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Deliverable D4.4:
Value Chain Analysis
in Key Economic Sectors
www.project-merlin.eu
MERLIN in Key Economic Sectors | Page 2
Imprint
The MERLIN project (https://project-merlin.eu) has received funding from
the European Union’s Horizon 2020 research and innovation programme
under grant agreement No 101036337.
Lead contractor: The James Hutton Institute
CReDiT authorship statements:
Jianyu Chen: Conceptualisation, Methodology, Investigation, Data Curation, Writing – Original Draft, Writing -
Review & Editing, Visualisation, Supervision.
Kirsty Blackstock: Validation, Writing – Review & Editing, Supervision, Project administration.
Alhassan Ibrahim: Data Curation, Formal Analysis, Writing – Original Draft, Writing - Review & Editing,
Visualisation.
Levin Scholl: Conceptualisation, Methodology.
Lea Ilgeroth-Hiadzi: Investigation, Data Curation, Formal Analysis, Writing – Original Draft, Visualisation.
Audrey Vion-Loisel: Investigation, Data Curation, Formal Analysis, Writing – Original Draft.
Marine Boulard: Investigation, Writing - Review & Editing.
Milo Fiasconaro: Writing - Review & Editing.
Fanni Nyírő: Writing - Review & Editing, Project administration.
Viviane Malveira Cavalcanti: Supervision.
Sebastian Birk: Supervision.
Eva Hernandez Herrero: Supervision.
To be cited as:
Jianyu Chen, Kirsty Blackstock, Alhassan Ibrahim, Levin Scholl, Lea Ilgeroth-Hiadzi, Audrey Vion-Loisel, Marine
Boulard, Milo Fiasconaro, Fanni Nyírő, Viviane Malveira Cavalcanti, Sebastian Birk, Eva Hernandez Herrero. 2024.
Value Chain Analysis in Key Economic Sectors. EU H2020 research and innovation project MERLIN deliverable
D4.4. pp. https://project-merlin.eu/outcomes/deliverables.html
Due date of deliverable: 25th September 2024
Actual submission date: 25th September 2024
MERLIN in Key Economic Sectors | Page 3
Acronyms
à ASTM – American Society for Testing and Materials
à CAR – Construction All Risks
à CSDDD – Corporate Sustainability Due Diligence Directive
à CSRD – Corporate Sustainability Reporting Directive
à ESG – Environmental, Social, and Governance
à ISCC – International Sustainability and Carbon Certification
à ISO – International Organisation for Standardisation
à ITC – International Trade Centre
à IUCN - International Union for Conservation of Nature
à NbS – Nature-based Solutions
à RPP – Responsibly Produced Peat
à SuDS – Sustainable Drainage System
à SWM – Munich Water Utility (in German: Stadtwerke München)
à UNEA - United Nations Environmental Assembly
à VC – Value Chain
à VCA – Value Chain Analysis
à WSS – Water Supply and Sanitation
MERLIN in Key Economic Sectors | Page 4
Key Terminology
Value
In a market economy, the price of goods and services often serves as a proxy for their value. While price and
value are frequently used interchangeably, price specifically reflects economic value determined by market
forces, rather than the intrinsic or perceived worth of an item. Value, on the other hand, is the perceived worth
of objects, encompassing both tangible factors such as scarcity and utility, and intangible aspects such as
cultural, psychological, or emotional significance. Because value is intersubjective, different individuals and
cultures may assign varying levels of importance to the same item based on their unique contexts, though
general consensus often emerges within groups. Consequently, prices can sometimes fail to capture the true
value of certain items—such as fresh air or sentimental objects—that hold significant non-economic worth.
Despite these limitations, prices generally represent the collectively assigned value within a market economy,
primarily shaped by the dynamics of supply and demand.
Value chain
A value chain (VC) encompasses the full range of activities required to bring a product or service from
conception to final consumption and eventual disposal (Hellin & Meijer, 2006). This process typically begins
with research and development during the conception stage, progresses through various production and
processing phases, and culminates in the distribution to the final consumer. Throughout these stages, the
product or service is transferred between different actors involved in buying, processing, and selling, with each
actor adding value through transformation.
Each activity within the value chain contributes to the overall value of the product or service. Actors aim to
capture a portion of this added value by reselling the transformed product at a higher price. The concept of
value in a value chain includes both tangible improvements—such as enhanced functionality or quality—and
intangible factors, such as personal taste and brand prestige. Moreover, the value added at each stage is not
limited to economic or commercial gains; it also encompasses social and environmental values. This broader
perspective ensures that the value chain addresses diverse aspects of value creation beyond mere financial
metrics.
Value chain analysis
Value Chain Analysis (VCA) is a detailed examination of various elements to understand the complex dynamics
within a value chain, especially the value-adding (or value creation) mechanism through various activities on
the value chain (Hellin & Meijer, 2006). Stakeholders engage in VCA to achieve different goals: businesses aim to
enhance competitiveness, improve product value, or strategize for new markets; governments and
policymakers use VCA to formulate policies and address industry-wide issues; researchers focus on how value,
power, risks, and costs are distributed among chain actors and how value chains evolve over time. The focus of
VCA can vary depending on specific objectives, emphasising certain elements while de-emphasising others.
Key analytical elements for a VCA typically include:
à Actors: This includes producers, traders, processors, service providers, wholesalers, retailers,
consumers, cooperatives, associations, and other stakeholders like local communities, NGOs,
activists, or the media.
à Activities: These encompass production, processing, logistics, transportation, storage,
packaging, marketing, distribution, regulatory oversight, and services, such as auditing,
certification, insurance, financing, or consultancy. Each activity adds value to the final product
or service.
à Value Chain Governance: This refers to how interactions among actors are organised, ranging
from market structures with minimal coordination to vertically integrated firms controlling the
entire chain. Intermediate forms include chains dominated by a lead firm that coordinates
other actors.
MERLIN in Key Economic Sectors | Page 5
à Natural Environment: This includes the natural resource base, raw materials, and ecosystem
services (provisioning, regulating, cultural, and supporting). Environmental risks, such as
climate change, biodiversity loss, and pollution, are also critical considerations.
