 hectares in 1953 to 644 hectares by 2011.40

Singapore has used land reclamation to increase its territory by 24% in the last 50 years, reducing its mangroves from an estimated 6,340 hectares in 1953 to 644 hectares by 2011. FINANCING THE EARTH’S ASSETS 10 2 THE SIZE OF THE PRIZE FOR MANGROVES

Mangrove Bedul Ecotourism, 2,300 hectares of intact mangroves in the Alas Purwo National Park, Indonesia. Harry Pieters / Mangrove Action Project FINANCING THE EARTH’S ASSETS 11 THE SIZE OF THE PRIZE FOR MANGROVES

2.1 THE PRIZE FOR MANGROVES

Mangroves, alongside seagrasses and tidal salt marshes, are a powerful ‘blue carbon’ ecosystem. Every year, mangroves sequester 32 million tonnes of carbon, but could sequester more than ten times that amount if restored to their former extent globally. Blue carbon credits are a novel and attractive way to finance the costs of restoration, but realising their potential will require carbon prices to reflect the true value of mangroves.

The true price of blue carbon

The surge in corporate pledges ‘Blue carbon’ refers to carbon captured This could sequester up to 17.2 million to achieve carbon neutrality seen by coastal and marine ecosystems. tCO2 annually. Factoring the increase in throughout 2020 is expected to continue, Mangroves are a blue carbon carbon sequestration that takes place increasing the demand for nature-based powerhouse. Compared to terrestrial with the growth and aging of habitats, we carbon sequestration, as well as the forests, mangroves sequester carbon estimate that fully restored mangroves price of carbon in voluntary carbon faster; they also store carbon by trapping could sequester up to 380 million tCO2 markets. sediment between their roots as the tides over the 20-year period. rise and fall. This keeps carbon locked The Task Force on Scaling Voluntary up for centuries to millennia, resulting in However, at current carbon prices of USD 44 Carbon Markets says these markets still very large carbon stocks. 10—15/tCO2 carbon credits alone are not need to grow between 15 and 160 times in able to finance the restoration efforts on order to meet the Paris Agreement target The Mapping Ocean Wealth Explorer this scale. The following pricing scenarios of limiting global warming to 1.5 degrees estimates that the total restorable area are presented, illustrated by Figure 1 Celsius.42 for mangroves is 728,421 hectares (page 12). globally. Over 90% of this area is And while average carbon offset prices concentrated in just 25 countries.45 We were largely unchanged in 2019, according estimate that for an average restoration to Ecosystem Marketplace, prices for period of 20 years, with total restoration nature-based emissions projects rose costs of USD 15,200/ha (USD 9,500/ha 30%. The differentiation shows that the for the first five years and additional USD latter’s environmental credentials can 1,900/ha every five years), the complete attract price premiums against other restoration of mangroves globally could types of offsets.43 cost an estimated USD 11.1 billion (see ‘Assumptions’ on page 13). FINANCING THE EARTH’S ASSETS 12 THE SIZE OF THE PRIZE FOR MANGROVES

Figure 1 Revenues from a global scale mangrove restoration, at different carbon price Revenue Restoration Costs scenarios by 2040 Source: Analysis by Earth Security

Revenue USD billion

25 C

20

15 B 10 A 05

00

00 05 10 15 20 25 30 35 40 45 50 55 60

Carbon Price

USD/tCO2

Scenario A Scenario B Scenario C

The carbon price remains A carbon price at USD 29 If the carbon price quadruples close to the current level provides a break-even point to USD 60, carbon markets of USD 15, generating total for the investment of USD 11.1 return USD 22.8 billion in revenue of USD 5.7 billion and billion over 20 years. carbon offsets, creating a at a cost of regeneration of surplus of USD 11.7 billion USD 11.1 billion, leading to a over a 20-year period. loss of USD 5.4 billion over the 20-year period. FINANCING THE EARTH’S ASSETS 13 THE SIZE OF THE PRIZE FOR MANGROVES

Beyond carbon: creating a premium for blue carbon

The analysis above suggests a carbon Taking the social benefits of mangroves This value beyond carbon is expected to price of more than USD 29/tCO2 is needed into account, one study suggests that blue generate new types of credits that bundle to cover the costs of global regeneration. carbon from mangroves could be priced at climate adaptation benefits for coastal

Despite rapid development, voluntary USD 417/tCO2 — 40 times higher than the resilience together with carbon credits carbon markets are still nascent. The current price of carbon — to reflect the for corporate buyers. For example, Verra determination of carbon credit prices is full set of benefits beyond carbon.47 and The Nature Conservancy (TNC) have still an evolving process that depends on been working on a third-party verified project characteristics and the value that A premium price for blue carbon framework that will be published in 2021 investors in those credits perceive they credits would enable investors to better for a ‘Blue Carbon Resilience Credit’. are creating. incorporate the wider local benefits of their investment. As the case study This model provides a standardised According to Gold Standard, the valuation in the next section illustrates in more approach for blue carbon credits to of projects is always somewhat subjective. detail, other forms of value provided by bundle the adaptation and mitigation The group says that carbon credits from mangroves include lifting local income benefits of projects. They would consider cookstove projects in sub-Saharan Africa for poor fishing communities, cutting the mitigation metrics in the form of avoided often sell at a higher price than carbon cost of infrastructure maintenance due CO2e emissions, together with adaptation credits from renewable energy in Europe. to the coastal protection they offer, and metrics in the form of flood protection This is due to the value over and above improving the regulation of water flows, benefits. TNC estimates that Blue Carbon carbon that a project is seen to deliver and water pollutants and sedimentation. Resilience Credits could mobilise up the impact investors in those credits can to USD 320 million per year for coastal have on local communities.46 conservation and restoration projects as corporate demand grows.48

Assumptions The following assumptions have been made in the analysis:

Timeframe Restoration costs Survival rates Carbon price The analysis assumes that blue The estimated restoration The analysis assumes a The analysis assumes that carbon credits are generated costs per hectare are based on successful restoration with the carbon price will not and issued every 5 years, but Earth Security’s analysis of 120 survival rates of 85–90% change over time. In practice, no precise data exists on the restoration projects worldwide. after the initial 3–4 years, there is uncertainty about the progressive biological growth Average mangrove restoration which includes early re- trajectory of carbon prices of the total mangrove stock costs are calculated to be USD planting in early years for and they will fluctuate in price throughout the period and the 9,500/ha for the first five years, mangroves that have not taken over time, leading to varying subsequent sequestration and an additional USD 1,900/ hold.49 50 Successful projects financial return figures. potential in intervening ha (20%) every five years. The that follow scientific guidance timeframes. The figures are figure covers plot assessment, on restoration tend to have high therefore presented on a 20- pre-planting, preparing survival rates. Projects that do year aggregate, which is the seedlings, planting, costs and not follow the science, and get typical length of mangrove monitoring, sampling methods, mangrove species and planting restoration projects. replanting dead trees, and methods wrong, can have monitoring planted mangroves. survival rates as low as 10%. This reflects the vast majority (See Appendix ‘Mangrove of projects reviewed. In Restoration for Investors 101’ practice, restoration costs are on page 56.) context- and project-specific. For example, very high staffing costs can lead to projects with costs of more than USD 100,000/ha, although these have been found to be outliers. FINANCING THE EARTH’S ASSETS 14 THE SIZE OF THE PRIZE FOR MANGROVES

Getting the restoration of mangroves right

Despite their potential, the world Following the science is critical to The appendix outlines best practices is awash with failed mangrove improving the success rate of restoration in mangrove restoration that investors restoration projects. projects. Projects that do not follow should be aware of as they look to scientific and conservation best practice leverage the value of this natural asset. Many things can go wrong, from the can have mangrove survival rates as low mangrove species that are planted, the as 10%. Successful projects on the other methods used in a particular ecological hand can achieve 85–90% survival rates setting, and the quality of relationships after 3–4 years.51 52 with local stakeholders and authorities.

Sponges, growing on mangroves in Indonesia,

help to protect mangrove roots and absorb CO2 Alvaro Herrero Lopez-Beltran / Mangrove Action Project FINANCING THE EARTH’S ASSETS 15 THE SIZE OF THE PRIZE FOR MANGROVES

CASE STUDY THE PRICE OF BLUE CARBON MUST BE HIGHER TO SUPPORT REGENERATION

Fishermen and villagers collecting wild honey in the Sundarbans, India. Dhritiman Mukherjee / Mangrove Action Project

In 2018, the tech giant Apple partnered The project is expected to sequester However, at these market prices, the sale with Conservation International roughly 1.2 million tonnes of CO2 of the ‘blue carbon’ would cover 20–30% Colombia, marine and coastal research over its 30-year lifetime. In addition, of project costs; the potential funding institute INVEMAR, local government it will deliver a range of biodiversity, gaps would need to be covered through organisations, and CVS (Coporación hydrological, social and cultural returns. a combination of grants and revenues, autónoma regional del Valle del Sinú) including tourism fees.54 to protect and restore 11,000 hectares The project is currently undergoing of mangrove forests in the Cispatá Bay, verification. Carbon credits will be Colombia. issued by VERRA (a leading developer and manager of carbon standards) Apple supported the NGO consortium and certified under their Verified to protect and restore the mangroves Carbon Standard (VCS) and Climate, in collaboration with the communities Community and Biodiversity Standard and helped to develop pioneering (CCBS). Credits are expected to be methodologies to calculate the carbon sold in the voluntary carbon market for sequestered in soils in and around the prices between USD 5–10 / tonne. The coastal forests, as well as above- first phase (2014–2018) is expected to ground biomass.53 generate 68,779 credits. FINANCING THE EARTH’S ASSETS 16 THE SIZE OF THE PRIZE FOR MANGROVES

2.2 SOVEREIGN NATURAL ASSET OWNERS

The role of climate Figure 2 policy in realising the Total carbon sequestration potential from restored mangroves, Soil Above- value of mangroves country-level estimates Organic ground Source: Mapping Ocean Wealth Explorer Carbon Carbon

While mangroves are found in over Indonesia 100 countries in tropical and sub- Mexico tropical zones, just 25 countries Brazil hold almost 90% of the planet’s Myanmar total mangrove area, as well as its United States restorable potential. Australia Colombia Coastal ecosystems are being Malaysia overlooked by global climate finance. Cuba They account for just 1% of the total Philippines climate finance flows for adaptation Mozambique from public and private actors. In Thailand 2017–2018, climate finance surpassed Bahamas half a trillion dollars — USD 579 billion, Vietnam 25% higher than in 2015–2016. However, Nigeria just USD 300 million in adaptation India climate finance went to coastal Ecuador protection, 0.05% of total global climate Venezuela finance.55 Nicaragua Bangladesh Mangroves can be an effective Suriname tool for nature-based adaptation Belize and mitigation. They can also give Senegal mangrove-holding countries a wider set Honduras of opportunities for climate finance and Madagascar bilateral carbon trading. Pakistan Cambodia There is significant variability in carbon Gabon density across different types of Guinea-Bissau mangrove forests. Countries with large Cameroon mangrove forests, such as Bangladesh, Guinea do not always have equivalently Kenya large carbon stocks.56 Considering Tanzania differences in carbon productivity French Guiana across countries will be essential to any Sri Lanka global financing strategy. Guyana Solomon Islands These differences in carbon density DR Congo are embedded into the calculations Haiti in Figure 3 (opposite). These show Ghana the potential financial benefits that Guatemala different countries could derive from New Zealand investing at scale in regenerating their Costa Rica mangroves, at different carbon price El Salvador scenarios. Gambia 0 25 50 75 100 125

Carbon from restored mangroves

Million tonnes CO2 FINANCING THE EARTH’S ASSETS 17 THE SIZE OF THE PRIZE FOR MANGROVES

Figure 3 The 25 countries holding over 90% of the total mangroves and restorable potential

Country Total Total Global Carbon Expected Flood Inclusion of Mangrove Restorable Restorable Sequestration return at Protection mangroves Coverage Area Area Potential carbon price Benefits in NDC e Hectares a Hectares a % Million tonnes of USD 60 USD billions d A Adaptation a b of CO2 per tonne M Mitigation USD millions c

