Ep72 MDB Insights: Financing Nature-Based Solutions, ft Erik Berglof & JP Thia, Asian Infrastructure Investment Bank

Discover how nature itself is becoming the new infrastructure shaping our future. In this episode, experts from the Asian Infrastructure Investment Bank reveal how wetlands, mangroves, and forests are not just scenery but powerful tools for climate resilience and sustainable economic growth. We discuss innovative finance solutions mobilising private capital, the challenges of valuing natural assets, and why protecting nature is critical for survival, economics, and smart planning.

REF: INVESTING IN NATURE AS INFRASTRUCTURE

ABOUT ERIK: Erik Berglof is the Bank’s inaugural Chief Economist. He sets the vision and strategy for the Economics Department and leads the planning, implementation and supervision of its work plan in support of the Bank’s mandate. Prior to joining AIIB in September 2020, he was Director of the Institute of Global Affairs, London School of Economics, and Chief Economist of the European Bank for Reconstruction and Development from 2006 to 2015, where he was part of creating, and co-led, the Vienna Initiative, a European crisis response team credited with mitigating the impact of the 2008 Global Financial Crisis. He is an expert in transition economics and institutional transformation through private sector development. He holds a PhD in Financial Economics and an MA in Business and Economics, both from the Stockholm School of Economics. Berglof is from Sweden.

ABOUT JP: Jang Ping Thia joined the AIIB in 2016 and is currently the Lead Economist and the Manager of the Economics Department. The department is responsible for economic analysis at AIIB, covering country macroeconomics, debt sustainability analysis, review of project economics, to support investment operations. The department is also responsible for AIIB’s flagship publication, the Asian Infrastructure Finance report, which highlights infrastructure development and financing issues. He was previously with the Singapore Ministry of Finance, covering expenditures on security, sports, community and telecommunication infrastructure. With a PhD from the London School of Economics, he also held a stint as the Economics Director at the Ministry of Trade and Industry, overseeing economic forecasting, research and the development of the Economist Service. Working on trade and geography, infrastructure development and finance related issues, his research has been published in various journals.

FEEDBACK: Email Host | HOST, PRODUCTION, ARTWORK: Joseph Jacobelli | MUSIC: Ep0-29 The Open Goldberg Variations, Kimiko Ishizaka Ep30-50 Orchestra Gli Armonici – Tomaso Albinoni, Op.07, Concerto 04 per archi in Sol - III. Allegro. | Ep51 – Brandenburg Concerto No. 4 in G, Movement I (Allegro), BWV 1049 Kevin MacLeod. Licensed under Creative Commons: By Attribution 4.0 License

Transcript

***PLEASE NOTE: The text is an automatically generated transcript and may contain errors. For accuracy, only rely on the original recording.***

Ep72 MDB Insights: Financing Nature-Based Solutions, ft Erik Berglof & JP Thia, Asia Infrastructure Investment Bank

Joseph Jacobelli: Good morning, good afternoon, and good evening, wherever you may be. Welcome to the 72nd episode of the Asia Climate Finance Podcast. Today we dive into a topic that's not really discussed , often enough, and which is also a topic that's changing how we think about infrastructure. Infrastructure is not just about roads, bridges, and buildings anymore.

Nature itself has a critical role. Wetlands, mangroves and forests protect cities, clean our air and store carbon. They act like infrastructure, but most governments and banks still treat it like scenery. So for this episode, I had a discussion with two experts from the Asia Infrastructure Investment Bank, AIIB.

Just in case you're not familiar with this very important financial institutions, AIIB is a multilateral development bank, MDB headquartered in Beijing. It started in 2016, has 110 members worldwide, is capitalized at a hundred billion US and is triple A rated by major international credit agencies.

Importantly, collaborates to mobilize capital and invest in infrastructure in other sectors to a. Promote sustainable economic development and b. enhance regional connectivity. The guests are AIIB's Chief Economist, Dr. Eric Bergoff and also Dr. Jing Tia or JP for short, who manages the economics department. They explain how multilateral development banks like AIIB now apply extended cost benefit analysis. They include nature capital. They show how nature-based solutions meets concrete and steel. We hear examples from, you know, in Mongolia to Guangxi, and, uh, Sri Lanka. In each case nature, helping to solve things like flooding, improve water quality and boosting local economies. The conversation also tackles finance. JP and Eric break down the tools we need, policy based lending guarantees, insurance, nature linked bonds. They show how multilateral banks can de-risk projects and attract private capital. They also highlight the barriers, short term thinking, poor data, a bias towards engineered control, and a market that rewards resource extraction over conservation.

