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ACRONYMSACR – American Carbon RegistryGHG – Greenhouse GasART TREES – Architecture for REDD Transaction(ART) The REDD Environmental Excellency Standard(TREES)GtC – Gigatons of CarbonASEAN – Association of Southeast Asian NationsICT – Information and Communication TechnologyBAU – Business-as-UsualIFC – International Finance CorporationC - CarbonIMO – International Maritime OrganizationCAGR – Compound Annual Growth RateIRR – Internal Rate of ReturnCAR – Climate Action ReserveITMO - Internationally Transferred Mitigation OutcomesCCS – Carbon Capture and StorageIUCN – International Union for Conservation of NatureCDM – Clean Development MechanismJNR – Jurisdictional and Nested REDD (of VerifiedCarbon Standards)CI – Conservation InternationalCO2 – Carbon DioxideCOP XX – Conference of the PartiesICAO – International Civil Aviation OrganizationKTON – KilotonMbMs – Market-based MeasuresMEPC – Marine Environment Protection CommitteeCORSIA – Carbon Offsetting and Reduction Schemefor International AviationMgtC – Megatons of CarbonCSR – Corporate Social ResponsibilityNbS – Nature-based SolutionsDFI – Development Financial InstitutionsNCS – Natural Climate SolutionsEEXI – Energy Efficiency Existing Ship IndexNDC – Nationally Determined ContributionsETS – Emissions Trading SystemNUS – National University of SingaporeEV – Electric VehiclesNUS-CNCS – National University of Singapore Centrefor Nature-based Climate SolutionsF4F – Finance for Forest InitiativeFCPF – Forest Carbon Partnership FacilityPPP – Public Private PartnershipsRBCF – Results-Based Climate FinanceGCF – Green Climate FundviiCONSERVATION INTERNATIONAL NATIONAL UNIVERSITY OF SINGAPORE

RDC – Regionally Determined ContributionREDD – Reducing Emissions from Deforestation andForest DegradationRIL-C – Reduced-Impact Logging for Climate ChangeRoI – Return on InvestmentSBTi – Science Based Targets initiativeSDGs – Sustainability Development GoalsSMEs – Small and Medium Sized EnterprisesSOS – Safe Operating SpaceTgC – Teragrams of CarbonUN – United NationsUNFCCC – United Nations Framework Convention onClimate ChangeVCUs – Verified Carbon UnitsVERPA – Voluntary Emission Reduction PurchaseAgreementWBCSD – World Business Council for SustainableDevelopmentWEF – World Economic ForumTHE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIAviii

AUTHORS ANDCONTRIBUTORSCONSERVATION INTERNATIONAL AUTHORS/CONTRIBUTORS:Shyla Raghav, Aarin Gross, Andrew Wu, Maggie Comstock, Jan Yoshioka, Murali Kanakasabai, Jennifer Howard,Anand Roopsind, Kellee Koenig, Adam Schoenberg, Karyn Tabor, Bronson Griscom, Robert Baigrie, Will Turner,Agustin Silvani, Aya Uraguchi, Bara Kalla, Srabani Roy, Anurag RamachandraNATIONAL UNIVERSITY OF SINGAPORE, CENTRE FOR NATURE-BASED CLIMATE SOLUTIONS:Kelly Siman, Yiwen Zeng, Zhang Jie, Lavanya Prakash, Tasya Vadya Sarira, L. Roman Carrasco Torrecilla, Daniel A.Friess, Lian Pin KohSUGGESTED CITATION:Raghav, S., Siman, K., Gross, A., Wu, A., Zeng, Y., Comstock, M., Zhang, J., Yoshioka, J.-R., Kanakasabai, M., Prakash,L., Howard, J., Roopsind, A., Sarira, T. V., Carrasco, L. R., Koenig, K., Schoenberg, A., Tabor, K., Griscom, B., AyaUraguchi, R., Koh, L. P. (2020). The Business Case for Natural Climate Solutions: Insights and Opportunitiesfor Southeast Asia (p. 109). Temasek.ixCONSERVATION INTERNATIONAL NATIONAL UNIVERSITY OF SINGAPORE