Indonesia 2,703,410 186,611 23.8 136 5,332 0.32 No Mexico 974,353 145,505 18.5 57 1,191 7.42 Yes A + M Brazil 1,096,412 49,081 6.3 23 623 0.72 No Myanmar 491,957 43,571 5.6 17 352 0.14 Yes A Australia 972,461 33,635 4.3 15 370 0.79 No Mozambique 293,991 25,899 3.3 8 66 1.94 No United States 188,790 22,688 2.9 15 560 11.31 No Colombia 226,598 21,605 2.8 12 411 0.03 No Thailand 232,683 17,471 2.2 7 164 0.15 No Vietnam 159,883 17,405 2.2 6 120 6.45 Yes A Malaysia 468,599 16,764 2.1 12 464 0.14 No Cuba 337,046 16,019 2.0 11 417 0.59 Yes A Philippines 270,822 15,647 2.0 9 300 0.76 No India 346,713 15,241 1.9 6 100 7.84 Yes A Bangladesh 411,120 13,799 1.8 4 6 1.56 Yes A + M Venezuela 280,730 12,020 1.5 5 138 0.07 No Nigeria 650,576 10,993 1.4 6 187 0.21 No Ecuador 146,488 10,709 1.4 5 160 0.22 Yes A Nicaragua 87,589 10,393 1.3 4 104 0.03 Yes A + M Madagascar 261,177 8,039 1.0 3 57 0.36 Yes A + M Senegal 123,390 7,827 1.0 3 69 0.03 Yes A + M Bahamas 97,263 7,114 0.9 7 308 1.55 Yes A + M Honduras 50,150 7,036 0.9 3 80 0.02 Yes A Suriname 76,591 6,827 0.9 3 95 0.70 Yes A + M Belize 43,316 6,522 0.8 3 91 0.50 Yes A + M

a Estimates by Mapping d Estimated benefits of coastal ecosystems program. Australia has Ocean Wealth Explorer. mangroves from avoided or mangroves in other reported mangroves within b Estimated carbon flooding to property.57 climate instruments. For its forest category in its sequestration potential e Mangroves included in example, Indonesia includes GHG inventory and the US from restored mangroves a country’s Nationally mangrove forests within Interagency working group

in million tCO2. Determined Contributions their planned jurisdictional- is developing an inventory c Estimated financial return (NDC). While not explicitly scale REDD+ program and for blue carbon.58 on trading carbon credits mentioning mangroves in Brazil includes areas with from restoration at a carbon their NDCs, some countries mangroves (Cerrado and

price of USD 60 / tCO2. may include blue carbon, Amazon) in their REDD+ FINANCING THE EARTH’S ASSETS 18 THE SIZE OF THE PRIZE FOR MANGROVES

Regeneration financing Figure 4 potential at different carbon Financial return of mangrove restoration at a carbon price of USD 30 per tonne CO USD 30/tCO 2 2 price scenarios Source: Earth Security analysis and Mapping Ocean Wealth Explorer

The ability of mangroves to Indonesia United States sequester carbon varies from Malaysia country to country, depending Bahamas on local ecosystem conditions Cuba Colombia and the carbon density of Philippines mangrove types. The following Pakistan graphs show the financial Nigeria Solomon Islands potential of each individual Haiti country at different carbon Gabon pricing scenarios. DR Congo Sri Lanka Cameroon Guyana Costa Rica Ecuador New Zealand Kenya Suriname Belize Tanzania El Salvador Guatemala Gambia Ghana Guinea-Bissau Honduras French Guiana Guinea Cambodia Venezuela Senegal Nicaragua Madagascar Thailand Brazil India Australia Vietnam Bangladesh Myanmar Mozambique Mexico -500 0 500 1,000 1,500 2,000 2,500

Estimated financial return of restoration USD Million FINANCING THE EARTH’S ASSETS 19 THE SIZE OF THE PRIZE FOR MANGROVES

Figure 5 Financial return of mangrove restoration at a carbon price of USD 60 per tonne CO2 Source: Earth Security analysis and Mapping Ocean Wealth Explorer USD 60/tCO2

Indonesia Mexico Brazil United States Malaysia Cuba Colombia Australia Myanmar Bahamas Philippines Nigeria Thailand Ecuador Venezuela Vietnam Nicaragua India Suriname Belize Pakistan Honduras Senegal Mozambique Gabon Madagascar Cameroon Sri Lanka Kenya Cambodia Guinea-Bissau Solomon Islands Tanzania Guyana DR Congo Haiti Guinea French Guiana Costa Rica New Zealand Guatemala Ghana El Salvador Gambia Bangladesh 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

Estimated financial return of restoration USD Million FINANCING THE EARTH’S ASSETS 20 THE SIZE OF THE PRIZE FOR MANGROVES

Key insights and implications for COP26

Mangroves for Mexico Avoiding double-counting The UNFCCC Standing Getting all 25 ‘mangrove Committee on Finance nations’ up to speed

None of the top 10 countries As companies and investors Countries will be able to trade Only 14 of the top 25 in terms of restorable develop ambitious climate and emissions reductions under countries have recognised area of mangroves, except nature-based investments co-operative agreements their potential as a climate Mexico, have included the and seek to buy carbon developed under Article solution in their Nationally carbon mitigation potential of credits from these countries’ 6 of the Paris Agreement. Determined Contributions mangroves in their NDCs. mangroves, these countries While blue carbon credits (NDCs). Only eight of these This gives Mexico the must ensure that emissions are currently only sold in the countries (Mexico, Bangladesh, opportunity to be at the reductions from these voluntary carbon markets, Nicaragua, Madagascar, forefront of bilateral mangrove stocks are not they are expected to start Suriname, Senegal, The mangrove-related carbon double-counted. The avoidance trading in South Korea’s Bahamas, and Belize) financing deals from 2021 of double counting should be emissions trading scheme have explicitly recognised onwards. a priority for governments (compliance market) in 2021 the carbon sequestration as they develop regulations — a precedent that COP26 capabilities of mangroves It also suggests that the and markets to constrain and may use to amplify this in their national strategies, other countries (Indonesia, monetise GHG emissions given trend.60 while six only consider their Brazil, Myanmar, Australia, the ongoing fragmentation of adaptation potential. Mozambique, US, Colombia, global carbon markets.59 COP26 will be the first time Thailand, and Vietnam) nature-based solutions Eleven countries do not even should include mangroves are on the agenda of the mention mangroves in their in their greenhouse gas and UNFCCC Standing Committee NDCs — Indonesia, Brazil, national forest inventories as on Finance, a platform for Australia, Mozambique, USA, they revise their Nationally public and private sector Colombia, Malaysia, Thailand, Determined Contributions stakeholders to promote the Philippines, Venezuela, (NDCs) for COP26. linkages to mobilise climate and Nigeria — although finance. Mangroves give Australia and the US are The United States, the country a series of countries the including blue carbon in their in the world with the most to opportunity to benefit from GHG inventory and Brazil and win from the flood protection opportunities if blue carbon Indonesia include mangroves benefits of mangroves, would prices can finance the in their REDD+ programs. As do well to recognise their necessary restoration costs. these countries prepare their potential as a natural asset for NDC updates for COP26, they climate adaptation. must recognise the significant carbon value their mangroves contain, while safeguarding against double counting. This can be done through closer co-operation with the International Partnership for Blue Carbon, which supports countries to integrate blue carbon into NDCs and improve the guidance for measuring blue carbon stocks.61 62 Doing so will increase the opportunities to tap into climate finance, including access to innovative financing mechanisms such as blue sovereign bonds.63 64 FINANCING THE EARTH’S ASSETS 21 3 MANGROVES IN INVESTMENT DECISION-MAKING

Can Gio mangrove forest in Ho Chi Minh city, Vietnam. NDQ / Shutterstock FINANCING THE EARTH’S ASSETS 22 MANGROVES IN INVESTMENT DECISION-MAKING

Measuring the economic benefits These benefits, presented in the 3.1 provided by mangroves is key to framework below, can be incorporated realising their potential as a natural into the decision-making process FIVE VALUE DRIVERS asset. Earth Security has identified five of investors in any type of coastal areas where mangroves can provide development, across infrastructure, FOR INVESTMENT value to companies and investors, energy, agriculture or urban depending on the circumstances. development.

Figure 6 Five areas of investment value for mangroves

Value Carbon Asset sequestration protection

Function A powerful carbon sink that supports A natural barrier that provides cost- business decarbonisation goals, effective protection against coastal including through voluntary carbon and tidal erosion, storms and natural markets. hazards.

Business case Investing in nature-based solutions Infrastructure firm CH2M has (NBS) such as mangroves is becoming estimated that in the Philippines over a a valuable tool for companies to offset 15-year investment period, conserving residual emissions that are harder to mangroves and coral reefs can be 50 eliminate in the short term. Danone times more cost-effective as a coastal has been a pioneer in investing in protection investment than building a NBS, including mangroves, since cement seawall.67 By 2030, property 2010. In 2011, the company created damage due to coastal storm surges the Livelihoods Fund, an independent and sea level rise is set to increase entity that is open to other corporates. by a factor of 10, making investments Nine other companies are currently in these green infrastructures members, including Credit Agricole, increasingly important.68 Mangroves Hermes and Michelin. The fund are the cheapest restoration option, supports three mangrove restoration costing on average 3.6 times less projects in Senegal, India and than other coastal ecosystems.69 Indonesia, which between them are In Vietnam, the restoration of 8,961 projected to restore 18,420 hectares of hectares of mangrove forests alongside mangrove forest and sequester a 100km dyke line in the country’s 65 66 3.2 million tonnes of CO2e. most disaster-prone coastal provinces reduced dyke maintenance by USD 7 million/year.70

Value metrics Value of carbon offsets generated Reduced CAPEX infrastructure (USD) construction (USD)

Tonnes of carbon sequestered Reduced OPEX infrastructure (annually) maintenance (USD/year)

CO2 emissions avoided Reduced insurance costs due to

(MgCO2 /year) lower risk (USD/year)

FINANCING THE EARTH’S ASSETS 23 MANGROVES IN INVESTMENT DECISION-MAKING

Balance Community Regulatory sheet development requirements

A tool to maintain the value of land, An asset to improve livelihoods A tool for cost-effective site economic activities such as tourism of local communities supporting remediation and restoration to meet and premium prices from certified incomes, sustainable fishing and regulatory standards and investors’ produce. Intact mangroves can agriculture. environmental requirements. increase the value of land.

In Abu Dhabi, engineering firm Arup Better management of local mangroves Mangrove conservation and restoration led a redesign of the 120 hectares can increase household incomes, provide nature-based remediation Tamouh Reem Downtown project, for example through higher seafood value, for industries such as extractives, preserving mangroves to support a yields. In Senegal, following the large- energy, and infrastructure that are cooler microclimate, remove the cost of scale restoration of mangroves by the subject to stringent environmental a planned sea wall, canal and dredging, Livelihoods Fund, 84% of households regulations.74 In Panama City, Suez and reduce costs for maintaining the reported a decrease of saltwater replanted 23 hectares of mangroves natural park.71 In Indonesia, shrimp intrusion into their rice fields; 15% of to offset 10 hectares affected by the farming has been one of the main rice fields that had been abandoned construction of a wastewater plant.75 drivers of mangrove deforestation. due to excessive salt were restored to In Australia, Origin Energy and If left intact, Boston Consulting Group cultivation and today 4,200 additional ConocoPhillips included over 40 hectares estimates that Indonesian mangroves tonnes of fish, shrimp and oysters are of mangroves in an environmental could add up to USD 8,000/ha per year caught by local people every year.73 management plan for an LNG project in to shrimp farmer incomes through In Pakistan, mangrove restoration order to meet the state’s marine offset increased yields, higher premium by coastal wind power project, ZPL, requirements.76 Mangroves also act as prices for certified production and the enabled local fishermen to double natural water filters for fertilisers, toxins sale of carbon offset credits.72 their catch of high-value shrimp for the and pollutants, with an estimated service export market, doubling their income as high as USD 582,000/km/year.77 In from USD 4,500 to USD 9,000/year. the Potengi Estuary, Brazil, mangroves help filter heavy metals, which would otherwise cost the tannery industry an additional USD 13 million in remediation, or USD 10,280/ha.78 79

Increase in land value Increase in local community income Reduced regulatory costs (USD) and value of product (permitting, fines) (USD/year) (No. of people / income growth)

Increase in sustainable production Number of local jobs and enterprises Reduced remediation costs (cost benefit premium (USD/year) created ratio of mangrove restoration v other remediation options) (USD/year)

Increased income from tourism Reduced costs from local community Improved access to international capital (USD/year) conflicts (USD/year) (by meeting international investment E&S performance standards) FINANCING THE EARTH’S ASSETS 24 MANGROVES IN INVESTMENT DECISION-MAKING

3.2 CASE STUDY ZEPHYR POWER LIMITED

The investment in the restoration of mangroves by a wind power project in Pakistan could return 20 times the value in the protection of physical assets against coastal erosion, saving the project developer and its investors up to USD 7 million over the project’s 25-year timeframe, while doubling the income of local communities.