But things are changing. Satellite data is improving, for example. Credit agencies are starting to notice nature risks. Governments are beginning to value mangroves and wetlands and MDBs like AIIB now fund nature directly. They're treat it like infrastructure. They build policy frameworks and they support local solutions.

So this episode is practical, evidence driven and urgent. It's not about tree hugging, it's about survival, economics and smart planning.

As always, please contact me for topics or guest ideas. The email is at the top of the show notes. Enjoy the discussion. 

Erik and JP, thank you so much for making it. I hope, , Beijing is not, , getting too cold for you guys. So how, how are you, JP? 

JP Thia: I am very good. I'm actually in Singapore this week, but in the same time zone, so very happy to connect with you and Erik on this podcast.

Joseph Jacobelli: Great. Erik, how are you?

Erik Berglof: Well, very well. Beijing is actually very sunny air is wonderful and it's a little bit cold but colder than Singapore for sure. But it's still liveable.

Joseph Jacobelli: That's great. Erik, maybe I can start with you. We've got your formal biography in the show notes already, but could you tell us a little bit about yourself, I mean, especially what, what you are passionate about?

Erik Berglof: Well, we are often triggered by, of course, the experiences we have in, in our, our private lives. I've been going back to the same spot, since I was like four years old on the Swedish West Coast. And I, I've seen, it took me actually some time to realize the changes that were going on, but, I've seen in those 50 plus years, I've seen how we lost, more than 60% of the species on land and in, in, and actually on land, you, you may not notice so much, but when you come into the sea and you, you look underwater the, the changes are, are very dramatic. And I think this has always, propelled my interest in, in, in the environment, in nature, and of course ultimately in, in climate change.

And I think those are the things that drive me through as a sort of in and out of, of academia and, and in, in, sort of policy making institutions. So that's probably the best explanation of why, why I'm where I'm right now.

Joseph Jacobelli: Sure. What about you, JP? What are you passionate about?

JP Thia: I am very passionate about economics, so I spent my whole career, working on economics issue first in the Singapore government, then in the bank, AIIB.

I have to say that in the past few years, my team, myself, we are all influenced by Erik in a way to really bring the environmental nature aspects into the work we do. Now I'm increasingly much more concerned than I would be just compared a couple of years ago on environmental issue. Erik, Erik mentioned something about his childhood.

Maybe I'll share a funny story about a conversation I had with my boy a couple of years ago. He was seven. he watched a documentary on the BBC, and he realized that eating beef is very bad for an environment. But then he told, but he told me at dinner, he said, but I like beef very much. Even if I stop eating, the rest of the world will still eat.

Why should I even stop? So I think in that moment, a 7-year-old boy, really captures what we call externality and, the, the kind of issues that we are facing today where we need to coordinate much better to improve the outcome for the environment. Coming from a 7-year-old boy, the wisdom and his logic, we need to overcome that.

Joseph Jacobelli: So sometimes questions from young boys are, or young girls, pretty amazing. Are, are, are, are pretty amazing, pretty tough.

That is a good segway to talk a little bit about nature as infrastructure and the report, that you had published. So could I ask either of you what why did you choose to actually publish the report couple of years back? And what makes the report still relevant today? I, I'm not sure who, who would like to take that, that question.

Erik Berglof: Well, I'm happy to, to take it and then, JP can come in. I think it's very natural for an infrastructure bank to think about nature as infrastructure.

Infrastructure helps us in the sense of, of thinking systemically about bio-homes and ecosystems and, and really nature is the most important infrastructure that we have for sustaining life on earth. So that came very naturally. But also infrastructure finance comes with a lot of tools that we can use everything from.

Public-private partnership, the use of guarantees, the use of insurance, generating biodiversity. A lot of things that we can apply from infrastructure finance to investments in nature.

Joseph Jacobelli: Right. So that's, the reason why you wanted to publish the report a couple years back. What makes it relevant today still?

Erik Berglof: Well, since we published the report, we have very much worked in-house tried to, make things happen and we have have applied this extended cost benefit analysis when you consider also the value of nature.

As capital, natural capital, we have an applied to specific projects that we think are really nature infrastructure projects. one in the Mongolia one in Guangxi, and so on. So there are very specific projects that fit very nicely with this nature's infrastructure paradigm.

But we are also trying to push the nature agenda by engaging with the commercial banks to give them credit lines that they can use to finance, nature's infrastructure and build capacity to assess investments in nature. And I think this is again, something that is an ongoing battle.