BIHAIBOTHE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIAx

HOANG GIANG HAIIEXECUTIVE SUMMARYIn the face of the accelerating impacts of climatechange, natural climate solutions (NCS) provide animmediately and widely available option for companiesseeking to make sound investments in climatemitigation. Given the pressing need to decarboniseand the ambitious carbon targets set by companiesand countries alike, it seems clear that NCS solutionsmust form part of the portfolio of options to achievecarbon neutrality.Companies can make a difference. NCS might notfit every single use case or organisation. However,greater awareness of NCS, and how to operationalisesuch solutions, will lead to more informed options forcompanies and countries. NCS represent a significantopportunity for businesses and investors that eitherhave exposures and material risks within their supplychain linked to deforestation and land-use changeor are seeking cost-effective investment optionsto meet their climate commitments and targets, aspart of a broader portfolio of climate investmentsinclusive of decarbonisation.1Despite their vast potential, NCS solutions havebeen undervalued as a credible mitigation solution,attracting only a minor share of global climate financeflows. Reasons likely include lack of methodologiesto quantify and verify mitigation outcomes addressingland use, land use change, and forestry, and lack ofinstitutional maturity or readiness. However, many ofthe barriers to investment have viable solutions andresearch suggests a potentially high opportunity andlow operational cost to sequester carbon at scale.In fact, NCS projects are competitive with othermitigation options on cost and return on investmentbut stand out as particularly favourable when noncarbon benefits are considered, including coastalresilience, biodiversity conservation, and floodprevention. While there are limited options for pricepremiums associated with the co-benefits of NCS,advancements in measuring, reporting, and productinnovation could assist companies in directinginvestments to activities and regions where noncarbon returns and Sustainable Development Goals(SDGs) outcomes can be maximized.CONSERVATION INTERNATIONAL NATIONAL UNIVERSITY OF SINGAPORE

ROBIN MOORE/ILCPEfficiencies and levers for value creation can berealised through designing and implementing NCSprojects in a manner that reduces cost and timeneeded to generate returns through engaging inpolicy advocacy, technology deployment, inclusion ofcost buffers, and upfront community engagement.NCS, even as demand for carbon credits is poised toincrease, supply development is a key opportunity andneed. This will require further development of andinvestment in innovative financial instruments thatsupport project start-up and design costs to ensurehigh quality outcomes, for new projects in particular.To date, most entities investing in NCS projects viathe purchase of carbon credits are doing so throughthe voluntary carbon market. Whether motivatedby corporate social responsibility (CSR), climatecommitments, market opportunities, pre-compliance,or compliance needs, there are numerous businessmodels that companies may utilise to invest in NCS.For voluntary carbon offsets, these models includevoluntary purchase agreements, offtake agreements,and upfront investment in project development in returnfor preferential access to future credits generated.Recent developments have also allowed betterquantification of the impact of blue carbon solutions,thereby improving the financial conditions for coastalcarbon investment and bringing this carbon sciencecloser to parity with terrestrial forest ecosystems.The private sector has the opportunity to drivetechnological and financial innovation to streamlinecarbon investments and accelerate pipelinedevelopment for underutilised but high-potentialsolutions like blue carbon (targeting coastal andmarine ecosystems) and reduced impact logging forclimate (RIL-C).Trends suggest that demand for NCS activitiesand their associated carbon returns will increaserapidly in the coming decade. Voluntary carbonoffset issuances nearly doubled between 2018and 2019. We are possibly already at an inflectionpoint. Many countries in Southeast Asia and thePacific have favourable conditions for NCS investmentand implementation, including high potential forinvestable carbon. Southeast Asia holds the highestdensity of carbon prospecting for NCS investments,which includes both terrestrial and blue carbon.Similarly, based on preliminary spatial analyses,there is a high density of co-benefits that would becaptured through NCS investment. However, to scaleFor NCS to reach scale, the private and finance sectoris encouraged to support the enabling conditions forpolicies and compliance regimes for climate action.The development of mature carbon markets willfurther enable and facilitate the expansion of demand,higher prices, and matching of demand and supply. Itis recommended that companies investing in NCSalso support policy development at the regionaland national level to ensure long-term sustainabilityand scaling opportunities, as well as consistentpricing signals to sustain the development andimplementation of NCS outcomes.THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA2