Wind turbines on the Zephyr Power site, Sindh Province, Pakistan. Hasan Halai FINANCING THE EARTH’S ASSETS 25 MANGROVES IN INVESTMENT DECISION-MAKING

Earth Security worked in The Project collaboration with CDC Group and Zephyr Power Limited to assess the value that In 2017 Zephyr Power Limited (ZPL) At the start of construction, ZPL, in mangroves provide to the began the construction of a 50 MW wind partnership with the Government power project, located near Bhambore, of Sindh’s Forestry Department, investment project as a nature- Gharo approximately 60km from implemented guidelines to protect what based solution. It has estimated Karachi, Pakistan. The project is built on remained of the ecosystem, and to plant the return on investment that the Indus River Delta – the 5th largest new mangroves strategically around the delta system in the world and the 7th site. These successfully seeded to create a this regeneration could accrue largest mangrove ecosystem. site rich in mangroves. for the project over the next The project, which became operational The site’s ecological value was 25 years of operation.80 in 2019, has 25 wind turbines. CDC incorporated into the design, engineering Group invested USD 41 million for the and construction of the civil infrastructure construction of the project making it the (i.e. road network, creek crossings, etc.). largest shareholder in ZPL. A proactive mangrove protection and rehabilitation programme, coupled with The project site is predominantly barren a community involvement plan, were inter-tidal mudflats and mangrove. It central to the project’s plan to mitigate had become degraded due to the cutting its social and environmental impact. This of mangroves for firewood, fishing, has helped the project to evolve from an crabbing and camel grazing by the local impact mitigation plan into a proactive communities, who depend on them for build-up of ecological assets. their livelihood. This over-harvesting increases the long-term risk of the project The collaboration with the local due to coastal erosion, climate change and government helped to raise awareness the rise in sea level. among local communities of the value of mangrove protection. Today, ZPL’s CEO Early on, CDC Group and ZPL recognised Kumayl Khaleeli sees that the site is the importance of improving the site’s flourishing: “Our partners see that these ecological value, and the role that are decisions we make every day. The mangroves could play in increasing the plan has been moulded as the project has project’s climate resilience and bringing grown and as we see the site settle over broader benefits to local communities. time.”

Figure 7 Key Facts: ZPL

Project company Zephyr Power (Pvt.) Limited (ZPL) Capacity 50 MW wind power project Location Deh Kalar Sarkari (Bhambore, Gharo), Taluka Mirpur Sakro, District Thatta, Sindh Province, Pakistan Site 1,028 hectares Habitat types Intertidal mud flat (predominant) and degraded mangrove forest Operations Commenced on March 28, 2019 Sponsors CDC Group and 3 local investors Lenders CDC Group, FMO and United Bank Limited FINANCING THE EARTH’S ASSETS 26 MANGROVES IN INVESTMENT DECISION-MAKING

THE INVESTMENT VALUE OF MANGROVES

1 2 Asset protection Local economy

Pakistan is one of the world’s five most The stone pitching in the internal road The project is close to more than half a vulnerable countries to climate change. network (large inter-locked stones dozen small coastal communities that Rising sea levels increase the risks to that are set in mortar), which protects depend on subsistence artisan fishing, ZPL’s infrastructure.81 The site is located civil infrastructure such as roads, selling their catch to local market in a tidal delta, meaning that water levels wind turbine platforms and submarine intermediaries. The catch has dwindled rise and fall across the site over the cabling, is exposed to erosion and over recent years due to worsening course of a day and vary in height due damage during high tide season. In a ecological conditions. As a result of the to the seasonality of high tides. This can strong high tide season, the worst-case project’s conservation and regeneration wear down the civil infrastructure, such outcome is the loss of the internal road efforts, local fishermen have begun to as roads and wind turbine platforms, so and wind turbine platforms, requiring see a substantial increase in fish, shrimp that they require frequent maintenance. frequent maintenance. and crab populations, creating direct economic value for local communities. Mangroves act as a natural physical Increased mangrove coverage has The regeneration programme barrier protecting the infrastructure by improved site stability and reduced has generated some limited local strengthening the soil conditions and soil erosion, providing asset protection employment, but following its success, acting as a buffer against the water from regular tidal erosion, as well as ZPL plans to cultivate its own mangrove flow. In turn, this reduces damage to the from extreme storms and sea-level seedlings by setting up a nursery, which infrastructure, which cuts maintenance rise. The mangroves are estimated to would provide additional livelihoods. costs for the business. The flood save USD 35,000 – USD 40,000 a year in protection value provided by mangroves maintenance costs (USD 1 million over Around 60 local community members in the Sindh delta region ranges from the 25-year asset lifetime). access site tidal creeks daily to catch USD 3,500/ha for areas near Port Qasim, fish, crabs, and shrimp. The company’s to USD 11,900/ha close to Karachi.82 The physical assets that are protected access roads have improved access to by mangroves would cost USD 6 million fishing grounds. Community outreach The project’s assets are situated in a to replace (USD 3 million to replace activities are increasing community tidal area that is regularly inundated road infrastructure; USD 3 million for awareness of the value of sustainably during high tides and highly exposed to complete replacement of submarine using mangroves for fuelwood and the impacts of climate change, including cable). fishing. sea level rise, increased flooding and erosion.

“ We know that nature-based solutions have a tangible value in helping project assets to become more resilient to climate “ change. Our partnership with Earth Security is looking at these economic values more systematically and showing other global investors how they can benefit from integrating nature-based approaches in their projects.”

Nik Stone, ESG manager, CDC Group FINANCING THE EARTH’S ASSETS 27 MANGROVES IN INVESTMENT DECISION-MAKING

3 Regulatory requirements

As a result of mangrove restoration and The mangrove protection and restoration The HMMR covers 918.7 hectares, which improved management, local fishermen programme has enabled ZPL to meet are home to eight local communities. have reported a doubling of the catch the environmental requirements of The HMMR ensured that construction for higher value shrimps, from 5kg to international investors, in line with minimised any further damage, and where 10kg a day. The communities sell this the IFC Performance Standards. It has possible improved natural drainage. It shrimp species to an intermediary also established a deeper co-operation also offset the unavoidable impact of the for USD 2.5/kg. The increased yield is between the project developer and CDC project to 1.2 hectares of mangroves on almost doubling the annual income of 60 Group on the integration of nature- site by planting 14 hectares of mangroves, fishermen from USD 4,500 to USD 9,000/ based climate solutions into the latter’s and protecting and monitoring a range of year (giving the community an additional investment strategy. wildlife and community impacts.83 USD 270,000/year on aggregate). ZPL’s CEO recognised early the value In addition, ZPL will employ 10 local that improved ecological health and people full-time (at a salary of USD mangrove restoration could provide to the 105/month) to help manage and project. He worked in close collaboration secure the replanted areas, in a region with CDC Group and IUCN Pakistan to where employment opportunities are develop the project’s Habitat Monitoring limited. This will create income for the and Management Report (HMMR) to community of around USD 12,600/year — address the biodiversity impacts of the a total of USD 315,000 over 25 years. construction of 25 turbines, one control building and 13 km of access roads.

Mangroves regenerating on the Zephyr Power site. Haider Mukhi FINANCING THE EARTH’S ASSETS 28 MANGROVES IN INVESTMENT DECISION-MAKING

Figure 8 The return on investment of mangrove restoration for ZPL

Item Description Regeneration Cost Additional Investment Savings Value USD, 25 years USD, 25 years USD, 25 years

Initial costs for the mangrove Baseline studies and 50,000 programme stakeholder engagement

Staff costs for the mangrove 2 full-time employees 63,000 nursery and monitoring (USD 105/month/employee)

Projected direct costs for USD 17,100/ha for 25 years * 239,400 regenerating 14 hectares on site

Asset replacement costs Road (USD 3 million) 6,000,000 without protection of Submarine cable mangroves (USD 3 million) **

Additional maintenance cost USD 35,000 – 40,000/year ** 1,000,000 estimated without factoring the protection of mangroves

Additional economic Additional income of USD 7,065,000 value generated for local 270,000/year for 60 fisherfolk communities over 25 years from increased yields of export shrimp is USD 6.75 million, plus USD 315,000 in direct employment over 25 years **

Total 352,400 7,000,000 7,065,000

Net value to the project’s 6,647,600 investment

Net value to the project’s 13,712,600 investment plus the local community

* The estimated restoration 1,900/ha (20%) every five of projects reviewed. In ** Based on interviews with costs per hectare are years. The figure covers plot practice, restoration costs CDC Group and Zephyr Power based on Earth Security’s assessment, pre-planting, are context- and project- Limited combining project analysis of 120 restoration preparing seedlings, planting, specific. For example, very materials and the gathering projects worldwide. Average costs and monitoring, high staffing costs can lead of anecdotal evidence, and mangrove restoration costs sampling methods, replanting projects to have costs of projected over the 25-year are calculated to be USD dead trees, and monitoring more than USD 100,000 per lifespan of the asset. 9,500/ha for the first five planted mangroves. This hectare, although these have years, and additional USD reflects the vast majority been found to be outliers. FINANCING THE EARTH’S ASSETS 29 MANGROVES IN INVESTMENT DECISION-MAKING

TIMELINE

From biodiversity offsets to ‘natural asset’

What started for ZPL as biodiversity A mangrove nursery is to be established ZPL will also review local fishing management has evolved into a on site to support ZPL’s re-planting of practices and nets used by fishermen strategic investment in a natural 14 hectares of mangroves over the next to prevent immature catches that would asset, which could increase the area two years, which would take the total slow environmental rehabilitation. of mangrove regeneration by five regenerated mangrove coverage to 64 times the original plan. hectares — almost five times the amount originally planned.

2016 2017 2018 2019 2020

CDC Group and other ZPL implements site ZPL establishes a The project starts to Thanks to the co- international investors procedures to protect partnership with IUCN operate in March. The operation with the Sindh make biodiversity existing mangroves Pakistan, to co-develop Forestry Department Forest Department, conservation a key after observing an a Habitat Monitoring continues planting early results include lending requirement. increase in fishing due and Management additional areas. ZPL 50ha with increased ZPL designs and to the construction Report (HMMR), continues to maintain mangrove coverage on implements a habitat of the internal road which calculates the site procedures as site. The recolonization mitigation programme network, in areas environmental impacts previous planting of of mangroves is to offset any negative previously not and defines the suite mangroves sprout and expected to improve impacts of construction accessible. ZPL also of interventions to mature. water flow and natural and increase climate collaborates with the promote ecosystem draining patterns resilience. The project Government of Sindh’s enhancement. on site, helping the achieves financial close Forest Department, mangroves regenerate in May 10, 2017. providing its site for naturally. Local the regeneration fishermen are already of 30 hectares of seeing a significant mangroves in line with increase in catch. the government plan. The collaboration helps to engage local communities and raise awareness of the benefits of protecting mangroves. FINANCING THE EARTH’S ASSETS 30 MANGROVES IN INVESTMENT DECISION-MAKING

3.3 FIVE KEY MARKETS FOR MANGROVES

There are five areas of opportunity for finance and investment in mangrove assets:

Aerial view of a maze of mangrove forest in Siargao Island, the Philippines Janos Leo G. Andanar / Mangrove Action Project FINANCING THE EARTH’S ASSETS 31 MANGROVES IN INVESTMENT DECISION-MAKING

1 NATURE-BASED INVESTMENT FUNDS

Investment funds are a practical entry Investors can integrate the value of Technology companies will increasingly point for investors to fund revenue- mangroves by investing in sustainable offer investment opportunities based generating conservation enterprises aquaculture models that rely on them as on increasing the efficiency and scale of that conserve and restore mangroves. a nature-based production asset. bio-carbon markets.