And, and what, why we think that this is still very much on the agenda. In Berlin, we will publish a report that looking at the most difficult part of this, which is to bring in private capital. So how to mobilize private capital for nature's infrastructure. And, again, this is where all those tools of infrastructure finance, become very relevant and very important.

They tell us how we can structure contracts and what the public must side must do of a relationship, the public. Side, the government must provide the policy framework. It must provide the regulation; it must provide fiscal incentives and all those things. I think we as a bank, are much better situated today to address than we were when the report was, was published.

We have now an additional tool we call Policy-Based Financing for Climate and combining that with our traditional tools of project finance and re results oriented finance. All these tools allow us much better to address the whole panoply of, of measures that are important for nature infrastructure.

But, but JP, please fill in.

JP Thia: Yeah. Thank you, Joseph. Thank you, Erik. Dialling back a little bit I think the report also took inspirations from the work of others. I want to cite a couple. One of the works that we took inspiration from was Dasgupta report [The Dasgupta Review, commissioned by the UK Treasury and published in 2021], a couple of years ago, I think just four years ago, highlighting that the amount of the biodiversity that we are losing is simply unsustainable for us as a planet, as a human.

So the Dasgupta report did have an influence on how we shape our own report. The second one came from International Institute of Sustainable Development, right? So they mentioned and they documented their infrastructure development, whether it is not it's dams, whether or not it's roads has in fact been a contributor to the loss of nature in the past.

So when you put these reports together and you very soon realize that if AIIB is going to uplift infrastructure development across Asia on a large scale, things must be done a little bit differently from in the past, right?   So that, that really led us to. Really want to be at the forefront to reframe nature's infrastructure, bring forward solutions, both in the design and infrastructure, the implementation, as well as the financing.

Why is it still relevant? The job is far from being done, so a lot of work still must continue, especially on the financing side. Still very, very far from a sustainable type of development model.

Joseph Jacobelli: So get getting into some of the areas of, of the report and, and what's going on today as well.

Let's start with a very simple, kind of little bit high level question, but what are the core benefits that nature's infrastructure can, can provide?

Erik Berglof: Well, I think a very good illustration is actually we have in the report, and I mentioned it briefly before, is, this example from in Mongolia. So it started as a very well targeted solution to a problem that this local authority had with repeated flooding. And they wanted to use the restoration of part of a wetland to address this flooding issue and to regulate the water. So we encourage them to use this extended, cost benefit analysis. All projects that we do with Sovereign, we have to do with the cost benefit analysis. We suggested, let's look at this in a broader context of including natural capital. And once we did that, we could look at the carbon capture. We could look at air and water purification.

We could look cross pollination, helping, neighbour farming communities and so on. We could lose at, at recreation and, and so on. And once we took this back to the local authority, they said ‘we to think of this whole weapon, not just the little part that we want to use for flood management’, because the values from an economic point of view are so significant.

And in a way that project translated something that was a very specific solution using nature to address a problem to a nature's infrastructure problem, where we looked at the whole. Ecosystem and what all the contributions that it makes to economic, activity in human wellbeing.

Joseph Jacobelli: JP, anything you want to add?

JP Thia: Erik mentioned a lot of core benefits of nature. He mentioned ecosystem services, health benefits, carbon capture, et cetera. I would just highlight a few maybe well designed infrastructures that uses a nature based solution often carries lower long-term cost.

I think that lower long term cost is actually quite important. If you design the wetland to integrate the wetland into your water capture services, it, it is much easier to maintain over the long lifespan of the projects and building more canals and building more green infrastructure, right?   So there are many examples of lower cost.

But I'm also coming to the point whereby I also worry that we speak about core benefits too much. Maybe we should also highlight that nature itself gives us core benefit rather than core benefit itself is fundamental to our entire wellbeing in liveability of planet Earth. So I think that part of the core benefit of just nature is important to sustain, important to emphasize as well.

Joseph Jacobelli: No, that's all very, very, very true. May maybe we'll get into some, examples, in a bit. But before we talk about examples what are the new tools or instruments. Required for the shift that we're talking about. What are the, the most feasible to scale and where is more work still required?

JP Thia: This is a very difficult question because nature itself. It's everywhere. It has got huge externality, and it is actually quite difficult to monetize into any single projects. And in fact, some might argue that nature is too important to wait for its monetization in the projects before you do something about it ,right. So, we have very much an all hands on deck approach, so I think all instruments are helpful to crowd in finances, but maybe I highlight a few that I think can truly move the needle. I think it's important for us to start to maybe finance countries on a policy lending basis.

