What are natural climate solutions?

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As with many aspects of modern life, technology has a significant role to play in tackling climate change—arguably the greatest challenge our species has ever faced. But to avoid the most devastating effects of a warming planet, we’ll need to utilize not only the most cutting-edge technological tools but also the natural systems that are already in place. These natural climate solutions (NCS; also known as nature-based solutions) absorb carbon, shore up natural defenses against weather events, and help improve people’s lives and livelihoods.

Get to know and directly engage with senior McKinsey experts on natural climate solutions

Alexis Trittipo is a partner in McKinsey’s New York office, Duko Hopman is a partner in the New Jersey office, Julien Claes is a partner in the Brussels office, Joshua Katz is a partner in the Connecticut office, and Mark Patel is a senior partner in the Bay Area office.

Science shows that to achieve the 1.5° pathway outlined in the Paris Agreement, by 2030 we would need to reduce emissions by 50 percent of 2019 levels. Natural climate solutions, says McKinsey partner Joshua Katz, are an “important piece of the portfolio we need to achieve the 1.5° pathway.”

Natural climate solutions can remove carbon from the atmosphere, potentially up to seven gigatons per year by the end of this decade. That’s nearly one-third of the target required to achieve a 1.5° pathway. And critically, abating emissions with NCS typically costs less than technological solutions, including carbon capture, utilization, and storage.

Uniquely, NCS can both mitigate existing emissions and prevent further emissions. NCS also offer significant co-benefits, including improved biodiversity, soil health, and water quality. For example, says Katz, “If we properly preserve the rainforest, that has benefits on biodiversity, water, clean air. If we sequester carbon in the soil in farms, it improves the soil. And all these actions also have the potential to help individuals.” This is particularly true in the Global South.

In this Explainer, we’ll delve into how specifically NCS can mitigate climate change, and how companies can contribute to the solution.

Learn more about Sustainability consulting at McKinsey.

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What are some examples of natural climate solutions?

Natural climate solutions refer to projects that naturally address climate change and help prevent additional nature loss. They broadly fall into four categories:

  • Forestry practices. These include planting new forests where trees have been depleted because of deforestation or natural disasters.
  • Wetland-related practices. These include conserving and restoring peatlands and coastal wetlands, including mangroves.
  • Restorative agriculture practices. These include soil sequestration, whereby farmland is managed to encourage soil to absorb more carbon. Certain kinds of crops—such as perennials, which stay alive all year—can photosynthesize more carbon than those that are planted and harvested seasonally. To help soils absorb carbon year-round, farmers can also plant cover crops, such as clover, beans, and peas, once a main crop is harvested.
  • Ocean-based practices. These include restoring seagrass meadows or growing kelp or shellfish to restore and expand marine ecosystems.

How do deforestation and reforestation affect our planet?

Forests are significant carbon sinks, meaning that they absorb more carbon than they emit. As we’ve emitted more and more carbon over the past several hundred years, we’ve also depleted our planet’s forests, which has compounded the carbon buildup that causes global warming.

Reforestation, afforestation, and preventing deforestation are all critical levers of carbon removal, as well as essential natural climate solutions. (Reforestation is when land that was once a forest is replanted; afforestation is when trees are planted on land that was not previously a forest.) When forests are cleared, burned, or even just disturbed, much of the carbon and other greenhouse gases stored in trees are released back into the atmosphere. Deforestation accounts for nearly 14 percent of annual global CO2 emissions, 5 percent of methane emissions, and 5 percent of nitrous oxide emissions. Reducing deforestation would immediately mitigate emissions, compared with reforestation projects, the benefits of which can take 25 years to realize.

Restored or newly planted forests remove carbon from the atmosphere via the process of photosynthesis, whereby plants absorb CO2 from the atmosphere and emit oxygen as a byproduct. Reforestation further supports ecological balance by restoring biodiversity, stabilizing soil by preventing erosion, and improving water cycles.

What are blue carbon solutions?

Earth’s oceans are our climate regulators, covering 72 percent of the planet’s surface. Since the industrial era began in 1850, they have absorbed around 40 percent of the carbon we’ve emitted. Coastal ecosystems such as mangroves, tidal marshes, and seagrass meadows are deep carbon reservoirs, and marine ecosystems absorb and sequester greenhouse gases through the carbon cycle.