A number of innovative equity-based Shrimp aquaculture, a USD 45 billion New technologies, in particular those funds, rarely exceeding USD 100 industry, is now the world’s fastest- helping to scale bio-carbon finance, are million in size, have sought to generate growing protein source and most becoming part of the new landscape of market-based returns while protecting valuable farmed seafood commodity.86 natural capital investing. Remote sensing mangroves. They include the USD 22 While this has been one of the leading and the use of drones in regeneration million Meloy Fund, launched by Rare drivers of mangrove deforestation in efforts, for example, can improve — a conservation NGO — and the USD Asia, mangroves can offer an important the scale and cost-efficiency of blue 132 million Sustainable Ocean Fund resilience path to the industry. carbon sequestration projects. Artificial (SOF), launched by Althelia in 2016 and intelligence and blockchain applications managed by Mirova Natural Capital. The In Indonesia, Boston Consulting Group can reduce transaction costs and SOF invests in companies and projects estimates that mangroves could add up to aggregate small-scale projects. High with positive impact on ocean resilience in USD 8,000/ha/year to shrimp farming by costs for monitoring and verifying blue emerging markets, including sustainable increasing yields, improving water quality, carbon mangrove projects are a barrier to seafood, blue infrastructure and ocean raising premium prices for certified the rapid scaling of carbon offsets in this conservation. production and through the sale of space and these services are expected carbon offset credits.87 Investment funds to be in higher demand as these markets Investors at first close included the should leverage conservation to drive develop.91 Remote sensing can reduce the European Investment Bank, AXA performance. For example, the Meloy time and effort needed to measure coastal Investment Managers, the Inter-American Fund provides debt and equity investments vegetation structure and blue carbon — Development Bank, the FMO and the of USD 500,000 — USD 2 million to fishing- from several days needed for field surveys Caprock Group. SOF aims to protect related enterprises with a conservation to just a few hours.92 at least 17,500 ha of mangroves from impact on 1.2 million hectares of coastal deforestation and degradation, amounting habitat, including mangroves, in the The Global Mangrove Trust is developing 88 to more than 9 million tonnes CO2e at Philippines and Indonesia. Its USD 1 GROVE: FSL. This crowd-funding platform the fund level.84 Investors in these funds million investment in Philippines-based and blockchain verification system aims need to take a long-term horizon (8–12 Meliomarin, a vertically integrated to cut third-party verification costs for years) and be willing to take outsized risk aquaculture company, will support better small-scale mangrove conservation and to attain a commercial financial return management of 12,000 hectares of marine restoration projects and help to scale alongside environmental and social and mangrove area that will lead to USD the market for blue carbon finance.93 impact.85 2.5 million in additional income to 16,000 GROVE: FSL is partnering with DBS local fishermen by 2021.89 Bank to mobilise USD 38 million in commercial capital from corporates Aqua-spark, an open-ended fund in the and individuals in three years to finance Netherlands, is looking to capitalise over 10,000 hectares of mangroves on industry growth while reversing that could sequester up to 8.2 million 94 environmental damage. It aims to raise tCO2e. Pachama, a US-based tech up to USD 300 million over the next 10 start-up, raised USD 4.1 million from years and is making initial investments Silicon Valley investment firms Saltwater of USD 250,000 — USD 5 million in up to and Lowercase Capital to develop a 80 sustainable aquaculture companies technology-verified marketplace for forest that will have a positive impact on coastal carbon offsets by using machine learning ecosystems and mangroves within 10 on a combination of satellite, drone, and years.90 lidar images to calculate the size and volume of trees to remotely verify and monitor carbon storage.95 FINANCING THE EARTH’S ASSETS 32 MANGROVES IN INVESTMENT DECISION-MAKING

2 BLUE BONDS

Blue bonds have emerged as an effective Mangrove conservation and Sovereign and sub-sovereign blue bond way to channel private finance towards regeneration, in particular in countries issuances, such as municipal finance, the blue economy in both the private and identified in this report, offer effective are key to the blue economy, but require public markets. projects for the use of blue bond aggregation to scale. proceeds. Blue bonds, a sub-set of the green and Although not labelled as a ‘blue bond’, climate bonds market, raise capital to Blue bonds can be used to finance the USD 400 million Miami Forever Bond finance activities earmarked for the blue mangrove regeneration, yielding is just that. This municipal instrument economy: sustainable fisheries, coastal economic benefits that range from climate will direct USD 192 million of proceeds to infrastructure, or marine protected adaptation, carbon sequestration, fish ‘green-grey infrastructure’, including sea areas.96 Blue bonds are new to the market, stocks replenishment and tourism. As part walls and replanting mangroves, in order representing less than 1% of green and of marine protected areas (MPAs) they can to mitigate the impacts of sea-level rise climate bond issuance.97 help increase fish stocks by 400% over a and flooding.102 Leveraging the municipal decade.99 bond market for conservation finance The first blue bond was issued in 2018 by — a market worth almost USD 4 trillion the Republic of the Seychelles, a USD 15 Blue Finance, with support from the in the US alone — can offer a pathway million 10-year bond with a 6.5% coupon Sustainable Ocean Fund, has secured an for exponential growth.103 Financing created with the support of The Nature 8-year USD 2.5 million bond to finance the aggregation is key to achieving issuances Conservancy, which was privately placed Arrecifes del Sureste Marine Protected for the public fixed income markets. with TIAA, Prudential Financial and Area (MPA) in the Dominican Republic. The TNC’s ‘Blue Bonds for Conservation’ Calvert Impact Capital. Proceeds from project is expected to generate income programme builds on the success of the the bond are directed to projects that from user fees and blue carbon credits. sovereign issuance in the Seychelles, and improve coastal and marine management Blue Finance plans to replicate this model will launch 20 debt conversions over the of coral reefs and mangroves and the across 20 MPAs in developing countries by next five years aiming to raise USD 1.6 implementation of the government’s 2030.100 Blue bonds should also consider billion and create 1.5 million square miles Marine Spatial Plan.98 Since 2018, a focusing on greening aquaculture. of new marine protected areas globally.104 further six blue bonds from sovereign Regenerative aquaculture, done through and government-backed entities have integrated mangrove-shrimp production The Pacific Islands Forum Fisheries been issued. These include a USD 200 models, can protect mangroves while Agency and the Office of the Pacific million Nordic Blue Bond to rehabilitate helping to transform an industry that is Ocean Commissioner are also planning the Baltic sea and a number of World expected to grow significantly in coming to aggregate activities for sustainable Bank ‘Sustainable Development Bonds’ decades. These regenerative aquaculture fisheries and MPAs across 11 Pacific issuances with HSBC, Credit Suisse and models can restore mangroves, reduce countries to develop a Pacific Ocean Morgan Stanley as lead managers that upfront investment costs for inputs, Bond.105 support SDG 14 (Life Below Water). The and improve water quality, helping to Bank of China recently issued a USD control salinity intrusion and bio-filtration 500 million 10-year ‘Blue Bond’ that will ecosystem services. finance off-shore renewable energy and water management projects. Alune Aqua and Conservation International are developing a USD 50 million 5-year Regenerative ‘Mangrove Shrimp Bond’ to regenerate 510 ha of mangroves and generate 60,100 tonnes of blue carbon credits in addition to selling certified shrimp for the export market.101 Blue bonds at sovereign or industry level could allow investors to participate in sustainable economic growth. FINANCING THE EARTH’S ASSETS 33 MANGROVES IN INVESTMENT DECISION-MAKING

3 INSURERS AND RISK FINANCE PROVIDERS

The flood protection benefits of Innovative risk finance instruments are Multilateral regional insurance funds mangroves, which reduce flood damages using mangroves to improve insurance can leverage mangrove protection and by an estimated USD 65bn/year globally, products and pricing models. regeneration as a cost-effective tool to offer insurers a route to innovate with reduce disaster risk. nature-based solutions.106 In the Philippines, Conservation International is developing the Restoration According to the Caribbean Catastrophic In the last 10 years, private insurance Insurance Service Company (RISCO) Risk Insurance Facility, reef and mangrove companies have paid out more than USD for Coastal Risk Reduction. It is a restoration are among the most cost- 300 billion for coastal storm damage.107 social enterprise that seeks to invest in effective approaches for coastal risk The protective benefits provided by mangrove conservation and restoration reduction and adaptation.114 From 2012 coastal ecosystems to insured assets in areas with high-value coastal assets. to 2018, the World Bank provided USD 2 is a relatively new space, but set to RISCO was originally seen as a way to use billion to 76 disaster risk management become more important as climate the protection services of mangroves to projects that integrated nature-based change impacts increase. The Nature reduce insurance premiums. However, solutions, including USD 225,000 to Conservancy (TNC) and SwissRe premium prices in the Philippines were nature-based solutions including pioneered a ‘reef insurance’ model in already too low for this approach to work. mangrove restoration under the Greater Quintana Roo, Mexico linking hurricane Therefore, RISCO is looking to secure USD Paramaribo Flood Risk Management insurance payouts to the restoration of 10 million in annual fees from insurance project in Suriname.115 However, regional coral reefs.108 These parametric insurance companies that directly benefit from insurance facilities set up by donors and products require a good baseline of data, the increased protective functions of private insurance companies to deal with which is harder for mangroves, where mangroves for insured coastal assets climate risks are not making enough use such data is not yet readily available. and USD 10 million in blue carbon credits of this approach and could take a more over 10 years. Fees raised will fund proactive approach to improve the capital The Ocean Risk and Resilience Action community-based wetland conservation available for mangrove protection and Alliance (ORRAA), a collaboration between and restoration activities directly linked regeneration. AXA XL, TNC, Conservation International, to risk reduction. The pilot aims to cover WWF, Rare, Ocean Unite and Willis Towers 4,600 hectares of mangrove forest in the These include the Caribbean Catastrophe Watson, aims to develop a mangrove Philippines to reduce flood risks for 7,000 Risk Insurance Facility, the Africa Risk insurance product for the Caribbean in people.112 Capacity, the Southeast Asia Disaster the coming months.109 An initial baseline Risk Insurance Facility and the Pacific study, developed by TNC, the University In Florida, TNC has developed a Catastrophe Risk Assessment and of California, Santa Cruz and AXA methodology to identify and quantify the Financing Initiative Insurance Program.116 XL, proposes a mangrove parametric protective values of mangroves as natural They could include mangrove-specific insurance policy based on wind speed and infrastructure that could be integrated policies under the umbrella of catastrophe paired with a traditional indemnity policy in the Federal Emergency Management insurance, or offer mangrove restoration to cover both short-term and longer-term Agency (FEMA) community rating system as a conditional clause in hurricane restoration actions.110 Munich Re is also to bundle credits for wetland conservation or typhoon insurance programmes, working with the University of California and restoration with existing space to incentivise investments in natural Santa Cruz and TNC Risk Management preservation credits.113 infrastructure to improve disaster Solutions to develop Resilience Risk resilience and post-hurricane recovery.117 Transfer (RRT) Solution, which would embed nature-based solutions for coastal properties exposed to storm surges. Munich Re will pilot RRT Solution with a range of nature-based solutions, including wetlands and mangroves, in the Mississippi River basin.111 FINANCING THE EARTH’S ASSETS 34 MANGROVES IN INVESTMENT DECISION-MAKING