So if a country undertakes to do fundamental policy reforms, to conserve nature, maybe MDBs like us should start to finance these kinds of reforms. Now MDBs, a finance policy based outcome, policy reforms in climate, in education, in health. I think maybe that's the way to really scale up, is to really finance policy reforms that countries are willing to undertake for nature.

We can help finance companies, bond Issuance. If they have a nature element, if they commit to doing certain things for nature, at least do no harm to nature. I think those kind of nature, climate friendly bonds, we should also start to finance on large scale. There are many other instruments like, debt for nature swaps.

 all these instruments, they're slightly more niche, but. Whenever they're applicable, wherever they're useful, we should not drop that. We should always go finance, for example, rhinoceros bond, lions bonds, those things perhaps more on a targeted basis, but helpful, nonetheless.

Erik Berglof: Can I add to, to that? I think also as I said very specific type of contracts that we use in, in infrastructure like PPPs for example these public-private partnerships. Or they both work to explain the, the balance between what the public side and the private side, but also when you look at very specific contractual structures like build, operate, and transfer or things that are very well established practices that I think apply extremely well to nature.

And I think it just helps that we have this, experience accumulated in the private sector, in the MDBs in governments. We have built over decades now special units in many emerging developing countries. And in developed countries for that matter that really know how to do PPPs.

And I think that is really a, a future for, for nature as infrastructure finance. And then that can be combined with the types of instruments that, that, JP was talking about. I would add to that also guarantees to de-risk investments, insurance to anticipate. Future risk events and so on.

And so I think taking all this together really gives us a very strong toolbox to address nature finance.

Joseph Jacobelli: So still talking about kind of the value side of things. What, what questions are. Involved in defining the value of, of nature and how, how can we how can we track and, and measure the long-term impact of nature-based solutions compared to traditional infrastructure?

JP Thia: I'm happy to answer that, but I will just maybe let you maybe have a sense of what is going on at this moment in time that I think creates a kind of market distortion. So I, I was very intrigued by a study done by International Monetary Fund IMF, a couple of years ago.

So, the, the study essentially says that countries that adopt a high level of protection for nature. They do not get any credit rating advantage. In fact, country that exploit nature better seems to do better in terms of the credit market. Now, it, it really made me think very hard. What, what is, what do you see that funny relationship rate, but then in the end, it, it turns out to be simple, right?

So imagine a country, right cutting down the forest, selling timber, selling the resources. You have an immediate boost to the GDP and to the boost of GDP. You get better credit rating, right? Okay. And a country that conserves the forest, the GDP may be affected a little bit and it's hard to then improve the credit rating.

You do not have the exports to help you. Right? So, so that I think is something that the markets need to resolve and we need to find a way whereby we can all think true. The long-term consequences of countries cutting down their forests, depleting their resources in order to get that short-term GDP boost.

Unfortunately, I think the market, including many of us in the so is still reacting to the short-term GDP boost as opposed to seeing the long-term consequences of the destruction of nature. Right,

JP Thia: So many agencies, World Bank included, and UN as well, has encouraged all of us to find a way to value the wealth of the nations.

Not just in terms of current GDP, but through the wealth of its, nature capital stocks and World Bank has been, I think, partly successful in that they have taught us how to give a long-term valuation of the mangroves, wild land, river systems, and so on.

This is captured in the wealth of the countries. Well of the Nation's report and increasingly, I think that kind of long-term valuation of nature assets should be brought much more into the policy discussion, how to conserve that even as we try to grow today's GDP . I think that long-term, thinking must come in.

Erik Berglof: I very much. Okay. I agree. I just wanted to emphasize one thing that, that, is sort of the, comes out of what JP just said is that once we start recognizing the values that these countries have, I'm talking particularly in the emerging and developing world with a lot of the sort of ecosystem values are. Once we recognize that value. Also the impact of climate change on these countries of nature laws that introduces risks into the performance of these economies. So we really need to have a much better thinking inside the financial system or how we assess the value of these assets, but also the risk associated with them.

I think from what I see. In, in the investment community. There's much more awareness today than just a few years ago about, nature risks and, and, also, I see a lot of collaboration among insurance companies trying to find arrangements to deal with and look at what happened in in LA with the fires and so on.

There are now initiatives to try to seek if there are things we can do to invest in nature that raises the value of these underwater assets that the insurance companies have in the LA area. So that way of thinking about how we can use the tools that we have, insurance and so on, to really bring in resources and, and de-risk some of, of these, nature investments.