Human activity is making it more difficult for oceans to regulate our climate. Destructive factors such as atmospheric and marine warming, habitat destruction, pollution, overfishing, and industrial activity are undermining the ability of oceanic systems to function as they should.

Blue carbon NCS are designed to protect or enhance ecosystems on coasts and in the oceans. There are three categories of blue carbon solutions:

  • Established solutions are defined as meeting the minimum standards of scientific understanding and implementation potential. These solutions are focused on the protection and restoration of mangroves, salt marshes, and seagrass meadows.
  • Emerging solutions are those for which there is an existing body of peer-reviewed research to quantify CO2 abatement potential, but for which further research is needed. These include the protection and restoration of seaweed forests, the extension of seaweed forests, and strategies to reduce bottom trawling.
  • Nascent solutions are the largest category of blue carbon NCS, focused on the protection or restoration of marine fauna populations. Fish themselves are not a form of carbon sequestration, but their presence makes marine carbon sinks more effective. Healthy reefs may contribute to carbon sequestration through their support of a variety of organisms and shellfish. This category of solution is not yet financeable through carbon markets.

If fully implemented, established solutions could abate up to 3 percent of today’s total annual emissions. If the solutions in the emerging category were to be fully confirmed and implemented, that figure would jump to about 7 percent of total current annual emissions.

Learn more about Sustainability consulting at McKinsey.

How do natural climate solutions operate in carbon markets?

Many natural climate solutions are financed via carbon markets, or financial markets through which carbon credits are bought, sold, and traded to compensate for greenhouse gas emissions. When a company makes a net-zero commitment, it will frequently purchase carbon credits to offset its emissions. These credits can go toward funding natural climate solutions in what’s known as the voluntary carbon market. As of 2021, NCS accounted for around 40 percent of retired carbon credits in voluntary carbon markets, up from only 5 percent in 2010.

While this scheme has grown in popularity, it is not without its flaws. Public confidence in the effectiveness of past NCS to meaningfully reduce emissions is low. People are suspicious that companies use NCS offsets to avoid addressing their own carbon footprints.

Compliance carbon markets, by contrast, are where mandatory national, regional, or international entities trade and regulate carbon allowances. These markets play an increasingly visible role in global efforts to reduce emissions. As of 2021, compliance markets had a value of more than $100 billion and an annual trading turnover of more than $250 billion. But compliance carbon markets are still very small compared with the $7 trillion of total assets under management by the world’s top 30 institutional investors in 2022.

To learn more, read our Explainer on carbon markets.

Learn more about Sustainability consulting at McKinsey.

How can stakeholders unlock the full potential of natural climate solutions?

We’ve seen that NCS have the potential to address climate change and nature loss. But there remain some doubts from buyers, suppliers, and regulators about the efficacy of NCS. “We need people to come together and recognize the importance of getting this right, and soon,” says Katz, “so capital can flow to NCS.”

Here are six ways organizations can start to overcome these challenges and create more certainty in this space:

  • Define net-zero and corporate claims. NCS can help organizations in various sectors transition toward a net-zero pathway and ultimately achieve net zero. But organizations should start by clarifying the exact role that NCS can play for them in their journeys.
  • Highlight good practices to encourage supply. Organizations that have had success with NCS can share their experiences so that others can follow the same course.
  • Send a demand signal. High emitters should come together to prioritize NCS credits with high co-benefits. Practically, this means a willingness to pay more.
  • Improve carbon market architecture. Improvements could include reference contracts that define the additional attributes of a carbon credit to be priced alongside avoided emissions.
  • Create regulatory clarity. Overcoming political barriers requires stakeholder collaboration, international consensus building, and coherent policy frameworks that are in line with international climate goals.
  • Build trust. A coalition of high-level champions could amplify best practices, highlight advances in measurement and verification to increase the credibility of NCS, and endorse scientific advances toward net-zero certification.

Learn more about Sustainability consulting at McKinsey—and check out job opportunities related to sustainability if you’re interested in working at McKinsey.

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