4 CARBON MARKET PROJECT DEVELOPERS AND INVESTORS

Patient capital funds that provide The value of mangroves can be better Preparing for the growth of the upfront capital for mangrove positioned to drive a ‘premium price’ compliance carbon market, as new restoration will be a key driver of the for blue carbon in voluntary carbon developments bring these markets blue carbon segment in voluntary markets. closer to recognising blue carbon. carbon markets. The social, economic and biodiversity Carbon offsets can fetch higher prices in For example, the Livelihoods Carbon benefits of mangroves — i.e. their value the compliance markets, but at present Fund is an impact investment fund beyond just carbon — often leads to few compliance markets accept credits seeking to develop carbon credits that price premiums in carbon markets. This from forestry or wetland offsets. The create a broader range of social and is opening the opportunity to develop publication of VCS Methodology for Tidal environmental benefits. 13 companies, new types of credits that can bundle Wetland and Seagrass Restoration in including Danone, Mars, SAP, Veolia, and together climate adaptation benefits for 2020 improves the rigour of mangrove Hermes have invested in the fund, which coastal resilience with carbon credits for conservation projects that can issue provides EUR 2–6 million in finance corporate buyers. credits and provides a standardised for large-scale landscape restoration methodology that could be accepted within projects (5,000–10,000 hectares) of For example, Verra and TNC have a registry for the regulated markets.121 degraded ecosystems. It is financing been working on a third-party verified three mangrove restoration projects framework that will be published in 2021 VNV Advisory, a project developer, has in Senegal, India and Indonesia, which for a ‘Blue Carbon Resilience Credit’. partnered with Worldview International between them are projected to restore The credit lays out a standardised Foundation to scale its existing Myanmar 18,420 hectares of mangrove forest and approach to bundling the adaptation mangrove conservation and reforestation 118 sequester 3.2 million tonnes of CO2e. and mitigation benefits of projects, under the CDM AR-AM0014 (Large Scale integrating mitigation metrics in the form A/R) methodology.122 The project is set to

The Third fund (LCF3) has a deployment of avoided CO2e emissions and adaptation restore 4,550 hectares of mangroves and target of EUR 100 million to deliver up to metrics in the form of flood protection sequester 14 million tonnes of CO2e over 23 million carbon offsets over 20 years. benefits. TNC estimates that Blue 20 years. It is expected to become the first Crucially, it will extend participation to Carbon Resilience Credits could mobilise blue carbon project to sell credits in the investors by distributing an annual cash- up to USD 320 million/year for coastal compliance market. According to Carbon based dividend. The fund will enable conservation and restoration projects as Pulse, the South Korean state-owned companies to define long-term carbon corporate demand grows.120 power utility, Korea Power Company purchasing commitments according to (KEPCO), and trading firm Ecoeye, are their decarbonisation commitment.119 investing in the mangrove reforestation project in Myanmar that will be registered under the Clean Development Mechanism (CDM) and generate offsets eligible in the Korean emissions trading scheme (ETS) — a compliance market.123

FINANCING THE EARTH’S ASSETS 35 MANGROVES IN INVESTMENT DECISION-MAKING

5 PHILANTHROPISTS AND FOUNDATIONS

Philanthropists are playing a key role Philanthropic capital drives innovative Grants used as guarantees to attract in helping to unlock private sector finance approaches. investors have also effectively shown they conservation finance. can lower the risk of pioneering financing The pipeline of bankable and scalable vehicles and make them more attractive A number of foundations have used projects remains sparse.128 Mangrove for private finance.132 For example, a philanthropic grants to ‘crowd in’ conservation projects tend to be USD 6 million seed investment from the conservation finance mechanisms. The small scale and illiquid, often run by GEF and a partial debt guarantee from MacArthur Foundation provided more than communities, governments and NGOs that US International Development Finance USD 1 million in grants to Blue Ventures, are not designing projects with private Corporation (DFC), enabled the Meloy which were used to finance pre-feasibility investors in mind.129 Investable projects Fund to raise investment from FMO, and project preparation studies for carbon often require technical assistance, JPMorgan Chase and Encourage Capital certifications, protecting 1,200 hectares low-cost debt, long-term and early- among others.133 of mangroves and generating 1,300 tonnes stage funding. These requirements are of blue carbon credits a year in Tahiry near-impossible to fund via market For the Seychelles blue bond, more than Honko, Madagascar.124 mechanisms. For example, IUCN’s Blue USD 10 million in de-risking was required Natural Capital Financing Facility (BNCFF) to complete the transaction. This included Upfront finance has been critical to is leveraging donor finance to provide grants of USD 5 million from the Leonardo support blue carbon regeneration interim financing and support early stage DiCaprio Foundation and the Grantham projects, from pre-project preparation blue natural capital projects to become Foundation to help the government buy phases to covering costs in the initial investable. back USD 22 million in debt, a repayment years before credits can be generated. guarantee from the World Bank, a The MAVA Foundation provided multi- In Indonesia, BNCFF is supporting Forest concessional loan from the GEF to cover year support to Guinea-Bissau to quantify Carbon to carry out a feasibility study for coupon payments, and political risk blue carbon stocks for 181,200 hectares restoring 15,000 hectares of mangroves insurance for arbitration default cover of mangroves before securing REDD+ in West Kalimantan and raise investment from the DFC.134 financing.125 Philanthropists help to create capital.130 The Global Innovation Lab for markets by supporting advancements in Climate Finance — a donor collective science, as well as new business model supported by the Rockefeller Foundation piloting. The Gordon and Betty Moore and Bloomberg Philanthropies amongst Foundation has supported research into others — has supported a number of systems that could decouple seafood early-stage financing vehicles in the production from mangrove destruction blue carbon and finance space, including and other environmental damage.126 the development of RISCO and GROVE: FSL. IUCN, the Global Environment Corporate foundations have also been Facility (GEF), Mirova Natural Capital, important to advancing blue carbon and the Coalition of Private Investment methodologies and the science of in Conservation (CPIC) have partnered to mangrove conservation. HSBC Australia develop the Nature+ Accelerator Fund. provided grants to the Blue Carbon Lab for the ‘Mapping Ocean Wealth’ research The Fund will leverage USD 8m in first programme, which helped to quantify loss junior equity from GEF to raise a the value of Australia’s coastal wetlands. further USD 42 million for the Fund that The research created a business case for will accelerate a portfolio of scalable, HSBC Australia to buy ‘Reef Credits’, a financially viable nature-based projects, tradable unit that quantifies and values including MPAs, blue carbon projects and projects to improve water quality flowing sustainable aquaculture.131 onto the Great Barrier Reef.127 FINANCING THE EARTH’S ASSETS 36 4 FINANCE BLUEPRINT THE MANGROVES 40 CITIES NETWORK AND A MUNICIPAL MANGROVE BOND FUND

River and mangroves behind Recife City, Pernambuco, Brazil. Cacio Murilo / Shutterstock FINANCING THE EARTH’S ASSETS 37 FINANCIAL BLUEPRINT

4.1 CREATING THE MANGROVES 40 CITIES NETWORK (M40 CITIES)

The world’s remaining mangrove stocks are concentrated in 750 regions around the planet’s tropical and sub-tropical belt. Of these, just 40 locations account for almost 70% of the mangroves still standing, and which currently store some 3 billion tonnes CO2e. An agile initiative that coordinates, aggregates and accelerates collective action among these locations could also provide a pathway to finance mangroves on a planetary scale.

Mangroves and rivers with the volcanic island of Nosy Komba, Madagascar. Christopher Scarffe / Mangrove Action Project FINANCING THE EARTH’S ASSETS 38 FINANCIAL BLUEPRINT

Most of these 40 locations identified Cities are emerging as increasingly The concept also builds on Earth contain at least one urban centre important political and economic Security’s work in the Philippines, one where coastal, estuarine or riverine building blocks for the global economy, of the world’s most exposed countries mangrove ecosystems are present. cities’ networks are an opportunity to to climate change. Funded by Germany’s share knowledge, accelerate political Federal Ministry for the Environment, There are medium-sized and larger leadership and collective action, and co- Conservation and Nuclear Safety cities, including Brisbane (Queensland, ordinate climate financing opportunities. (BMUB), Earth Security has developed Australia), Miami and Jacksonville a programme in collaboration with the (Florida, USA), alongside municipalities Examples include C40 Cities, a Asian Institute of Management (AIM) in in Brazil, Indonesia, Malaysia, Papua group that has grown from 40 to 96 Manila. Launched in 2020, the Bridging New Guinea, Myanmar, Bangladesh and cities around the world, and ICLEI, Leaders’ Initiative for Climate Resilience Mexico.135 These cities differ in the size of a global network of more than 1,200 (BLICR), hosted by AIM, brings together their economies; their creditworthiness municipalities acting on climate change. 10 mayors from local municipalities that and ability to borrow from capital These networks have shown the value are most vulnerable to climate change markets, and technical capabilities of co-ordinating mechanisms that can and 10 private sector companies, which needed to tap effectively into climate mobilise and support mayors and their are seeking to build greater climate finance. However, they share common administrations to accelerate climate resilience in their operations. challenges of making urban development action, and organise global collective more climate resilient; and for all of action in new ways.136 137 them mangroves can be a cost-effective asset for urban development and climate adaptation.

Panoramic of Estero Bay with mangrove islands in Bonita Springs, Florida. SunflowerMomma / Shutterstock FINANCING THE EARTH’S ASSETS 39 FINANCIAL BLUEPRINT

One of the participants in our programme Drawing on these models, we propose We see this programme as an is Alfredo Coro, Municipal Vice Mayor the development of M40 Cities: a opportunity not just to connect the of the Municipality of Del Carmen, in network of municipalities located leadership and opportunities available the Siargao Islands in the Philippines. along the planet’s mangrove belt. for mayors, but also to help global Mr. Coro has been at the forefront of The M40 would increase knowledge decision-makers in climate finance funds mangrove regeneration projects in their transfer, activate collective action and to ‘visualise’ the opportunity to invest in locality. He sees first-hand the value support the aggregation of financing mangrove regeneration on a planetary that these green infrastructures bring in opportunities. To begin with, the M40 scale. The network would also allow the terms of climate resilience and the local does not need to be a new institution aggregation of financing opportunities, economy. But also recognises that to – it can be created as a programme of for which we propose the establishment be sustainable, municipalities must find an existing structure such as C40s or of a ‘municipal mangrove bond fund’. new ways to tap into climate finance and ICLEI. A process must follow to engage private sector green investment. prospective municipalities, identify common areas of interest, based on how Through the programme, the group of they currently approach mangroves in mayors and companies are discovering their city masterplans and infrastructure each other. They are partnering to blueprints; establish how these options develop financing mechanisms to could be financed in new ways, including support municipalities to invest in through the establishment of a dedicated nature-based climate adaptation faster municipal finance fund, and establish and over the longer-term. an agile institutional format for the development of the M40 Cities.