Joseph Jacobelli: The, the, the reports that you guys wrote a couple years back, it, it mentioned that the nature-based solution is still, the investment in nature-based solution is still relatively low. As we've just been speaking. It is something that financial institutions globally are getting their head around.

But what are the key barriers? And which barriers do you see as being the most urgent to. Address. And also one of the things is, what, what I've been trying to do at, at an individual level through my publications, this podcast, et cetera, is raising awareness. And I think one of the challenges with nature is when the, you mentioned the word nature, people think about tree hugging.

So, oh we need to be nice to nature. Okay, well everybody wants to be nice to nature, but how do I make money out of it? So you've got that kind of misperception that the minute you're talking about nature, you're talking about something which is more philanthropic in nature. Rather than, rather than something which is like, I think you mentioned Erik something, which to me is very, very close to my heart, which is physical climate risk, I mean, it's happening today. You've got some whole sections of the real estate economy in the United States, for example, and other places, which is not insurable. You can actually in, you cannot insure your house. that to me is very, very serious. So, so again apart from trying to kind of.

Communicate this, this better. What, what, what are the key bar? Or, or maybe you want to comment on what I just mentioned and also what are the key barriers and which barriers do you see as, as being the most urgent to address?

Erik Berglof: JP, you want to go?

Joseph Jacobelli: I give you, give you the tough one.

JP Thia: I, I think one of the key barriers is one of a, the, the need for control, right? So if you say that, okay, I'm going to control manage the flooding in the city. And if you appropriate budgets to build levies, to build dikes and so on, right? I think it, and it gives the policymaker, and it gives the people who are investing in those assets a real sense of, physical control over potential flooding over nature in some sense.

I think to a certain extent, a lot of us and a lot of policy makers, sometimes even ourselves, right? We, we want that kind of engineering control. And to, to, and to show the returns to show that we are putting x amount of dollars to show the rate of return of these assets in a very clear cut case. But if you, if you try to incorporate the nature into infrastructure, right?

So if you try to create more wetlands or you try to maintain the, the ecosystem around the river to absorb the kind of, water. There is an element of uncertainty, there's an element of unknown, there's an element of not being very sure whether or not you can say that you have done your best to control the potential flooding that comes through the storm or so on.

Right? I think of course, I think if we, if there are enough more sciences and enough more examples, enough more knowledge to overcome that and allow and convince, public taxpayers, policy makers that. That nature-based solutions are often better, or at least no worse than the engineered solutions, and you can afford to actually invest in those solutions.

I think that could be a big step in the mindset change that allows more a, funding to be then used towards the conservation of those assets as opposed to engineered solutions. But beyond that. Even nature-based solutions around a certain infrastructure may not be enough. So one of the, the, the reports, one of the core tenets of the report that we are saying that we didn't call it a nature-based solutions for infrastructure.

We said that nature is itself an infrastructure. I think that comes to come back in certain areas. I think we should do the nature-based solutions for the kind of engineering needs that we have in incorporate the nature, nature element. But fundamentally, you need to conserve nature.

Fundamentally, you need to protect the Amazon, you need to protect the Congo Basin. You need to protect certain things just in order to make sure that of the liveability of the planet and the economy and the rest that goes with it.

Erik Berglof: I think a, a barrier that has been there, but which is rapidly eroding, I think is the data availability.

I think now we have. Tremendous development in, in, in data. Using satellite imagery, using remote sensing. All these things that seem so hard to, to appreciate and measure and put into contract and so on are now much easy. There's much more agreement on how to, how to measure these things.

There is still particularly for when it comes to biodiversity, there are several alternative ways of thinking about it and the quality varies across countries and so on. I think even there we are overcoming this by saying all these measures with their own particular sort of idiosyncrasies, all these measures point in the same direction.

And we need to be able to use that, that, that there is, real values here that can. Important economically that influenced people's lives. And one thing that we haven't spoken so much, JP alluded to it before, but is, is the human health dimension. That, that, mm a lot of what we are doing here can be justified from human health impact.

So when we can clean the air, when we can clean the water when we can improve the quality of, of the environment in which we live. Those things really matter for people's life. That's how it started here in China. It was really through the people's felt, the deterioration of the air, people saw on their own health, the health of their children that was made it so the pressure for on policy makers to, to do something and it is, quite remarkable what has been achieved from a, a very bad situation to something that is much better. And, and today, actually, as I said, it's the air here is, is very good. And, and there's still ups and downs, but, but I think the fundamental tenet that we need to really bring out the health dimension of, of both what's happening through heat and, and what's happening through air pollution.