à Institutional Framework: Policies, laws, regulations, taxes, and subsidies shape the activities
within the value chain. Understanding this regulatory landscape is essential for comprehensive
analysis.
à Other External Factors: Market forces, technological innovations, consumer demands,
supporting infrastructures, such as energy, transport and digital equipment, and public
pressure and procurement significantly influence the value chain.
Conducting a value chain analysis at the sectoral level involves understanding how a product gains value at
each step and identifying the stakeholders involved, facilitating a holistic understanding of the value-adding
process.
Value chain problem
A value chain problem refers to issues or challenges that occur within the sequence of activities involved in
creating a product or service, from its conception to its delivery to the end-user. In general, we can ask the
question as 'What and where are the bottlenecks in the value chain?' (Webber & Labaste, 2007). These
problems can significantly impact the efficiency and effectiveness of the value chain. Key aspects can include
but are not limited to supply chain disruptions, production inefficiencies, distribution challenges, marketing
and sales issues.
When identifying value chain problems, we often have different levels of VC problems:
à Single-step VC problems: problems which impact only one step in the value chain, this can be
several activities or involve several actors.
à Multi-step VC problems: problems which impact at least two steps in the value chain. These
impacted steps can be conducted by one or several actors, and/or more than two activities.
à Whole-level VC problems: usually come from external environments such as market impact,
market evolution, change of regulation or legislation, which will impact the continuity of the
sector and the existence of the industry. Either the business model or the whole VC need to
be changed to cope with those problems.
à Cross-value-chain problems: These occur when an issue within one value chain—whether at a
single step or multiple steps—spills over to impact other interconnected value chains. Such
problems can disrupt operations across multiple sectors, requiring coordinated, cross-sectoral
strategies to address the broader, systemic effects.
Identifying and addressing these problems is crucial for optimising the value chain, enhancing efficiency, and
ensuring the sustainability and effectiveness of the entire process.
Nature-based Solutions
The 5th United Nations Environmental Assembly (UNEA) defined Nature-based Solutions as “actions to protect,
conserve, restore, sustainably use, and manage natural or modified terrestrial, freshwater, coastal, and marine
ecosystems which address social, economic, and environmental challenges effectively and adaptively, while
simultaneously providing human well-being, ecosystem services, resilience, and biodiversity benefits” (UNEA,
2022). This comprehensive definition applies to a wide range of socio-economic activities across various
sectors, aligning with the general objectives of the MERLIN project.
Standards
Standards refer to established norms and guidelines that define the quality, safety, efficiency, and
compatibility of products, services, and systems within various sectors. These standards, developed by
industry leaders, expert groups, or standard-setting bodies, such as the International Organisation for
MERLIN in Key Economic Sectors | Page 6
Standardisation (ISO) and the American Society for Testing and Materials (ASTM), cover aspects ranging from
product design and manufacturing to environmental considerations and worker well-being. While some
standards are voluntary, serving as best practices within industries, others can become mandatory regulations
that are essential for market access and maintaining a company’s reputation.
Standards play a crucial role in coordinating and communicating within complex value chains by providing a
common framework that ensures consistency, reliability, and efficiency across all stages of production and
service delivery. In the European Union, regulatory frameworks such as the Corporate Sustainability Reporting
Directive (CSRD) and the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) are pivotal
examples of how standards are transitioning from voluntary guidelines to mandatory requirements for
companies and industries. These directives mandate comprehensive reporting on environmental, social, and
governance (ESG) factors, thereby ensuring that companies not only adhere to high standards but also
contribute to broader sustainability goals.
Adherence to rigorous standards allows companies to differentiate themselves in competitive markets,
enabling them to command premium pricing and enhance their brand reputation. Certifications and labels serve
as visible proof of compliance with these standards, building trust among consumers, investors, and other
stakeholders. Overall, standards are fundamental to enhancing the efficiency, quality, safety, and sustainability
of value chains, facilitating coordination, compliance, differentiation, and trust across industries.
Certification and labels
Certifications and labels, though interconnected, serve distinct purposes in the context of industry standards:
à Certifications are formal acknowledgments granted by impartial third-party entities, affirming
that a product, service, or organisation meets the criteria defined by specific standards.
Certifications act as a seal of approval, evidencing compliance with benchmarks related to
quality, safety, environmental sustainability, or ethical practices. The certification process
typically involves a thorough evaluation or audit by the certifying body to ensure all necessary
requirements are met.
à Labels are visual or textual markers on product packaging that communicate a product's
compliance with certain standards to consumers. Labels are typically logos that indicate that
specific certification has been granted. They distil complex compliance information into easily
recognisable symbols or terms, simplifying the consumer's understanding of the product's
adherence to specific criteria.
Certifications provide the framework and verification of compliance, while labels convey this compliance to
consumers, making it easier for them to make informed choices.
MERLIN in Key Economic Sectors | Page 7
MERLIN Key messages
1. Using Value Chain Analysis to Promote NbS
This report applies Value Chain Analysis (VCA) to key economic sectors within the MERLIN project,
exploring how Nature-based Solutions (NbS) can be integrated into freshwater ecosystem restoration.
The focus of VCA is to understand and illustrate the mechanisms through which value is created across
sectors, including economic, social, and environmental dimensions. This extended approach goes
beyond conventional analyses that prioritise commercial value, emphasising how NbS contribute to
broader societal and ecological benefits.
By examining examples from the Water Supply and Sanitation (WSS), Agriculture, Insurance, and Peat
Extraction sectors in Europe, the report demonstrates that VCA is an effective tool for promoting NbS
adoption. It highlights how NbS create value in ways that are both attractive to businesses and aligned
with sustainability goals.
2. Synergising Economic and Ecological Gains with NbS within Value Chains
Nature-based Solutions (NbS) provide an opportunity to align economic and ecological goals within
value chains. By identifying sector-specific value chain challenges, integrating NbS helps make
environmental resilience and economic interests mutually beneficial. Enhancing freshwater ecosystem
resilience with NbS is not just corporate responsibility or green marketing but a strategy for generating
commercial benefits. While initial external support may be needed to kickstart NbS, long-term gains
such as reduced costs, risk mitigation, and enhanced reputation make NbS attractive for businesses,
ultimately driving internal investment.