Caption FINANCING THE EARTH’S ASSETS 40 FINANCIAL BLUEPRINT

Figure 9 The M40 Cities Municipalities accounting for the majority of mangroves reserves

Country Regions Largest Blue Global Primary Subnational city with carbon total A governmental entities allowed mangroves A stock A % responsibility to borrow Million for mangroves externally B tonnes

CO2e

Indonesia Papua Jayapura 329 7.77 Central No Irian Jaya Barat Sorong 237 5.61 Kalimantan Timur Balikpapan 96 2.26 Maluku Kota Ambon 93 2.19 Sumatera Selatan — 82 1.93 Riau Dumai 74 1.75 Kalimantan Utara Tarakan 63 1.50 Kalimantan Barat Singkawang 63 1.49 Bangka-Belitung Pangkal Pinang 32 0.75 Sulawesi Tenggara Kendari 29 0.68 Kalimantan Selatan — 28 0.65 Kepulauan Riau Batam 25 0.60

Brazil Maranhão Sao Luis 155 3.66 Central Yes Pará Belem 107 2.52 Amapá — 76 1.80

Malaysia Sabah Sandakan 137 3.25 Central Yes Sarawak Kuching 74 1.74

Papua New Guinea Gulf Kerema 122 2.89 Central — Central Port Moresby 27 0.65 Western Daru 26 0.60

Myanmar Tanintharyi Myeik 88 2.07 Central Yes

Australia Queensland Brisbane 81 1.91 Subnational Yes Northern Territory Darwin 54 1.27

A ‘Global carbon stocks and potential B ‘2019 Report Key Findings’, World emissions due to mangrove deforestation Observatory on Subnational Government from 2000 to 2012’, Stuart Hamilton and Finance and Investment (SNG-WOFI), Daniel Friess, Nature Climate Change (8), Organization for Economic Cooperation 2018. and Development (OECD), 2019. FINANCING THE EARTH’S ASSETS 41 FINANCIAL BLUEPRINT

Country Regions Largest Blue Global Primary Subnational city with carbon total A governmental entities allowed mangroves A stock A % responsibility to borrow Million for mangroves externally B tonnes

CO2e

United States Florida Miami 74 1.75 Subnational Yes

Bangladesh Khulna Mongla 66 1.56 Central Yes

Mexico Campeche Campeche 56 1.31 Mixed No

Nigeria Bayelsa Brass 52 1.23 Subnational Yes Delta Warri 41 0.96 Rivers Port Harcourt 26 0.61

Venezuela Delta Amacuro — 50 1.18 Central No Monagas Caripito 30 0.72 Sucre Cumana 24 0.57

Gabon Estuaire Libreville 44 1.05 Central Yes

Ecuador Guayas Guayaquil 40 0.95 Central —

Colombia Nariño Tumaco 37 0.88 Subnational Yes

Cameroon Sud-Ouest Limbe 33 0.77 Central No

French Guiana Cayenne Cayenne 32 0.76 Subnational Yes

India Andaman & Nicobar Port Blair 26 0.61 Subnational Yes

Philippines Palawan Puerto Princesa 24 0.57 Central Yes

Sierra Leone Southern Bonthe 24 0.56 Central Yes

FINANCIAL BLUEPRINT FINANCIAL on a planetary scale. aplanetary on mangroves finance to apathway provide also could locations these among action collective accelerates and aggregates coordinates, that initiative agile An standing. still mangroves the of 70% almost for account world the around locations 40 Network Cities M40 Proposed 10 Figure ASSETS EARTH’S THE FINANCING

Campeche Mexico Ecuador

Guayaquil Guayaquil Miami USA

Colombia Tumaco

Cumana Venezuela Caripito Venezuela Delta Amacuro Venezuela

Cayenne French Guiana Amapá Brazil Belem Brazil Sao Luis Brazil

Bonthe Sierra Leone

Warri Nigeria

Port Harcourt Nigeria

Gabon Libreville Libreville Brass Nigeria Limbe Cameroon 42

Mongla Bangladesh

Port Blair Andaman and Nicobar Islands

Indonesia

Dumai Dumai Myeik Myanmar Indonesia Batam

Indonesia Selatan Sumatera

Indonesia Pinang Pangkal

Indonesia Singkawang

Indonesia Kalimantan Selatan Selatan Kalimantan Kuching Malaysia

Indonesia rakan Ta Indonesia

Balikpapan Balikpapan Sandakan Malaysia

Puerto Princesa Philippines

Indonesia Kendari

Indonesia Ambon Kota

Indonesia Sorong Australia Brisbane

Indonesia Jayapura

Port Moresby Papua New Guinea Kerema Papua New Guinea

Port Moresby Papua New Guinea

Australia Darwin

Campeche Mexico Ecuador

Guayaquil Guayaquil Miami USA

Colombia Tumaco

Cumana Venezuela Caripito Venezuela Delta Amacuro Venezuela

Cayenne French Guiana Amapá Brazil Belem Brazil Sao Luis Brazil

Bonthe Sierra Leone

Warri Nigeria

Port Harcourt Nigeria

Gabon Libreville Libreville Brass Nigeria Limbe Cameroon FINANCIAL BLUEPRINT FINANCIAL FINANCING THE EARTH’S ASSETS EARTH’S THE FINANCING

Mongla Bangladesh

Port Blair Andaman and Nicobar Islands

Indonesia

Dumai Dumai Myeik Myanmar Indonesia Batam

Indonesia Selatan Sumatera

Indonesia Pinang Pangkal

Indonesia Singkawang

Indonesia Kalimantan Selatan Selatan Kalimantan Kuching Malaysia

Indonesia rakan Ta Indonesia

Balikpapan Balikpapan Sandakan Malaysia

Puerto Princesa Philippines

Indonesia Kendari

Indonesia Ambon Kota

Indonesia Sorong Australia Brisbane

Indonesia Jayapura

Port Moresby Papua New Guinea Kerema Papua New Guinea

Port Moresby Papua New Guinea

Australia Darwin 43 FINANCING THE EARTH’S ASSETS 44 FINANCIAL BLUEPRINT

4.2 ACCELERATING MUNICIPAL FINANCE FOR CLIMATE ADAPTATION

Coastal cities are in dire need of Mangroves provide coastal Municipalities need more capacity to adaptation finance. municipalities with a cost-effective overcome barriers to climate finance. climate solution. Average flood-related losses suffered Despite evidence for the cost- by the world’s 136 largest coastal cities In China, urban development proposals effectiveness of mangrove conservation are expected to rise to USD 52 billion per for Jiangdong New District, Haikou, on the and restoration in protecting coastal year by 2050. If risks of sea-level rise and island of Hainan, include plans to restore assets, in many municipalities where sinking land are taken into account, total and protect China’s largest mangrove mangroves are concentrated, budgets losses could be as high as USD 1 trillion.138 forest, integrating it into city protection cannot cover any additional expenditure, and flood management planning.143 and tax revenues are often insufficient In the US alone, USD 400 billion will be even to meet the costs of providing basic needed to protect coastal municipalities In the Philippines, the municipality of Del services. and cities by 2040.139 Municipal-level Carmen, Surigao del Norte raised USD 1.3 financing of climate adaptation and million from public funds, private sector In Abidjan, Cote d’Ivoire — a coastal city resilience projects is however in its corporations and ODA to conserve and highly vulnerable to flooding and sea-level nascence. Out of 1,143 climate-related rehabilitate 5,000 hectares of mangrove rise — the per capita municipal budget projects in cities identified by the C40 forest, reduce illegal and destructive is just USD 0.02, compared to USD 813 in Cities Finance Facility, fewer than 4%, are activities in 44,000 hectares of municipal Cape Town, South Africa.146 The inability for climate change adaptation.140 Although waters, diversify local livelihoods, and to raise external finance is a further the gap exists for both developed and improve access to market for local constraint. C40 Cities found that half of its emerging economies, the latter struggle fishers.144 Interventions in Siargao have member cities in low and middle-income even more to access finance for low- reduced mangrove felling by 100% and its countries, including coastal cities such as carbon and climate resilience projects. restoration efforts have an 80% survival Dar es Salaam, Ho Chi Minh City, Jakarta Globally, just 2% of green financing goes to rate. Fish stocks have increased by 200% and Mumbai, either find it difficult to cities in emerging markets.141 and, pre-COVID pandemic, poverty fell borrow or cannot do so without sovereign by 20% through the development of new oversight or approval.147 Even where cities Overall, global financing needs for livelihoods including ecotourism and in the developing world are permitted to climate-resilient infrastructure are fishing.145 access finance, 96% are unable to do so in expected to reach USD 93 trillion by international markets because of their low 2030 — 70% of which will be in rapidly creditworthiness (due to high debt ratios, developing urban areas.142 low capital reserves, limited revenue sources, and restricted revenue-raising powers) or a lack of credit rating, severely constraining their ability to raise the funds for climate-related projects.148 This is due to poor financial record-keeping and low transparency, high levels of debt and poor revenue collection, and an inadequate credit history.149

“ New pathways to unlock climate finance for municipalities are vital for us to achieve a resilient blue economy locally.”

Alfredo Coro, Municipal Vice Mayor, Municipality of Del Carmen, the Siargao Islands in the Philippines FINANCING THE EARTH’S ASSETS 45 FINANCIAL BLUEPRINT

“Municipal green bonds” have significant In less developed markets, the muni-bond potential to finance climate adaptation. climate resilience market is also starting to grow. In India, eight local governments The municipal bond (muni-bond) market have raised USD 463 million through is one of the best recognised segments municipal bond issuance for infrastructure of global fixed-income markets. The projects and the Ministry of Housing US muni-bond market, valued at USD and Urban Development is helping 3.8 trillion, is the world’s largest and municipalities to improve their credit most vibrant market, including both ratings to help them attract investment.151 state and municipal issuances. 54% of Muni-bonds are seen as a good tool to the country’s largest cities have issued invest in climate resilient infrastructure, bonds to fund resilience projects, such as particularly in cities with high credit seawall construction and restoration and ratings. Some of these, including Mumbai improving stormwater drainage.150 and Kolkata, are located in or near coastal areas, where mangrove conservation and restoration are key components for climate resilience.152

Flamingos gather in the Talawe Wetlands in Mumbai, India. Pratik Chorge / Mangrove Action Project FINANCING THE EARTH’S ASSETS 46 FINANCIAL BLUEPRINT

4.3 THE BUSINESS CASE FOR A MUNICIPAL MANGROVE BOND FUND

Based on the above, we propose the development of a municipal mangrove bond fund. This would provide a mechanism for municipalities to access finance for climate adaptation projects that use mangrove regeneration to provide green infrastructure and blue carbon offsets. A fund that aggregates financing of many municipal locations would allow investors to spread investment risk across developed and emerging markets, while reaching the global scale needed for a product to be viable in global fixed income markets. The business case for such a fund is as follows:

Municipal bonds have already been The city’s Downtown Development Widespread citizen and stakeholder used to finance mangrove restoration. Authority (DDA) proposes planting support also helped to attract additional mangroves as part of a plan to restore finance from other public and private the city’s seawall that will be funded sources, and to ensure continued multi- The US muni-bond market finances two- through the bond.155 The state of stakeholder involvement in activities thirds of all infrastructure improvements Louisiana is reported to be considering funded by the bond.158 For blue carbon in the country.153 Some coastal issuing an environmental impact bond projects, local buy-in with individual municipalities are experimenting with to fund its Coastal Master Plan, that or communal owners of blue carbon issuing bonds to fund climate resilience. comprises USD 50 billion in wetland ecosystems is critical. In 2017, residents of the city of Miami and coastal restoration and protection approved the city’s plan to issue the USD projects over the next 50 years.156 400 million Miami Forever Bond. USD 192 million will be used to fund projects Municipal bond issuances need the to combat sea-level rise and flooding, support of local residents, particularly including mangrove protection and if taxes or rates will be increased to restoration.154 help finance the bond. In Miami voters were asked for their support to either repurpose an existing bond that was about to expire or to introduce a new 3% property tax to pay for the bond.157 FINANCING THE EARTH’S ASSETS 47 FINANCIAL BLUEPRINT

Funds that aggregate municipal climate By aggregating single green loans into The UNCDF fund’s manager, Meridiam, finance can create economies of scale one fund, Kommuninvest allows smaller and the Rockefeller Foundation, will municipalities to access green financing develop a screening mechanism to help opportunities at a lower cost that would prospective investors evaluate the The proposal for a Municipal Mangrove otherwise be out of reach.159 The USD 220 climate resilience impact of investable Bond fund follows the example of the million Nordic–Baltic Blue Bond issued projects.161 162 Nordic Investment Bank for the Baltic by the Nordic Investment Bank directed Blue Bond and Kommuninvest in Sweden. proceeds to eight countries, Denmark, Municipal-led projects must ensure These bodies aggregate projects across Estonia, Finland, Iceland, Latvia, rigorous transparency and accounting multiple municipalities or countries into Lithuania, Norway and Sweden, in order standards so that funds go to the projects one bond issuance or fund to raise finance to finance projects that would reduce for which they have been earmarked. that is then lent to cities and regions. pollution of the Baltic Sea.160 Clear and well-defined eligibility criteria These aggregated projects can scale to an are important to assure investors that issuance size and length that is attractive The United Nations Capital Development their projects can deliver impact and are to the fixed income market, namely USD Fund (UNCDF) has developed the both technically and financially viable.163 200 million — USD 500 million for a 10- International Municipal Investment In the case of mangrove restoration, which year bond. Developing a loan-aggregating Fund (IMIF), which is due to launch in has a range of risks and challenges, we mechanism can help to increase funding 2021. The fund aims to support resilient recommend that a technical working opportunities for smaller municipalities urban infrastructure, especially in Least group such as the IUCN Specialist Group that lack credit ratings or track record. Developed Countries (LDCs), mobilising on Mangroves is involved to provide finance from national and international quality assurance on the development capital markets to fund projects of up to of a screening mechanism and eligibility USD 25 million. criteria.