KLJ PHOTOGRAPHIC LTDIINATURE’S ROLE INCLIMATE ACTIONNatural Climate Solutions, or NCS, refer to climatemitigation technologies that harness naturalprocesses to reduce or remove greenhouse gas, orGHG emissions. More precisely, NCS are defined as“actions to protect, sustainably manage, and restorenatural or modified ecosystems that address societalchallenges effectively and adaptively, simultaneouslyproviding human well-being and biodiversity benefits”(IUCN, 2016).NCS can contribute to efforts in three primary ways: Reducing GHG emissions, especiallyin the land use sector; Providing a proven method of carboncapture and storage; and Increasing ecosystem resilience andproviding other socioecological cobenefits of mitigation efforts.Nature already mitigates a significant portion ofanthropogenic GHG emissions. Approximately aquarter of these emissions are absorbed by trees,3plants, and soil, while another quarter is absorbedinto marine systems (NOAA, 2017). Yet, if protected,sustainably managed, and restored, nature has thepower to do even more. Studies have shown howNCS can provide over a third of cost-effectiveclimate mitigation needed worldwide to achievenet-zero emissions by 2050 and keep globalwarming below 2 C (Griscom et al., 2017). Realisingthis opportunity, however, requires support from theprivate sector which plays a critical role in scaling NCSimplementation. Businesses can catalyse significantreductions of GHG emissions through investmentsin NCS – not only to address their own company’sfootprint, but also to drive transitional change forentire sectors. Conversely, NCS presents a wealthof opportunities to businesses – with a range ofmotivations – in achieving their internal corporategoals, while also supporting the advancement ofnational climate targets within their countries ofoperation. This report highlights opportunities forbusinesses to invest in NCS, particularly those inSoutheast Asia to stimulate the implementation ofNCS at scale.CONSERVATION INTERNATIONAL NATIONAL UNIVERSITY OF SINGAPORE

III EAKKALUKWHY BUSINESSES SHOULDCARE ABOUT NATURALCLIMATE SOLUTIONSAchieving Net-Zero Emissionsby 2050 is Needed to AvoidCatastrophic Climate ChangeTHE PRIVATE SECTOR IS UNIQUELYPOSITIONED TO SUPPORT CLIMATE ACTIONDUE TO THE SPEED AND SCALE AT WHICH ITCAN DEPLOY CAPITALThe time to act is now. Due to the mounting climateshocks associated with warming beyond 1.5 C, the nextten years will shape the outlook for climate risk for therest of the century (World Economic Forum, 2018).The private sector has key, distinct advantages as aninvestor in NCS. Not only are pools of philanthropicand government capital typically more modest thanprivate funds, but government fiscal assets arealso more susceptible to political risk. Corporatecommitments and efforts can help bridge the gapbetween current climate targets set by governmentsand the level of ambition that is needed to reachnet-zero emissions by 2050 (World Economic Forum,2018). The private sector can often make decisions anddeploy investment more rapidly than the public sector.Coupled with the pressure to compete in markets andachieve positive returns for investors, private sectorplayers are skilled at developing cost-effective modelsthat are financially self-sustaining. Furthermore, asgovernments often seek private investment withintheir jurisdictions as a means of job creation andeconomic growth, establishing corporate partnershipsand investments in climate mitigation projects can be astrong incentive for corresponding public action.From a global economic perspective, theclimate risks and corresponding economic risksthreaten a systemic collapse, unless net humancaused carbon dioxide (CO₂) emissions fall by50% by 2030 relative to 2010 and to net zero by2050 (Rogelj et al., 2015).Leveraging private investments with risk-reducingpublic and philanthropic capital, through anarrangement called public-private partnerships (PPPs),has emerged as a notable model for amplifying climatefinance (The Palladium Group, 2019). By strategicallyaligning business capital with countries’ climateGlobal experts agree on the imperative to act onclimate change across sectors, rapidly, and at scale.According to the Intergovernmental Panel on ClimateChange (IPCC), human activities are estimated to havecaused approximately 1.0 C of global warming sincepre-industrial times (1850-1900) and are projectedto reach 1.5 C of warming between 2030 and 2052based on current trends (IPCC, 2018). Global warminghas already negatively impacted natural and humansystems, including sea level rise, increased extremeand deadly weather events, and threats to health, foodsecurity, and economic growth. The IPCC projectsthat continued warming of 1.5 C and higher will furtherincrease the severity of these impacts. (IPCC, 2018).THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA4