I think that's going to be the, the real change maker when it comes to emerging and developing economies where it's a bit harder too. When you're living at the, on the verge of poverty to think about these global challenges. It's what really affects you. The heat, the air pollution, and so on.

Those are the things that really matter to people. And, and that's how we, I think, will make progress on, on this agenda.

Joseph Jacobelli: So, so, JP and Erik, we, we've talked about the kind of damage that if you don't. Don't take care of nature. An economy can have, right? Say for example, I think now people are studying more and more to understand the, the importance of having mangroves.

And if you've destroyed the mangroves near the city you better recreate them as soon as possible because the eco, the positive economic impact is, is pretty, is pretty massive. But are you able, I mean, it sounds to me as a, as a financial analyst, because my background is a financial analyst, incredibly difficult to go to the government for AIIB or other MDB, to go to the government and say, well, if you guys don't do it, the cost is going to be X. And are you able to have the conversation yet in terms of the data available or it's still, is it still relatively different?

I think JP, you alluded to that, right? It's a little bit difficult to, to accurately estimate the potential, the potential cost.

JP Thia: So I think certain assets, I think the work has been much better. I think in the specific case of mangrove, I think the conversation is already more or less accepted that mangrove has got tremendous value.

I think mangrove is one of the best tracked, nature assets across the world, whether through satellite or through data, coastal data and so on. I think that one is well documented. I think Erik mentioned a little bit before, I think wetlands is coming into the people are, the consciousness about wetlands and the ecosystem services it provide is also, increasing.

But I think there are still a lot of gaps. I think there are still a lot of gaps around say the ecosystem services of things like, river basins. Of the trees around it and how does it improve the hydrological flows and so on. Let me give you an example, right? So I've, I have seen a municipal government, right?

When they are faced with the runoff or the water from the mountain. I mean, the instinctive reaction is to cut down the forest and to build a protective barrier around the city, right? A system of drains, to divert the water from the hills away from the city.

This kind of engineering solution around the hillside gives the illusion of certainty, gives the illusion of control to the municipal government when you preserve the forest on the hill site, you are still subjected to some uncertainty, but over the long term right.

The maintenance of this kind of engineered solution is going to be really costly. Costly to build, costly to maintain. And with weather, with the increasing climate changes and unpredictable weather patterns, the storms intensity is, are getting bigger. So more, more and more we got to, we got to just convince the policy makers that the combination of solutions must involve some, some parts of nature may involve some. Change in the way you build a city. It may involve some, some of the ways you change the engineering of the roads, but in the long run, if you think about nature as a system, go with it, go with the flow, as opposed to trying to block it entirely off.

I think you have a much stronger system of urban nature kind of interface towards the end.  

That is a lot of work. There's a lot of data to visible needs to be done, and the solutions may not. Be the same across the board. The solutions are going to be very, very local. I think that's one of the challenges, how to find those local solutions to a very, to a global problem.

Erik Berglof: But actually, so I think that's really captures, the, the challenges very well. I think we are already in, in the activities of AIIB trying to translate this. We have a product in, Southern China Guanxi, it is a river estuary where they're very important mangrove preserves that we, we are part of trying to, to help restore and mangroves again they have so many functions and, and, they have, they are much more effective than other forest to, to capture carbon. We showed in the report, how, what role they played in protecting people against, tidal waves in Indonesia and particularly poorer people because rich people have other ways of protecting themselves. So I think with mangroves now we are in discussions with, the Brazilian government, including in a, in a, in a major policy-based loan that we are providing to the Brazilian government for climate. There is a very important component there, one of five or six components that is about policy framework for managing mangroves in Brazil. So I think these insights that JP described before that we, we are really learning much more about mangrove, but it's, it's slipping into what MDB is, is slipping into a policymaker's mindset. So I think we are, we are making, progress on, on, on, on some of these, issues, but there's of course a long way to go.

JP Thia: I recently learned about a fantastic example I hope to just share also, sure.

In co in Colombo, in Sri Lanka, they pioneered using of, wetlands to absorb the flood and the rain. And if you actually visit Colombo, you will see that there are a lot of small little lakes and wetlands around even the Colombo city itself. What was very interesting that I didn't know that what was very interesting to me was that someone informed me that there are actually a series of pipes hard infrastructure linking these various separate bodies of water.