3. Leveraging Financial Support to Implement NbS across Value Chains
Pro-environmental capital investments and financial incentives are crucial in driving the adoption of
NbS across value chains. These supports enable key actors to gain economic advantages while
implementing sustainable practices, creating win-win scenarios that make NbS integration
commercially viable in the long term.
However, the role of standards is equally important in ensuring consumer support for NbS. Certification
schemes and labels, while helpful, often face challenges due to the proliferation of different standards,
some of which lack proper accountability mechanisms. For example, schemes like the RPP (Responsibly
Produced Peat) support freshwater NbS but remain largely invisible to consumers, limiting their impact.
Streamlining standards and enhancing transparency can help ensure broader consumer awareness and
support for NbS.
4. Enhancing Standards for NbS Integration into Value Chains
Many sectoral standards need to be renewed or updated for the purpose of a more comprehensive
integration of NbS, with possibilities to involve a certification scheme or consumer label issuing
procedure. More up-to-date sectoral standards are considered as an institutional instrument to provide
systematic solutions to include NbS into value chains, as they provide a structured framework for
ensuring that NbS are implemented effectively, facilitating their adoption while offering long-term
economic and environmental benefits. This is particularly important for aligning value chains with
broader environmental goals.
MERLIN in Key Economic Sectors | Page 8
5. Fostering Stakeholder Engagement to Maximise NbS in Value Chains
The success of mainstreaming NbS hinges on collaboration among various stakeholders involved in
interconnected value chains. Public agencies, private companies, NGOs, and local communities must
work together to ensure that NbS are effectively integrated and that their benefits are maximised
among different actors. Moreover, a systematic understanding of NbS in value chain requires also
cross-sectoral cooperation and not limiting the vision within sectors.
6. Driving Innovation and Sustainability through NbS in Value Chains
Ongoing research and development are necessary to further integrate NbS into sectoral value chains.
On the one hand, more technical advancements are desired to improve the efficacy and efficiency of
NbS. On the other hand, strengthening institutional capacities and creating platforms for knowledge
sharing and collaboration will drive innovation and sustainability, ensuring that NbS can continue to
enhance the value-adding process across various sectors.
MERLIN in Key Economic Sectors | Page 9
MERLIN Executive Summary
This analysis highlights the significant potential of
integrating Nature-based Solutions (NbS) into value
chains across sectors like water supply and
sanitation (WSS), agriculture, insurance, and peat
extraction using sectoral case studies. By
addressing sector-specific challenges, NbS enhance
both economic sustainability and environmental
resilience, making them vital components of
modern value chains, especially amid the climate
crisis. The findings show that NbS offer long-term
environmental and economic benefits, positioning
them as strategic assets for sustainable
development rather than mere corporate
responsibility tools. To fully harness these benefits,
sectoral standards and policies must evolve to
recognise and incentivise NbS, ensuring their
broader adoption and effectiveness.
Achieving Economic and Ecological Synergies
through NbS
One of the key insights from this study is the ability
of NbS to address both environmental and
economic challenges simultaneously, effectively
eliminating the perceived duality between
commercial development and environmental
stewardship. Initially, value chain problems often
presented as intertwined environmental and
economic issues. By integrating NbS, sectors like
WSS, agriculture, insurance, and peat extraction
can address these challenges concurrently, offering
solutions that provide immediate and long-term
benefits for businesses and the environment.
Financial Support for NbS in Value Chains
Targeted investments and financial incentives are
crucial for promoting the adoption of NbS within
sectoral value chains. Large-scale businesses, such
as those in WSS and peat extraction, require
substantial capital investments for infrastructure
and on-site work. Meanwhile, smaller businesses,
particularly in agriculture, benefit from
decentralised, cooperative financial incentives.
Insurance plays a unique role, providing financial
mechanisms that mitigate risks associated with
NbS deployment, ensuring long-term sustainability.
Role of NbS-related Standards in Value
Chains
Updating and refining sectoral standards to
comprehensively integrate NbS is essential for
mainstreaming these solutions across diverse value
chains. The successful adoption of NbS is
influenced by sector-specific dynamics and the
unique contexts of individual cases. Sectoral
standards, combined with certification schemes
and consumer labels, provide institutional
frameworks that ensure the effective and context-
sensitive implementation of NbS, maximising long-
term economic and ecological benefits.
Broader Stakeholder Engagement in Value
Chains
The successful integration of NbS across value
chains relies heavily on collective efforts among
various stakeholders. Cases across sectors
demonstrate that NbS are most effective when
implemented through collaboration, often requiring
active partnerships between different actors,
including public agencies, private companies, NGOs,
and local communities. This systemic approach
ensures that NbS deliver widespread and enduring
benefits.
Future Research and Development in Value
Chains
Continuous research and development are crucial
for advancing NbS within value chains, contributing
to both the practical application of scientific
knowledge and a deeper understanding of the
social dynamics that drive their adoption. While
conventional value chain analysis has focused
primarily on monetary value, future work must
expand to encompass environmental and social
dimensions, ensuring that NbS are integrated and
supported by appropriate standards and
certifications.
In conclusion, advancing NbS within value chains
demands a balanced approach that integrates
scientific research and social dynamics, addressing
current gaps in value chain analysis and standards
to effectively tackle complex environmental
challenges across multiple sectors.
One key limitation of this report is the relatively
small number of case studies available, which
makes it challenging to generalise successful
examples across all domains. Moreover, the
effectiveness of NbS is heavily dependent on the
specific contexts of different locations and
projects, including regional environmental
conditions, stakeholder engagement, and socio-
economic factors. This report should be viewed as
a showcase of possibilities rather than a one-size-
fits-all solution. Further research and tailored
approaches will be necessary to adapt NbS
strategies effectively to the diverse conditions
across sectors and regions.
MERLIN in Key Economic Sectors | Page 10
MERLIN in Key Economic Sectors | Page 11
Content
The MERLIN project (https://project-merlin.eu) has received funding from
the European Union’s Horizon 2020 research and innovation programme
under grant agreement No 101036337.