Capacity building and risk finance The varying levels of technical capacity In addition, blended finance can help can support a municipal pipeline of to access climate finance and implement de-risk investments in less developed investable projects such projects, means that providing municipalities. This may include risk technical assistance alongside finance is guarantees or first-loss financing tranches For less developed municipalities, essential. Technical support would help from a development bank to improve a UNCDF’s IMIF combines a fund with a municipalities to develop bankable blue bond’s credit rating and lower the costs municipal capacity building programme. carbon projects based on scientific best- of capital for recipients. Other forms of Such a combined approach is vital to practice, identify and secure agreements risk financing have been successfully build a pipeline of projects for mangrove with blue carbon stakeholders, and implemented in the blue finance space, restoration in developing countries. monitor project outcomes. Capacity including political risk insurance, as The proceeds from the issuance of a building is needed to raise and manage provided by the US Development Finance mangrove bond would be earmarked by external finance through financial Corporation to support the issuance of the municipalities to finance projects aimed at management controls and governance. Republic of the Seychelles’ sovereign blue mangrove restoration and regeneration, bond.165 including wastewater treatment plants UNCDF’s Local Climate Adaptive that reduce mangrove pollution, Living Facility (LoCAL), which provides In East Kenya, BHP Billiton provided sustainable fishing and aquaculture performance-based climate resilience insurance as an intermediary ‘off-taker’ projects that use mangroves as a part grants, capacity building and operational for carbon credits in a USD 152 million of a sustainable production model, and support to local governments in LDCs forest protection bond issued by the IFC the rehabilitation and re-planting of to finance climate adaptation projects for a REDD+ project that paid interest mangroves for blue carbon sequestration could help to build capacity. The payments in the form of cash or carbon and commercialising offset credits in facility is currently working with 280 credits. Although not for blue carbon, BHP carbon markets. local governments in 23 countries and Billiton committed to buy carbon credits has helped fund nearly 1,000 climate in the case that bondholders decided to adaptation investments, mobilising a total be paid in cash, demonstrating a strategic of USD 84.3 million since 2014. In Ghana and catalytic use of donor or philanthropic and Bangladesh, this has included support capital.166 for mangrove projects.164 FINANCING THE EARTH’S ASSETS 48 FINANCIAL BLUEPRINT

Multiple cash-flows can be used to For example, in 2016 Yokohama City Blue carbon projects for the voluntary repay mangrove bonds in Japan introduced the Yokohama or compliance markets can run for an Blue Carbon Offset scheme to secure initial four years before income can be payments from local companies and realised. High upfront costs for project A total of 22 cities, including coastal tourists for blue carbon offsets from design, baseline studies, planting and cities such as Melbourne and Rio its urban coastline.167 The Australian management, and certification, mean de Janeiro, have made net-zero state of Victoria has an emissions that patient money is vital to their commitments as part of their reduction target of net zero by 2050, success. The Blue Natural Capital membership of the Carbon Neutral and is exploring the role of blue carbon Financing Facility (BNCFF) has proposed Cities Alliance, committing to reduce in achieving this.168 For wealthier a way around this by creating a ‘blue greenhouse gas emissions by 80–100% cities, property taxes can also provide carbon matching grant’. Provided by by 2050. Some cities are experimenting a cash flow for financing protective philanthropists or multilateral finance with blue carbon financing as a way to infrastructure, such as sea walls. Where from the Green Climate Fund, these diversify their revenue streams and infrastructure investment leads to lower grants can help municipalities to cover help to meet the financial cost of their insurance premiums, municipalities can the first few years of coupon repayments environmental commitments. also cost the difference into municipal for a mangrove bond, until carbon and property taxes. The tax income received other forms of income can be realised. from tourism such as hotels, visiting fees to protected areas, and other tourist facilities benefiting from the value of mangroves, can also provide cash flow to finance a bond.

National governments can borrow First issued in March 2018, a USD 1.25 A municipal mangrove bond proposal at a sovereign level on behalf of billion ‘green sukuk’ made Indonesia should allow Indonesia to approach this municipalities the fifth nation globally to place a green as a sovereign green bond that earmarks sovereign issue and the first to use the the proceeds for mangrove restoration To use municipal bonds for climate sukuk format. A sukuk is an interest-free in key municipalities in the global M40 finance, municipalities must be able to bond that generates returns to investors network. borrow directly from capital markets, without infringing the principles of without the intermediation of central Islamic law (Shariah). According to the governments. This is not the case for Climate Bonds Initiative, the green sukuk Indonesian municipalities — a key could channel the USD 2 trillion Islamic country for the M40 proposal given finance market towards green finance. its concentration of mangrove stocks. Indonesia’s green bond issuance reached However, nationally, the Republic of USD 2.7 billion as of April 2019, making Indonesia has been at the forefront of the it the largest borrower among ASEAN sovereign green bond movement. countries, accounting for 39% of total ASEAN issuance.169 FINANCING THE EARTH’S ASSETS 49 FINANCIAL BLUEPRINT

CASE STUDY INNOVATIVE CITY FINANCING FOR CLIMATE RESILIENCE

The Miami The Yokohama Forever Bond Blue Carbon Offsets

Miami is one of the most The Miami Downtown In 2016, the city introduced the exposed cities to climate Development Authority Yokohama, the second Yokohama Blue Carbon Offset change globally. The city of estimated that integrating a largest city in Japan and scheme to secure payments over 2 million people has mangrove ‘living shoreline’ home to one of the largest from local companies and already experienced almost six with a cement sea wall would international ports, lies on tourists for blue carbon offsets inches of sea-level rise and a increase net present value by the south-eastern coast of from its urban coastline.175 350% increase in flooding since USD 116 million and reduce Japan’s main island, and has The project is now quantifying the mid-90s.170 The benefits the costs of a 10-year storm by faced an increasing number the risk reduction benefits of Florida mangroves during USD 148 million, compared to and severity of typhoons and of mangroves and other Hurricane Irma were estimated a cement sea wall investment flooding.174 In 2011, the city coastal ecosystems and is to be up to USD 47,000/ha.171 only.172 The USD 400 million initiated the Yokohama Blue implementing projects to Miami Forever Bond is set Carbon Project to estimate improve coastal management to direct USD 192 million the carbon sequestered in its and boost local production and of proceeds to green-grey urban coastline and quantify consumption of seaweed.176 infrastructure, including the economic value generated sea-walls and replanting by its coastal ecosystem, mangroves, in order to mitigate primarily seaweed forests. the impacts of sea-level rise and flooding, in a first for municipal bonds.173

Mangroves of the Godavari River Delta in East Godavari District, Andra Pradesh, India. Srikanth Mannepuri / Mangrove Action Project FINANCING THE EARTH’S ASSETS 50 5 RECOMMENDATIONS

Roots and new shoots in Cartagena’s Mangrove Swamp, Colombia. Mariano Gaspar / Shutterstock FINANCING THE EARTH’S ASSETS 51 RECOMMENDATIONS

5.1 CALL TO ACTION

The call to action provides 1 2 recommendations for Create the ‘Mangroves 40 Develop a Municipal Mangrove philanthropists, banks, Cities Network’ (M40 Cities) to Bond Fund to finance investors, insurers, act as a global safety net adaptation for cities governments and global climate funds. Each has a unique role to play in We identify 40 cities that are closest to Coastal cities are in dire need of climate realising the full potential the mangrove stocks. These cities could adaptation finance. Average flood- not be more different from one another, related losses suffered by the world’s of mangroves as a global but all face the common challenge of 136 largest coastal cities are expected nature-based climate aligning their urban development and to rise to USD 52 billion/year by 2050. solution. financing with protecting their mangrove Mangroves provide coastal municipalities assets. A Mangroves 40 Cities Network with a cost-effective climate solution. (M40 Cities) could act as a global safety The Miami Downtown Development net to protect the last mangrove frontier. Authority estimated that benefits of integrating a mangrove ‘living shoreline’ The proposal builds on the model of with a cement sea-wall amounted to the C40 Cities for climate change, an increase in USD 116 million in net which has shown how the city level can present value and reduced the costs be an effective unit for climate action of a storm by USD 148 million. From and climate finance. The M40 Cities the Nordic Investment Bank to the UN Network can accelerate the collective Capital Development Fund, municipal- action of mayors, share knowledge on level climate finance offers a unique regeneration projects and pathways, opportunity for innovation with a fixed and facilitate the aggregation of income product that is familiar to municipal financing through a Mangrove investors. Municipal Bond Fund. Philanthropists have a key role to play in mobilising this The Municipal Mangrove Bond Fund agile institutional format. Models such could finance municipal climate as C40 and ICLEI, a network of over adaptation projects through mangrove 1,000 municipalities acting on climate regeneration and provide cost-effective change, provide a design template, and a green infrastructure and blue carbon potential partner. offsets. A bond fund providing access to the 40 municipal locations holding mangrove stock globally, from Miami to Guayaquil, would provide the opportunity to pool together different levels of investment risk across developed and emerging markets, reaching the global scale needed for a product to be viable in global fixed income markets. FINANCING THE EARTH’S ASSETS 52 RECOMMENDATIONS

3 4 5 Create a premium price for Integrate the economic value Leverage the power of ‘blue carbon’ for voluntary of mangroves in nature-based mangroves for carbon finance carbon markets to deliver investments at COP26

Current carbon prices are not high As the case study in section 3 shows, Just 25 countries account for over 90% of enough to finance the restoration of the investment in restoring mangroves the mangrove stock and the restorable mangroves at a global scale. This report by a wind power project in Pakistan area. Governments have the opportunity presents a series of price scenarios could return 20 times the investment to increase access to climate finance and and suggests that the price of carbon value by protecting physical assets create cost-effective ways of achieving must be at least USD 29/tCO2 to cover against coastal erosion. This could their climate commitments. This the costs of global regeneration. save the project developer and its includes the bilateral carbon offsetting How the price of carbon credits is investors up to USD 7 million over the agreements expected to be central to the determined is linked to the perceived project’s 25-year timeframe, while UN Framework Convention on Climate value creation. A premium price for doubling local communities’ income. Change (UNFCCC) under Article 6 of the blue carbon should be established by The section outlines a framework that Paris Agreement. a collaboration of project developers, enables investors to integrate the value intermediaries and investors, based on that mangroves can provide to coastal In order to leverage these opportunities, the value that mangroves have beyond investment projects, from infrastructure governments must clearly recognize carbon (e.g. increasing local income to aquaculture. the mitigation and adaptation value for fishing communities, lower costs of of mangroves in their Nationally maintaining infrastructure due to their In identifying and quantifying how Determined Contributions (NDCs) — yet coastal protection function, or increased mangroves are materially relevant to 11 of these 25 countries do not mention regulation of water flows, water investors and investment projects, we them at all. COP26, due to be held in pollutants and sedimentation). hope to provide an input to the work 2021 under the joint auspices of the of the Task Force for Nature-related governments of the UK and Italy, offers Setting a price of carbon high enough Financial Disclosure (TNFD) in 2021, an opportunity to discuss how countries to generate cashflow for conservation as TNFD helps financial institutions to holding natural assets of great climate should be a central recommendation of protect natural capital. In addition, we significance, such as mangroves, can the Task Force for Scaling Voluntary identify five areas where mangroves use them in carbon trading mechanisms Carbon Markets throughout 2021. offer investors tangible opportunities in a way that avoids double counting. The Nature Conservancy estimates that to invest in the blue economy, such as COP26 will be the first time that nature- blue carbon credits integrating both natural capital investment funds, blue based solutions feature on the agenda carbon mitigation and adaptation could bond issuance, innovation in carbon of the UNFCCC Standing Committee mobilise up to USD 320 million/year for markets, the provision of insurance on Finance. This committee must coastal conservation and restoration and risk finance, and strategic acknowledge that the current blue projects as corporate demand grows. philanthropy. carbon price is a barrier to regeneration.