So that the hard infrastructure, the drains and the pipe rebalance the water between the different parts of the city, the wetlands. So whenever some, if one part is overflowing, the pipes can bring the water from one wetland to the other parts of the city. And I, I thought this is a real good example of having both hard infrastructure, the pipes, marrying together with a different pockets of wetland in the city itself and trying to find a clever way of rebalancing the system during the storm surges that I, I thought it was a very nice example of how and, nature infrastructure working hand in hand to create that kind of a nice balance for the city to prevent flooding,

Joseph Jacobelli: especially if you do it, if you do it beforehand. I mean, there's examples in recent examples in Lisbon in Hong Kong where. You've got a sudden surge. Those days where you get one year's worth of rain in one day. I'm exaggerating. That's right. But you what I'm talking about. And then all of a sudden everything is flooded.

Your underground is flooded, your car park is flooded and mean the, the amount of economic cost, immediate economic cost, plus the fact that you're go, going to have a lot of retroactive. Investment, you're going to have to dig up the road, put in new pipes, and that's an enormous, an enormous, enormous cost. Right?

JP Thia: And, and, and, and not forgetting, right? If you have to use only hard infrastructure, the grey infrastructure to deal with a one in a five year, 10 year flood, or whereas most of the time it's doing nothing, it's tremendously costly for, for the city as well, right?

Joseph Jacobelli: Yeah. And typically out of budget because it's a surprise cost and they have to find the money, et cetera.

JP and Erik, you've alluded to before, the role of, multilateral development banks. But can we dig in a little bit into that? What role can multilateral development banks, such as AIIB play in mainstreaming this, this new approach? How can MDBs help mitigate risks and de-risk some of these investments. And how can MDBs catalyse private sector engagement?

Erik Berglof: Well, I think the reason why we took on this challenge of nature's infrastructure, which we obviously think that MDBs have a very important role to play. As I said, we have all these. Tools from infrastructure finance that we can apply to nature as infrastructure but it, but it already starts with valuing nature and we can agree with our clients on the government side for sure, that we want to look at a broader than just the traditional cost benefit analysis. We want to include natural capital. That's something that we used the model actually that what had been developed by the EBRD, the European Bank for Construction Development.

So there's a lot of, . Knowledge transfer across MDBs. And of course, we are sort of relatively newcomer to the MDB community. We benefited a lot from the work that, JP mentioned before from this the, the Changing Wealth of Nations project in, the World Bank. We can also agree on taxonomies.

So for example, in the project that we are. We're working on with these commercial banks. There is a taxonomy that was adopted by the World Bank, but now the MDBs are jointly developing and trying to help and, and then we can work with policy makers. Either directly or by using a policy-based lending as a tool to introduce these practices both on, on valuation, on, classifying what should be, what is the nature asset and, and how to think about it.

So, and of course then I, going back to these traditional tools that we have had I think in PPP, from my experience. The role of, MDBs can be very substantial because these are relationships between operators that have been working across the world in very different settings. A lot of experience and often working with the local authority that has very limited experience. And, and these are kind of lopsided relationships where MDB can be sort of assess things fairly, perhaps via we can also convene different parties that to try to find solutions, right?

I think there's a very rich set of, of, instruments that we can use and, and we, we talked about guarantees as well the help derisking, we can foster the development or biodiversity credits, for example, which I think is something that is going to be absolutely necessary. Element, but it's a very complex element because we cannot just take what we have learned from carbon markets to, nature market.

These, they're very different and need to consider the very local nature of nature as well. So again, we there's a very broad set of issues we need to think about, but I think MDBs can play a very important role in this.

JP Thia: I add three, three areas. I, I think one of the strengths of MDB finance is that it's low cost and it's very long term. Very long term for countries sovereign borrowing. It can be 30, sometimes even 40 years in the case of some MDBs. So I think MDBs are well placed to lend government money on policy reforms. In the way that we have then governed policy on climate reforms or education reforms. I think giving long term, low cost finance for the undertaking of reforms is one, reforms to protect environment, protect nature is one key area.

I think the second area, again, uses the MDB long-term financing at low cost is large scale conservation. I hope to really mean large scale means regional wide type of a, ecosystem kind of management. For example, conservation of the entire river basin, conservation of cross boundary forest, cross boundary river systems.

Getting into a group of countries rather than, working one by one. I think that kind of long-term financing across a group of countries in the region for ecosystem management and conservation is number two, again, leveraging on the finance partner. The last point I will add is that. MDBs beside offering, long-term low cost finance has good reputation and knowledge.