1 General introduction ...................................................................................... 13
2 Water Supply and Sanitation ........................................................................ 15
2.1 Sectoral introduction ................................................................................... 15
2.1.1 Key terms in the sector ................................................................... 15
2.1.2 NbS in the WSS sector ..................................................................... 15
2.1.3 Unique position of the water supply and sanitation sector .... 16
2.2 Sectoral value chain mapping: a bi-directional value adding
process ............................................................................................................ 16
2.3 Value chain problem identification ........................................................... 19
2.3.1 Distribution Networks ...................................................................... 19
2.3.2 Sanitation Infrastructure Development and Maintenance ...... 19
2.3.3 Integrating NbS in water processing ............................................ 20
2.4 Using NbS to improve value chain performance: Case of Anglian
Water, UK ........................................................................................................ 21
2.4.1 A Brief History .................................................................................... 21
2.4.2 Key NbS implemented by Anglian Water ..................................... 21
2.4.3 Benefits and performance improvements .................................. 22
2.4.4 Mainstreaming NbS in WSS sector using a VCA ........................ 23
2.5 Case and sector conclusion ...................................................................... 23
3 Agriculture ...................................................................................................... 25
3.1 Sectoral introduction .................................................................................. 25
3.1.1 Key terms in the sector .................................................................. 25
3.1.2 NbS in the agriculture sector ........................................................ 25
3.1.3 Connecting agriculture to freshwater ecosystem
restoration ......................................................................................... 25
3.2 A cross-sectoral value chain: The impact of conventional
agriculture on WWS ..................................................................................... 26
3.3 A cross-sectoral case study in agriculture and WSS: Stadtwerke
München, Germany ...................................................................................... 28
3.3.1 A Brief History of the Mangfall Case study ................................ 29
3.3.2 Project in continuity and expansion ............................................. 30
3.3.3 Benefits of implementing organic farming for improving
water quality ..................................................................................... 30
3.4 Sector standards review: systemic integration NbS in cross-
sectoral cooperation ................................................................................... 32
3.5 Enhancing value chains with NbS in cross-sectoral cooperation:
Key Insights and Lessons ........................................................................... 35
4 Insurance ........................................................................................................ 37
4.1 Sectoral introduction .................................................................................. 37
4.1.1 Key terms in the sector .................................................................. 37
4.1.2 NbS in the insurance sector .......................................................... 37
4.1.3 Benefits of integrating (re)insurance into restoration
projects ............................................................................................... 38
4.2 Value chain of the insurance sector: engaging internal and
external actors .............................................................................................. 38
4.2.1 Potential of NbS in parametric insurance value chains .......... 40
4.3 Innovating insurance products for environment restoration
projects using NbS ........................................................................................ 41
MERLIN in Key Economic Sectors | Page 12
4.3.1 Parametric insurance in environment restoration: State of
Quintana Roo, Mexico ...................................................................... 42
4.3.2 CAR insurance in environment restoration: Prince Hendrik
Sand Dyke, Netherlands ................................................................. 43
4.4 Review of sectoral standards: playground for great innovation
potential ......................................................................................................... 44
4.5 Proposition for sectoral standards improvement for integrating
NbS .................................................................................................................. 46
5 Peat-Extraction ............................................................................................. 48
5.1 Sectoral introduction .................................................................................. 48
5.1.1 Key terms in the sector .................................................................. 48
5.1.2 NbS in peat-extraction ................................................................... 48
5.1.3 A sector at the edge ........................................................................ 49
5.2 Value chain of the peat-extraction sector: “before-” and “after-” . 50
5.2.1 Analysis of Value Chain Steps ....................................................... 50
5.2.2 Overall values and environmental Impact .................................. 53
5.3 Integrating NbS in peat-extraction value chain .................................... 54
5.3.1 Context of the selected case study ............................................. 55
5.3.2 Responsibly Produced Peat Certification .................................... 55
5.4 Review of sectoral standards .................................................................... 58
5.4.1 Brief description of standards and their focus ......................... 58
5.4.2 Analysis of standards alignment with Nature-based
Solutions for the sector .................................................................. 59
5.4.3 Assessment of criteria important for NbS and ecosystem
restoration ......................................................................................... 60
5.4.4 Value chain coordination to promote or mandate
ecosystem restoration or NbS. ...................................................... 61
5.5 Proposition for sectoral standards improvement ................................ 62
6 Discussion ...................................................................................................... 65
7 General conclusions ...................................................................................... 67
8 References ...................................................................................................... 71
9 Annexe ............................................................................................................ 77
MERLIN in Key Economic Sectors | Page 13
1 General introduction
Water Supply
and Sanitation
Agriculture
Insurance
Peat-extraction
Human activities have significantly degraded freshwater ecosystems, leading to a substantial reduction in the
ecosystem services (Dodds et al., 2013). The adverse effects of climate change have further intensified these
challenges, exacerbating environmental degradation and threatening the sustainability of vital resources (Khan
& Patel, 2021). In response to these pressing issues, the European Commission introduced the 'Nature
Restoration Law' (NRL) to restore ecosystems, secure essential resources such as food and clean water, and
reduce the risk of zoonotic pandemics (European Commission, 2022). Approved by the EU Parliament’s
Environmental Committee in early 2024, the NRL mandates the restoration of all degraded ecosystems by 2050
(MERLIN Project, 2024), making it a cornerstone of Europe’s Biodiversity strategy.
Within this broader social, environmental, and legislative context, Task 4.4 of the MERLIN project’s Work
Package 4 (Transformations) focuses on Sectoral Value Chain Analysis (VCA). The primary objective of this task
is to explore how Nature-based Solutions (NbS) can be integrated into the value chains of key economic
sectors that interact with freshwater ecosystems. This integration aims to optimise both ecological and
economic outcomes, ensuring that NbS contribute to sustainable environmental restoration while delivering
tangible benefits for businesses and society.
The Sectoral Value Chain Analysis primarily relies on desktop-based research, including academic and grey
literature, as well as primary data gathered from MERLIN sectoral roundtables. The methodology for this task is
outlined in a previous guideline document, which structures the analysis into four key exercises designed to
deepen the understanding of sectoral value chains. These exercises are adaptable, allowing for adjustments
based on the specific characteristics and institutional environments of each sector. The exercises include
mapping sectoral value chains, addressing value chain problems through case studies, reviewing sectoral
standards, and discussing how NbS can enhance the value-adding process within each sector.