opportunities and priorities, collaborations betweenthe public and private sector can accelerate transitionstowards a green economy (Ansah & Sorooshian,2019). These collaborations to scale financing maybe a matter of necessity, particularly for developingcountries, where large amounts of capital are neededto finance the transition to a green economy. Estimatessuggest that, by 2030, US 500 billion will beneeded annually to sufficiently limit GHG emissions indeveloping countries (World Resources Institute, 2013).The World Economic Forum (WEF) has identified keyareas where the private sector can lead to hastenthe transformation towards a low-carbon economy.In addition to financing climate action, these areasinclude: reinventing businesses, bridging sectors (tojointly develop low-carbon products, processes andtechnologies), creating sustainable value chains, andharnessing data and connectivity (World EconomicForum, 2018).TRACKING CORPORATE EMISSIONS IS THEFIRST ESSENTIAL STEP TO DETERMINEHOW COMPANIES SHOULD APPROACH ITSCLIMATE MITIGATION STRATEGYTo help transition to a low-carbon economy andsupport net-zero emissions targets, businesses firstneed to identify the sources of emissions that theyhave control and influence over. The Greenhouse GasProtocol has developed a Corporate Accounting andReporting Standard, providing guidance for companiesand organizations in preparing a corporate-level GHGemissions inventory.i (Bhatia et al., 2013)A GHG emissions inventory that includes all threescopes can help companies identify where thelargest emissions reduction opportunities exist acrosstheir business. From there, businesses can developtargeted mitigation strategies through a variety ofreporting, implementation, and trading programs,promoting company transparency while mitigatingreputational risk (Bhatia et al., 2013).Box 1: Classification of GHG ScopesCorporate emissions can come from a variety of sources, which are grouped into three “scopes” forgreenhouse gas accounting and reporting purposes (WRI & WBCSD, 2013).SCOPE 1Direct Emissions – emissions from activities directly underthe ownership or control of the eamMaterialExtraction/ProductionTransportationof PurchasedMaterialsBusinessTravelSCOPE 2Indirect Emissions – emissions from indirect sourcesunder the ownership or control of the company.SCOPE 3All Other Indirect Emissions – typically the largest sourceof company emissions. These come from sources relatedto the company’s activities, but not directly owned orunder the control of the company.5CONSERVATION INTERNATIONAL NATIONAL UNIVERSITY OF SINGAPORE

Carbon emissions reductions pose particularchallenges for small or medium sized enterprises(SMEs). Since SMEs typically have smaller overallemissions, these enterprises do not normally partakein emissions trading schemes. However, SMEs do holdkey advantages over large enterprises when lookingto reduce their overall — and specifically Scope 3— emissions. SME companies are characteristicallymuch more flexible with a flatter hierarchy, resultingin shorter and more immediate decision processes(Hendrichs & Busch, 2012).Carbon accounting can be an onerous and intensivetask and is typically “over-engineered” for SMEs(Hendrichs and Busch (2012). However, SMEs shouldwork to implement a proactive carbon managementstrategy that is in line with their capabilities andresources. A seven-step framework was developed(Figure 1) to help guide and reduce the burden ofcarbon accounting for SMEs. The framework isintended to identify and trigger carbon mitigationlevers in addition to discovering other areas of costsavings and efficiencies.Figure 1. Seven-step framework for small and medium sized enterprises to manage carbon emissions (Hendrichs and Busch (2012)1. Project Framing2. Status QuoAnalysis7. Reporting &Communication3. ScenarioOutlook6. Implementation5. TargetSettingBUSINESSES NEED TO SET SCIENCEBASED CLIMATE TARGETS AND DEVELOPSTRATEGIES TO MEET THEM, INCLUDINGINVESTING IN NCS OR PURCHASING OFFSETSTO COMPLEMENT DECARBONIZATIONOnce businesses have quantified their GHG emissions,they can set targets to reduce their emissions intheir operations and supply chains. Companies maydevelop GHG emissions reduction targets as partof broader sustainability frameworks or corporatedisclosures. To be meaningful, however, the ambitionsand timelines of these targets need to be aligned4. Identificationof ReductionMeasureswith best-available, objective, scientific guidance onrelevant global and sectoral carbon budgets in order tokeep global warming below 1.5 C.Through the Business Ambition for 1.5 C campaign,a global coalition of United Nations agencies andbusiness and industry leaders has issued a call toaction for companies to commit to ambitious emissionsreduction targets through the Science Based Targetsinitiative (SBTi) (Science Based Targets, 2020a). SBTidefines and promotes best practices in science-basedtarget setting for companies, and highlights theTHE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA6

increased innovation, reduced regulatory uncertainty,strengthened investor confidence, and improvedprofitability and competitiveness generated by sciencebased target setting (Science Based Targets, 2020a).While the guidance for the SBTi evolves and isfrequently updated, one of the methodologiesavailable for corporate science-based target settingallocates carbon budgets to specific sectors andcreates sector-specific decarbonisation pathways(Science Based Targets, 2020b). Pathways arecurrently under development for the followingsectors: apparel, chemicals and petrochemicals,financial institutions, oil and gas,

THE BUSINESS CASE FOR NATURAL CLIMATE SOLUTIONS: INSIGHTS AND OPPORTUNITIES FOR SOUTHEAST ASIA vi NATIONAL UNIVERSITY OF SINGAPORE We live in an unprecedented time with immense global challenges, with climate change presenting one of the most profound risks to both natural and human systems. In an effort to combat climate change and reduce global