I think MDB can play a role in being the anchor investors on. In various, financial innovation. So for example, if there is an innovative group of companies trying to launch climate bonds or launch environmental bonds, or if there are innovation products around a debt for nature swaps or rhino bonds, or the lion's bonds and so on.

I think MDB must use the reputation and knowledge to play that critical role of anchor investors and crowd in as many people as possible.

Joseph Jacobelli: That's great. To, to kind of conclude the conversation, I want to move to an outlook. So please get your crystal balls out and, and looking, looking ahead what do you see as being the, the most promising kind of opportunities to advance nature as infrastructure over the next five to 10 years or even beyond. And, and conversely also at the same time, what, what do you think are the, the biggest obstacles, apart from the obvious one, which is education?

JP Thia: In the next five, 10 years. I think the biggest opportunity, it's a personal hope as well, is to really realize the 30 by 30 vision, meaning keeping 30% of earth untouched by 2 0 3 0, right? I'm a realistic person, I think stemming the loss of nature.

Stemming the loss is the most important and urgent task right now. Stemming the loss of Amazon, stemming the loss of nature in the Southeast Asia, stemming the loss of nature in central Africa and so on. I think let's do whatever it can. I think it's a great opportunity as well to realize that 30 by 30 vision and give nature a chance to.

And the environment and the species and the biodiversity. A chance to rebound from the decline that we have seen in the past five or 10 decades.

Erik Berglof: We talked about before that in certain areas I think we are already making very significant progress. I think we are better understanding certain bio-homes and certain, part of nature much better. We mentioned mangrove, but there also, I think there are a lot better understanding as we discussed on, on wetlands and all the benefits that they bring.

It brings us to think about peatlands. It brings us to think about glaciers. There, there are a lot of things we are now have a much better understanding of, and there are very concrete infrastructure solutions that, can help us manage these, systems much more effectively.

And, I do see also as climate, nature and human health are coming together, that requires a much stronger argument for intervention, and I think that is also helping us, going forward. And I finally, I would say that the incredible improvement in the availability of, of data is also going to both build the case much more strongly, but also very importantly, allow markets to develop and, and support what governments do, and bring in resources that allows, governments to really, step up on, on the, the nature of the infrastructure agenda.

Joseph Jacobelli: So is the biggest obstacle actually, yeah. I mean, what, what is the biggest obstacles in, in, in your view, JP and Erik?

JP Thia: If I may, I, I feel that the biggest obstacle doesn't lie with the lack of information, the lack of knowledge and so on.

I think those can be overcome by just by time and putting investments, if I may I say so. I think the biggest obstacle. I, I fear is that governments today, policy makers today are fighting many battles. Including on the high debt. Many of them are facing even including high debt level in the advanced economy.

There is a need to raise defence spending because the geopolitical environment has changed and you have heard announcement by UK, NATO and so on. And there's also a need to cope with, dramatic changes coming around in AI, aging and so many other things, right?   So, it is just a lot of things going on the plate that demands resources and demand rethinking.

So I, I perhaps, I fear that the, if I may summarize, I think perhaps the biggest threat comes from the nature of geopolitics and the, the way things are right now. Hopefully that will improve them.

Erik Berglof: No, I, can only share that. But, but also that to me also gives very strong reasons for connecting these, discussions for example, of security and, and how investments in nature and improving your economy against climate change and so on.

All those things are, and, and of course, human health measures, all those things are related to security as well. And so we are in this world where, where security matters so much and, so we are using nature and, climate action to reduce risk and build energy systems that are more resilient, more decentralized.

And I think it will also constraints, strengthen the arguments based on this. But, but of course the, the backdrop is, is that there is, there are a lot of distractions right now away from. The focus on climate change and nature.

JP Thia: I am for example, worried that policy makers start to think that extracting of rail materials is so important.

This is what I'm saying, because of the security, because of the security environment, we need to do more on fossil fuel, we need to do more on mining. That, that, that could really become the big obstacle. 

Joseph Jacobelli: That's great. I'm more optimist and pessimistic.

I know there's a lot of conflicting priorities for governments, but I do think that there's a, like, both of you were mentioning there's a little bit of a better understanding now on the costs. There's a better, better understanding in terms of how much investments need to go in. So, I, tend to be a little bit more optimistic in nature altogether.

Great. Well, listen, I wanted to thank both of you for your, for your time. You've been very generous with your time, and I really appreciate your participation in the Asia Climate Finance Podcast.