Value Chain Analysis is crucial for mainstreaming NbS because it adopts a business mindset that resonates
with firm decision-makers. In business strategy, Value Chain Analysis helps organisations understand how
various activities contribute to their overall competitiveness. By identifying opportunities for cost reduction and
value enhancement, businesses can gain a competitive advantage. When applied to NbS, this approach
demonstrates how ecological restoration not only fulfils regulatory and social responsibilities but also
contributes to a company’s bottom line by reducing operational risks, lowering costs, and opening new markets
(Bhardwaj et al., 2020; Rosa & Finlay, 2021).
For instance, integrating NbS into a company’s value chain can lead to cost savings through natural flood
defences - reducing the need for expensive infrastructure - or through water purification services provided by
restored wetlands, which lower water treatment expenses. Moreover, businesses can capitalise on the growing
market demand for sustainable products and services by adopting NbS, thereby enhancing brand reputation
and customer loyalty. By framing NbS within the context of value chain analysis, firms can better appreciate
the economic benefits of sustainability, making it a more attractive and actionable concept.
To achieve the objectives of Task 4.4, a comprehensive examination of sectoral value chains is essential,
drawing on a diverse range of case studies, conducting comparative analyses, and gaining insights into labelling
and certification processes. This task is a collaborative effort involving the lead contractor and sectoral
partners across the Water Supply and Sanitation (WSS), Agriculture, Insurance, and Peat-Extraction sectors.
Initially, six economic sectors were considered within the MERLIN project, including Navigation and Hydropower.
However, these two sectors were excluded from the report due to their less direct connection to the VCA
MERLIN in Key Economic Sectors | Page 14
approach, as Navigation and Hydropower involve more complex, large-scale infrastructure challenges that are
less suited to the specific focus on NbS integration within value chains.
The four selected sectors—WSS, Agriculture, Insurance, and Peat Extraction—were chosen for their high
potential to integrate NbS into the value-creation process. The order of presentation reflects the complexity
and scope of their value chain challenges. The WSS sector is examined first due to its relatively simple single-
step problem, primarily focused on water processing, and its close linkage with the agricultural sector. In
Agriculture, value chain challenges span across sectors but are primarily single-step issues within the sector
itself. The analysis then moves to the Insurance sector, where value chain problems become more intricate,
involving multiple steps and interactions. Finally, the Peat Extraction sector is explored, as it presents a
comprehensive whole-chain problem requiring a broad, system-wide approach. This structured progression
allows for a deepening understanding of how NbS can be integrated into increasingly complex value chains,
demonstrating that implementing NbS is not merely a matter of corporate social responsibility or marketing,
but a viable strategy for generating commercial benefits and addressing critical environmental challenges.
The audience for this report includes NbS advocates, environmental policymakers, sectoral stakeholders, and
business practitioners who are integral to the successful implementation of NbS. For these audiences,
understanding the relevance of VCA to NbS implementation is crucial. VCA provides a structured way to
identify opportunities for NbS integration, ensuring that environmental benefits are aligned with economic
incentives, thereby making NbS more appealing to businesses.
This report is structured to first clarify the essential concepts that underpin our analysis. It then outlines the
methodology used for the Value Chain Analysis, breaking down the task into a series of targeted exercises. The
findings from these exercises are presented by sector, with a particular focus on identifying opportunities for
cross-sectoral collaboration. The General conclusions elucidate the interconnections between different
sectors, indicating synergies to advance the MERLIN project's objectives and the broader adoption of Nature-
based Solutions in freshwater restoration.
MERLIN in Key Economic Sectors | Page 15
2 Water Supply and Sanitation
Sector authors: Jianyu Chen, Marine Boulard, Milo Fiasconaro
To be cited as:
Chen, J., Boulard, M., Fiasconaro, M. (2024) Water Supply and Sanitation. In Jianyu Chen, Kirsty Blackstock,
Alhassan Ibrahim, Levin Scholl, Lea Ilgeroth-Hiadzi, Audrey Vion Loisel, Marine Boulard, Milo Fiasconaro, Fanni
Nyírő, Viviane Malveira Cavalcanti, Sebastian Birk, Eva Hernandez Herrero. 2024. Value Chain Analysis in Key
Economic Sectors. EU H2020 research and innovation project MERLIN deliverable D4.4. pp. https://project-
merlin.eu/outcomes/deliverables.html
2.1 Sectoral introduction
2.1.1 Key terms in the sector
2.1.2 NbS in the WSS sector
The Water Supply and Sanitation (WSS) sector is uniquely positioned within the broader environmental and
public health landscape, particularly in Europe, where it is often characterised by monopolistic structures and
stringent regulatory oversight. The integration of NbS into this sector offers a promising avenue for addressing
water-related challenges by leveraging natural systems and processes to provide essential services such as
water purification, flood control, and sustainable water supply. These solutions, both on the water quality and
quantity management, align with the sector's goals of reducing operational costs, enhancing sustainability, and
improving environmental stewardship.
Apart from significant advancements in wastewater treatment, the WSS sector also focuses on upstream
protection of drinking water sources. This upstream focus is critical because the quality and the quantity of
water entering the WSS value chain directly influences not only the sustainable supply of treated water, but
also the efficiency and cost of downstream re-treatment processes. The MERLIN initiative aims to foster the
collaboration between the WSS sector and upstream water managers. By restoring Europe’s peatlands,
wetlands, riparian zones, and floodplains, MERLIN seeks to secure clean water supplies while simultaneously
addressing broader biodiversity and climate challenges.
This section will explore how NbS can be integrated across various stages of the WSS value chain—from
abstraction to discharge—and highlight the specific types of NbS that are most effective at each stage.
Additionally, it will examine the potential of these solutions to enhance value chain performance, drawing on
Natural Monopoly
occurs when a single firm can supply the entire market's demand for
a good or service at a lower cost than any combination of multiple
firms, typically due to significant economies of scale in industries
where the infrastructure costs are extremely high (Joskow, 2007).
Water Treatment
refers to the process of purifying water by removing contaminants,
making it safe for human consumption and suitable for various uses,
often involving drinking and industrial applications.
