Methodology
Over the next few years, the NBI Global Resource Centre will analyze more than 40 nature-based infrastructure projects around the world—from reforestation to the introduction of green spaces in urban environments.
Our modeling approach, based on IISD’s Sustainable Asset Valuation (SAVi) methodology, assesses the projects using systems thinking and simulation methodologies to provide a systemic project analysis and a project finance assessment.
Our valuations are customized to each project by working with asset owners and their stakeholders to identify the local project context, uncertainties, and unique dynamics. Engaging with our partners over several weeks to design the assessment and gather project-specific data, we are able to capture and integrate all material risks and externalities that can occur. In addition, we work extensively on data verification and on filling in data gaps using internationally recognized sources.
The models’ time frame extends to the full lifetime of the investment and beyond, covering a 5- to 10- year period after the project conclusion, allowing us to determine all possible outcomes of project implementation.
Steps and Outputs of a Valuation
Systems Thinking
Systems Thinking is the qualitative approach that underpins our methodology and allows us to create a shared understanding of the project rationale and the dynamics shaping the local context. The NBI Global Resource Centre uses systems thinking to understand the socioeconomic and environmental system in which the project is implemented, strengthen the project outcome forecast across sectors and actors, over different places and times.
System Dynamics
While systems thinking helps us to qualitatively understand how a system works, system dynamics allows us to model the behavior of this system quantitatively. System dynamics help us estimate the extent to which socioeconomic and environmental drivers of change interact with one another and shape future trends, thereby determining the economic and societal viability of the project. By adding data and equations to the analysis, system dynamics provide much-needed evidence on the multifaceted outcomes of investments, both for investors and society as a whole.
The creation of the systems dynamics model starts from the Causal Loop Diagram, which is used as the blueprint for quantitative analysis. As a result, each model we create is fully customized to the local context and co-created with local project partners and stakeholders.
Spatial Analysis (InVEST)
The performance of NBI depends on the local context, therefore we use spatial (GIS) data and spatially explicit models, such as InVEST (Integrated Valuation of Environmental Services and Trade-Offs) to quantify, map, and value the benefits provided by ecosystems.
The spatial models show where ecosystem services are provided and how they would change under different scenarios. With the InVEST models, we can value the ecosystem services of NBI for different spatial scales. The location of an ecosystem service change is essential to determine its value, which we integrate into both the integrated Cost-Benefit Analysis and Project Finance Assessment.
Project Finance
We use project finance models to estimate the financial performance of investments, both for the project and society. Our models consider the costs of environmental, social, economic, and governance risks and externalities to incorporate them into forecasts of future cash flows.
These models further help identify the optimal capital structure for a project to assess its financial viability and calculate the expected return on investment under different scenarios.
Climate Scenarios
Our assessments of NBI projects include information about weather and climate change trends from the EU Copernicus Climate Data Store. This allows us to understand how climate risks affect the financial performance of infrastructure projects and how the infrastructure projects affect climate resilience.
How Is This Information Used?
We create and use simulation models to bridge knowledge gaps. By combining biophysical and monetary indicators into an extended cost-benefit analysis and project finance assessment, we consider all of the costs of the project. Further, we consider all the material and non-material costs and benefits, representing externalities and all project outcomes, beyond those that directly impact investors.