As these 25 countries prepare their NDC updates for COP26, they must recognise the significant carbon value they hold in their mangroves and create the necessary arrangements to avoid ‘double counting’ of carbon offsets. This can be done through closer co-operation with the International Partnership for Blue Carbon, which supports countries to integrate blue carbon into NDCs. Doing so will increase opportunities to tap into climate finance, including access to innovative financing mechanisms such as blue sovereign bonds. FINANCING THE EARTH’S ASSETS 53 RECOMMENDATIONS

5.2 WHAT INVESTMENT DECISION-MAKERS CAN DO

Philanthropists

Philanthropy will continue to be a — Support the formation and operation — Use grant funding to provide vital source of funding for mangrove of an M40 Cities Network, creating an guarantees for carbon credit purchases conservation and restoration, as well agile global institution that can rapidly over initial years if the price of carbon as catalysing new financing models connect all the vital locations for falls below a pre-agreed level, and for their regeneration. In addition, mangrove restoration around the world, therefore de-risk investments in a philanthropists can: to accelerate the initiatives of local municipal bond fund. mayors.

— Support the project preparation phase of the M40 Mangrove Municipal Bond Fund, where philanthropic funding can build the technical capacity of municipalities. Patient capital and grants will be critical to help some municipalities to cover the first few years of investment and coupon repayments for a mangrove bond, until carbon and other forms of income can be realised.

Investors and companies

The tangible investment value of — Implement nature-based carbon — Consider mangroves strategically mangroves is as relevant to mainstream offsetting in net-zero commitments when investing in the ‘blue economy’, companies and investors financing in a way that goes beyond the value including building sustainable coastal infrastructure, real estate, of carbon, creating local value for aquaculture or regeneration tech fishing and aquaculture projects as it is climate adaptation, inclusive economic portfolios for natural capital to specialised investment funds focusing development and biodiversity investments funds; using the proceeds on natural capital and sustainable protection. of blue bonds for mangroves; development. Both investors and developing innovative risk finance companies can: — Integrate the value of ecosystem models and insurance. services provided by mangroves in investment projects, considering the — Disseminate the key messages to return on investment that financing educate a broader audience, including mangrove conservation or regeneration institutional investors, on how carbon can have for a project. offsetting can go beyond treating carbon simply as a commodity. FINANCING THE EARTH’S ASSETS 54 RECOMMENDATIONS

Insurers and reinsurers

Insurers are already actively — Create a model that prices mangroves’ — Deploy insurance capital to invest in experimenting, through the myriad climate risk mitigation value to the 25 mangrove restoration as a risk mitigation of new products and partnerships countries with the highest mangrove measure, through regional insurance described in the report, to realise the density (given their tropical location, facilities operating in areas with high value of nature in boosting resilience. they are also among the most exposed mangrove density. These include the In addition, insurers, reinsurers and to weather extremes). Reinsurance African Risk Capacity, the Caribbean multilateral risk finance providers can: companies could, for example, model Catastrophe Risk Insurance Facility, the the impact that removing mangroves Southeast Asia Disaster Risk Insurance would have on their future sovereign Facility and the Pacific Catastrophe risk pricing. Improved data will enable Risk Assessment and Financing reinsurance companies to develop Initiative Insurance Program. Given the nature-based insurance products that importance of mangroves to climate account for the health of mangrove adaptation in these regions, these ecosystems and identify where best to insurance facilities should have a policy invest in restoration. position on mangrove conservation and regeneration of country clients, in order to send a signal to governments.

Banks

Banks play an important role in — Invest in mangroves on a global scale as — Look for opportunities to leverage the emerging blue finance markets by a carbon mitigation tool to achieve their value of mangroves in green finance launching blue bonds, acting as own corporate net-zero commitments, deals to coastal cities. Investments agents for blue investment funds in a way that quantifies the ‘value beyond containing mangrove regeneration can and supporting innovative financing carbon’ of mangrove regeneration be included in any form of municipal facilities. This is how they can leverage for local economic development and green adaptation finance for relevant the value of mangroves: biodiversity. This will set an important coastal cities in tropical and sub-tropical precedent for how carbon markets regions. Secondly, carry out a feasibility, should approach blue carbon pricing and design and development study to assess values. the creation of a thematic mangrove bond fund that can aggregate financing deals — Support clients (corporates, sovereigns for cities and spread the risk by investing and sub-sovereigns) to develop blue in both developed and emerging markets. bonds based on the value of mangroves. This can embed mangrove restoration in a local economic strategy, to counter the economic pressures threatening mangrove environments. For example, blue bond proceeds can finance infrastructure projects for flood management or sustainable business models of mangrove-shrimp aquaculture. Throughout the process, banks should ensure projects are based on scientific standards and mangrove conservation methods (see Appendix). FINANCING THE EARTH’S ASSETS 55 RECOMMENDATIONS

Multilateral climate funds

Just USD 300 million was committed to — Provide concessional finance to local — Provide risk capital, such as first-loss climate adaptation finance for coastal governments to integrate mangroves guarantees, to de-risk and scale blue protection in 2017-2018 — just 5% of into development plans for coastal financing mechanisms that are trying to total adaptation finance, and only 0.05% infrastructure projects, promote leverage the climate adaptation value of of all global climate finance from public regenerative integrated mangrove- mangroves. and private actors. Mangroves are one of shrimp aquaculture, and develop the most cost-effective tools to increase marine protected areas. Success — Support the creation of the proposed climate resilience, and should be indicators on mangrove regeneration Municipal Mangrove Bond Fund, by earmarked within adaptation budgets, outcomes should be attached to all financing capacity building for local which need to grow significantly. Until such project proposals. governments and using capital to global carbon markets grow to the de-risk the mechanism through scale and pricing levels required, — Make investing in mangrove assets by guarantees or first-loss financing global climate finance can fill this gap. a cornerstone of climate adaptation tranches. This will improve the bond’s Funds such as the Global Climate Fund, financing support, incentivising credit rating and lower the costs of the Global Environment Facility, the recipient countries to look at mangrove capital for recipient municipalities Adaptation Fund, and the Special Climate regeneration seriously and at scale in less developed countries, such as Funds, can: in order to qualify for coastal climate Papua New Guinea, Bangladesh and adaptation finance. Gabon.

Women collecting oysters in the mangroves, Bijagos Islands, Guinea-Bissau. Ricci Shryock / Mangrove Action Project FINANCING THE EARTH’S ASSETS 56

APPENDIX MANGROVES RESTORATION 101 FOR INVESTORS SUPPORTING SCIENCE-BASED MANGROVE CONSERVATION AND RESTORATION

Mangrove survival rates in To improve the chances of When assessing mangrove restoration projects can be success, experts advise that investments, corporates as high as 80–90% for well- projects should prioritise and investors should always managed projects, and as low mangrove conservation and ensure that the following as 10% for those that do not facilitated natural mangrove principles are met: follow conservation science recovery and recruitment best practices.177 over replanting, and projects should improve local development opportunities in order to create long- term conditions for local conservation.

Principles

1 2 3 4 Restore in the right conditions Avoid ‘green grabbing’ Co-manage to enforce Take a ‘ridge to reef’ and using the right methods mangrove protection approach Mangrove projects are highly Replanting must take into dependent on local community Legislation, policies and To succeed in the long-term, account the right blend of support, and must start with institutional structures linked interventions must address mangrove species to plant, a thorough understanding and to the legal status and use the drivers of mangrove sedimentation patterns, recognition of local tenure of mangrove resources can degradation and destruction, the interaction of mangrove rights, including indigenous be ambiguous and fall in a removing pressures that ecosystems with other coastal rights and practices.179 A lack regulatory vacuum between led to the initial mangrove ecosystems, as well as of community involvement marine and terrestrial loss or that impede natural appropriate planting for the or negotiated benefit- government agencies.182 regeneration. This could local hydrological context, sharing has been linked to Engaging the help of a local include overharvesting by local given local tides, levels of unsuccessful restoration ‘champion’, such as a mayor or communities, deforestation inundation, wave and typhoon projects.180 Incentives for local NGO, is critical to create the driven by economic patterns and impacts of climate communities can include the political will and long-term development projects, or change.178 creation of alternative income- co-management between pollution and waste from earning opportunities.181 local communities and local upstream industrial or urban Further guidance governments that are needed activities that can also affect Wetlands International Further guidance for success.183 survival rates and natural ‘Mangrove restoration: UN Environment recruitment rates.184 to plant or not to plant?’ ‘Blue Carbon Code Further guidance of Conduct’ Mangrove Action Project Further guidance ‘Guidance on Community- IUCN Based Ecological Mangrove ‘Ridge to Reef (R2R) Restoration techniques’ Initiative’ FINANCING THE EARTH’S ASSETS 57

ACKNOWLEDGEMENTS

Report title Sponsors Stakeholders consulted Financing the Earth’s Assets: Earth Security is grateful to We are grateful to the over 100 The Case for Mangroves as a the sponsors that have made individuals that provided their Nature-based Climate Solution this research possible: The time and insight in dedicated Swiss Agency for Development interviews for this work, Publication date and Cooperation, HSBC, UBS representing the following December 2020 Optimus Foundation and CDC organisations: Group.

The Association for Coastal Ecosystem Services (ACES) MacArthur Foundation Alliance for Global Water Adaptation (AGWA) Mangrove Action Project Alune Aqua Mangrove Lab, National University of Singapore Arup Mava Foundation AXA XL Microsoft Blue Carbon Lab, Deakin University Moore Foundation Blue Finance Municipality of Del Carmen, Surigao del Norte, Philippines Blue Finance Initiative Nature4Climate Blue Natural Capital Financing Facility Ocean Risk and Resilience Action Alliance (ORRAA) BNP Paribas Philippines Insurers and Reinsurers Association (PIRA) BP Posaidon Capital BVRio Rare Calvert Impact Capital Stoake CDC Group Sustainable Ocean Fund Center for International Forestry Research (CIFOR) Swiss Agency for Development and Cooperation Cinvestav, University of Merida, Mexico SwissRe ClarMondial The Chinese University of Hong Kong Climate Policy Initiative The Nature Conservancy Coalition for Private Investment in Conservation (CPIC) US Agency for International Development (US AID) Conservation International US International Development Finance Corporation Conservation International Colombia Ubá Sustainability Institute Conservation International Philippines UBS Optimus Foundation Department for International Development United Nations Capital Development Fund (UNCDF) Ensome University of California, Santa Clara Forest Carbon University of Cambridge Global Environment Facility US Virgin Islands Department of Planning and Natural Resources Global Mangrove Alliance Verra Global Ocean Trust VNV Advisory Gold Standard Wilderness Markets HSBC Willis Towers Watson IDH Sustainable Trade Initiative Willis Towers Watson Philippines IDOM Environment World Resources Institute Mexico Instituto de Ecología, A.C. WWF International Emissions Trading Association (IETA) WWF US International Partnership for Blue Carbon WWF Philippines International Union for the Conservation of Nature (IUCN) WWF UK IUCN Pakistan Yagasu Indonesia Livelihoods Venture

Photography collaboration The photography featured in Used with the permission of mangroveactionproject.org this report showcases photo the Mangrove Action Project submissions to the ‘World (MAP) that seeks to preserve, Mangrove Day Photography conserve and restore the Awards 2020’. world’s mangrove forests. FINANCING THE EARTH’S ASSETS 58

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