Water Cycle Management
involves the integrated and sustainable regulation of water resources
through activities like water abstraction, treatment, distribution, use,
and the discharge of treated wastewater, ensuring a balanced and
continuous supply of clean water while maintaining the health of
aquatic ecosystem (Hardy et al., 2005)
MERLIN in Key Economic Sectors | Page 16
examples, such as the Anglian Water case in the UK, where NbS have been successfully implemented to
improve water quality, reduce costs, and engage local communities.
2.1.3 Unique position of the water supply and sanitation sector
The WSS sector holds a unique position in most EU countries due to several factors. Primarily, the nature of
water provision creates a natural monopoly, where the technical and economic impracticalities of having
multiple providers within the same area lead to a single actor managing the entire value system. This
monopolistic structure is not designed to boost economic or commercial performance through conventional
market competition, making traditional Value Chain Analysis less applicable. Secondly, because the WSS sector
is closely linked to basic human rights, public health benefits, and environmental obligations, it is highly
regulated with stringent industry standards across various value chain procedures. Consequently, the Value
Chain Analysis in this sector is extended for also prioritising social and environmental value, but also to capture
commercial gains.
Despite the unique situation of the WSS sector, the potential of implementing NbS remains significant for
enhancing the value-creation process of the sector. Numerous studies have demonstrated the economic and
environmental benefits of NbS in water management. Jerzy and colleagues (2020) found that NbS can
significantly reduce operating costs related to water retention for local communities. Chofreh and colleagues
(2019) emphasised the importance of value chain mapping in water and sewage treatment, highlighting its role
in increasing operational efficiency and waste elimination. Neumann and Hack (2020) further supported the use
of NbS, particularly green infrastructure, to improve the urban water cycle, stressing the need for a
multifunctional approach that incorporates technical, social, and ecological aspects. These studies collectively
underscore the potential of NbS and value chain mapping in enhancing the sustainability and efficiency of
water management systems.
2.2 Sectoral value chain mapping: a bi-directional value adding process
The value chain map for the WWS sector is adapted from the work of Spiller and colleagues (2009) on the
water supply and sewerage industry, based on the AWWA (American Water Works Association) 1997 framework.
This map captures necessary elements involved in the WSS sector, structured into distinct value chain steps:
Water Cycle Management, Processing, Distribution, and Consumption. The framework is divided into a bi-
directional flow into upstream (from natural resources) and downstream (returning to the natural
environment), with respectively differentiated activities and value adding process involved in value chain steps
according to the direction of water flow.
MERLIN in Key Economic Sectors | Page 17
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Water Cycle Management
In the Water Cycle Management phase, the primary activities involve the abstraction of water from upstream
sources and the discharge of re-treated water downstream. At this stage, maintaining both the quantity and
quality of water is essential to ensure the sustainable use of water resources and the protection of
ecosystems. Two main actors—water resource management authorities and water operators—are pivotal in
this process.
Water resource management authorities, which can include government agencies or specialized municipal
services, are responsible for overseeing the comprehensive management of water resources. Their duties
encompass issuing permits to water operators, regulating water usage, and ensuring that both water quantity
and quality standards are consistently upheld. These authorities vigilantly monitor the balance between water
withdrawal and natural replenishment to prevent over-extraction, which could deplete resources or damage
ecosystems. Additionally, they enforce water quality standards to safeguard environmental and public health,
ensuring that water remains within safe limits throughout its cycle.
On the other hand, water operators, typically water utility companies, must obtain abstraction permits from
these authorities to perform their functions. Their responsibilities include meticulously managing the quantity
of water abstracted from natural sources to sustain natural water flows and meet consumer demands without
causing ecological harm. Water operators also ensure water quality by applying rigorous treatment methods as
water is transported to treatment facilities and eventually re-treated for discharge back into the environment.
This involves continuous monitoring and managing withdrawal rates to comply with regulations and maintain
sustainability.
Amidst the worsening drought situation across the European Union (EEA, 2021), water utilities are increasingly
focused on addressing upstream supply risks and ensuring the adequate recharge of ground and surface waters
to buffer against seasonal water scarcity. This evolving challenge has prompted water operators and
authorities to adopt several proactive measures. They are enhancing water conservation efforts by
implementing water-saving technologies and promoting efficient water use among consumers to reduce overall
demand. Additionally, investments are being made in infrastructure improvements to minimize water loss in
distribution networks, thereby reducing leakage and increasing the efficiency of water delivery.
Comprehensive strategies are vital for mitigating the effects of drought and ensuring the long-term
sustainability of water resources. By focusing on both the quantity and quality of water, as well as the recharge
of water sources, water operators and authorities strive to maintain ecosystem health and provide reliable
water services even during periods of scarcity. This integrated approach not only addresses immediate water
management challenges but also builds resilience against future environmental stresses.
MERLIN in Key Economic Sectors | Page 18
In summary, the collaboration between water resource management authorities and water operators is
fundamental to effective Water Cycle Management. The added challenges of climate change and increasing
drought conditions have expanded their roles, necessitating strategies that address upstream supply risks and
enhance the natural recharge of water sources. Through these efforts, water resources are managed
sustainably, ensuring their availability and quality for current and future generations.
Processing
The processing step involves the treatment of abstracted water (upstream) and the re-treatment of waste
water (downstream). Key actors in this step include water utility companies and service providers. Water utility
companies handle the initial abstraction of water from natural sources and preliminary processing to ensure its
availability for further treatment. They also manage the transmission of raw water through pipelines to
treatment facilities.
Water treatment plants, operated by either public utilities or private contractors, play a crucial role in this step.
These plants employ various physical, chemical, and biological processes to purify water, making it safe for
consumption. Once the relevant standards are met, treated waste water is then transmitted to users of
different sectors, such as industrial users, agricultural users or households.
After utilisation, downstream waste water is collected and transmitted to designated locations for discharge or
reuse. Same as the upstream water treatment, waste water retreatment requires various technologies,
equipment, and services that facilitate these processes, the specific procedures can however be different from
upstream water treatment, as the sanitary standards can significantly vary. Moreover, business users may also
be responsible for pre-treatments before releasing water into sewers. Operators of waste water treatment
facilities and water source management authorities ensure that treated waste water meets regulatory
standards before discharge. This step is particularly costly due to the extensive infrastructure and technology
required for effective water treatment and waste water retreatment.
Distribution
In this step, several activities and actors are involved in both upstream and downstream aspects. For the
distribution of treated water to consumers (upstream), this activity involves water utility companies that
manage a network of pipes and infrastructure to ensure efficient and reliable water supply. These missions can
be conducted by the water utility companies themselves or outsourced to special services providers, especially
in terms of maintaining the distribution network, monitoring water quality, and addressing supply issues.
Collection of downstream waste water is another critical activity, involving municipal services or private
contractors who gather waste water from residential, commercial, and industrial sources. Their focus is on the
effectiveness of the collection systems, ensuring that all waste water is routed appropriately to treatment
facilities.
Consumption
The Consumption step centres on the end-users, where the upstream and downstream flow of water converge.
End-users usually include households and businesses. Households use water for everyday necessities such as
drinking, cooking, and cleaning, while businesses utilise water in various capacities, including manufacturing,
industrial, and commercial processes. Activities in this step consider variables related to customer demand,
consumption patterns, and feedback mechanisms, ensuring the system is responsive to consumer needs.
In terms of the value adding process, the upstream flow of the water abstracted from natural resources
emphasise the social value and economic value. Managing the services outlined above involves significant
operational and capital expenditures. Water operators typically recover these costs through tariffs reflected in
consumers' water bills, with possible additional support from public subsidies. Public water operators often
secure loans for financing long-term investments, while private operators may opt for equity investment.
Recent case studies also demonstrated the success of blended finance mechanism used to maintain and/or
expand treatment plants (World Water Council, 2022). Economic regulators play a key role in supporting the
operations of water utilities and creating environments that enable specific investments.
However, in the downstream flow, there is no directly economic value added for the retreatment and discharge
of wastewater. This type of activity is usually under strict monitoring process of public authorities. Additionally,
MERLIN in Key Economic Sectors | Page 19
the natural environment of the water catchment area adds complexity, as other actors, such as environmental
agencies, agricultural sectors, and industries, can influence water quality and availability, impacting water
resource management and abstraction activities.
2.3 Value chain problem identification
As a matter of fact, even though the WSS sector operates very often as a monopoly actor, addressing problems
on the value-creation process through innovative approaches, such as integrating NbS, is essential for reducing
costs to water users and ensuring the effective use of natural resources. This is particularly important in the
context of climate change, as many European rivers are experiencing water deficits and declining water quality.
According to the European Environment Agency, nearly 60% of European water bodies currently fail to meet
the standards of the Water Framework Directive (EEA, 2018), directly impacting the WWS sector's ability to
provide clean and safe water.
Therefore, adopting innovative approach, like integrating NbS in freshwater ecosystem restoration, not only
supports the long-term sustainability and resilience of water resources in the face of increasing environmental
pressures, but also helps in addressing value chain challenges. By examining the general value chain steps and
activities, it is possible to identify two most cost-intensive components, which are critical in addressing
potential value chain problems in the WWS sector.
2.3.1 Distribution Networks
Building or rehabilitating systems that transmit water from central pumping stations to distribution systems
can be very costly. These transmission systems often involve laying long pipelines over varied terrain,
necessitating extensive excavation, materials, and labour. Expanding or upgrading distribution systems to
deliver clean water to consumers is a significant expense, particularly in urban areas or when connecting new
consumers to the network.
Downstream, the collection of waste water through sewerage networks requires coordination among various
actors, such as water operators and municipalities (or their delegated operators), to manage multiple sources
of waste water. Additionally, the maintenance costs for these complex systems are relatively high.
2.3.2 Sanitation Infrastructure Development and Maintenance
Sanitation infrastructure development and maintenance are critical components of water supply and sanitation
projects, often representing significant financial investments. Production and treatment facilities, such as
central water pumps and sewage retreatment plants, require substantial capital due to their complex
engineering, large-scale equipment, and advanced technology necessary to ensure water quality and safety.
The development and maintenance of major infrastructure components—particularly treatment facilities,
transmission systems, and extensive distribution networks—are among the most cost-intensive aspects of
water supply and sanitation projects. Therefore, the water processing step is identified as the most cost-
intensive stage due to the need for diverse treatment facilities and significant financial investments. While the
initial capital costs for water treatment infrastructure are high, the long-term benefits in terms of public
health, environmental protection, and economic development are substantial. Proper investment in water
treatment can lead to reduced contamination events and associated health risks over time. Additionally,
ongoing operation and maintenance costs, though substantial, are crucial for the long-term sustainability of
water and sanitation systems.
This analysis of the key costly steps within the WSS sectoral value chain reveals that potential value-adding
problems are most likely to occur during the stages of processing and distribution, especially when it comes to
reducing their high operational costs. However, the water cycle management stage, particularly regarding the
upstream water catchment area, also presents significant challenges. Failing to effectively manage and protect
these upstream sources can lead to increased contamination and higher treatment costs, as well as heightened
risks to public health and the environment.
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Moreover, overlooking the importance of rigorous standards for the monitoring of wastewater discharge and
neglecting the proper treatment of upstream water flow can result in serious public health and environmental
issues. For example, without adequate management of water catchment areas, pollutants and contaminants
can enter the water supply, exacerbating the burden on downstream re-treatment processes and potentially
compromising water quality.
Therefore, the value chain problem in the WSS sector is not isolated to a single step but is rather a single-step
issue that is deeply connected with the water processing step. However, a more comprehensive and broader
integration of NbS can additionally benefit the water cycle management and distribution steps. Addressing
these problems requires a holistic approach across all stages to enhance the sector's sustainability, reduce
costs, and safeguard public health and the environment.
Despite the shared priority of addressing value chain challenges in both the processing and distribution steps,
the solutions differ significantly due to the specific technical and environmental contexts of each stage. For the
distribution step, the high cost of network maintenance is primarily technical and technological, often related
to the aging infrastructure, the usage patterns, and the materials of the pipeline network used for upstream
water distribution and sewerage collection. While there seem to be limited opportunities for NbS in addressing
these challenges directly, there is growing recognition of the potential benefits of shifting from a predominantly
"grey" infrastructure focus to integrating more "green" infrastructure solutions. Decentralised systems, which
incorporate green infrastructure such as natural wetlands and gravity-based water collection, can reduce the
reliance on extensive pipeline networks, thus lowering both maintenance costs and the carbon footprint
associated with pumping water over long distances (Bieker et al., 2010; Poustie et al., 2015; Schuetze & Chelleri,
2013; Sharma et al., 2013).
When it comes to the processing step, the approach is quite different. The necessity and intensity of water
processing are heavily influenced by the quality of the abstracted water, which is directly linked to the natural
environment of the water catchment area. Simply put, the less polluted the sourced water is, the lower the
costs associated with water treatment and purification. Conversely, if downstream wastewater is cleaner after
the consumption stage, the costs of wastewater retreatment will decrease. Therefore, there is significant
potential for the implementation of NbS in both the water cycle management and water processing step. NbS
such as constructed wetlands, riparian buffers, and decentralised rainwater management systems can naturally
filter and purify water, reducing the need for intensive chemical and energy inputs during processing (Sharma
et al., 2013; Bieker et al., 2010).
2.3.3 Integrating NbS in water processing
Integrating innovative sustainable practices such as NbS into the WSS value chain involves adopting methods
across all value chain steps, requiring a holistic approach, from abstraction to discharge. This involves not only
adopting NbS at specific points in the value chain but also embedding them in education, data tracking,
stakeholder engagement, and performance management. Collaboration between utilities, suppliers, regulators,
land managers, and communities is crucial for sustainable water management, ensuring the long-term viability
and environmental stewardship of water resources.
At the abstraction stage, working with upstream land managers is critical to maintaining groundwater aquifers
and ensuring surface water sources remain low in pollutants. NbS at this stage can include reforestation,
riparian buffer zones, and sustainable agricultural practices. These measures help reduce soil erosion, filter
pollutants before they enter water bodies, and maintain the hydrological cycle. By ensuring clean and plentiful
water supplies from the start, water operators can significantly reduce the need for intensive treatment
processes downstream, lowering both costs and environmental impacts.
In the water processing stage, NbS offer significant potential for reducing costs and improving sustainability.
Traditional sustainable practices at this stage include adopting energy-efficient, low-carbon technologies and
implementing wastewater treatment and reuse systems that optimise resource usage while minimising
hazardous byproducts. However, NbS take this a step further by leveraging natural processes for water
treatment. Constructed wetlands, green roofs, and bio-filtration systems are examples of NbS that can be
integrated into wastewater treatment. These solutions use natural processes to treat and filter water, reducing
reliance on chemical treatments and lowering energy consumption. For example, constructed wetlands can
effectively remove pollutants from wastewater through vegetation, soil, and microbial activity, enhancing water
quality and providing additional benefits such as habitat creation and carbon sequestration.
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At the discharge and reuse stages, NbS continue to play a vital role. Restored wetlands and floodplains not only
improve water quality by naturally filtering remaining pollutants but also provide flood mitigation by absorbing
excess rainwater, protecting downstream infrastructure. Additionally, the vegetated areas associated with
these NbS capture and store carbon, contributing to climate resilience by reducing greenhouse gas emissions
and mitigating the urban heat island effect.
Implementing NbS throughout the WSS value chain offers a range of additional benefits that extend beyond
water treatment. For instance, constructed wetlands and riparian buffers not only support habitats for various
species, thereby enhancing local biodiversity, but also provide essential ecosystem services such as pollination
and pest control. Moreover, wetlands and restored floodplains play a crucial role in flood mitigation by
absorbing excess rainwater, which reduces flood risks and protects downstream infrastructure. In terms of
climate resilience, vegetated areas associated with NbS are instrumental in capturing and storing carbon, thus
contributing to climate change mitigation efforts. These natural features also help regulate temperatures,
which reduces the urban heat island effect and benefits local climates. Furthermore, NbS often involve local
communities in their implementation, fostering a sense of ownership and stewardship. This community
involvement, combined with the creation of green infrastructure and natural areas, provides valuable social and
recreational opportunities, ultimately improving the quality of life for residents.
2.4 Using NbS to improve value chain performance: Case of Anglian Water, UK
Anglian Water, one of the largest water supply and water recycling companies in the UK, has made significant
strides in integrating NbS (e.g. wetlands to treat waste water before discharge) into its operations (IWA, 2020).
These innovative approaches leverage natural processes and ecosystems to tackle water management
challenges, providing a sustainable alternative to traditional infrastructure.
2.4.1 A Brief History
The initial impetus for Anglian Water’s shift towards NbS came from the need to comply with stringent water
quality regulations and manage rising costs associated with traditional water treatment methods. The company
embarked on this journey with a groundbreaking pilot project in Norfolk. Developed in partnership with the
Norfolk Rivers Trust and the Environment Agency, the project launched in 2019 at Ingoldisthorpe and featured
an innovative wetland system that served as a natural filtration system for over a million litres of water daily.
The pilot project demonstrated that natural wetlands could effectively remove pollutants from waste water,
reduce carbon emissions, and support local biodiversity. Its success provided a blueprint for future projects
and encouraged Anglian Water to further promote NbS both within the company and to industry regulators,
laying the foundation for its broader commitment to sustainable practices.
Anglian Water’s commitment to NbS was bolstered by strong community support and positive customer
feedback. Through targeted engagement strategies, the company educated its customers about the benefits of
NbS, leading to widespread public backing. This support has been crucial in driving the adoption of NbS and
integrating these solutions into their broader corporate strategy. By leveraging natural ecosystems, Anglian
Water addresses critical water management challenges sustainably, setting a precedent for the industry and
enhancing the water supply and sanitation value chain.
2.4.2 Key NbS implemented by Anglian Water
Anglian Water has implemented several specific NbS to enhance their water supply. These initiatives focus on
utilising natural processes to improve water quality, manage water resources sustainably, and protect the
environment. Here are some key examples:
Water cycle management
à Catchment Management: Employing a catchment-based approach in the water cycle
management step, Anglian Water collaborates with farmers, landowners, and local
communities to reduce pollutants entering watercourses. This proactive strategy involves
initiatives such as the "Slug it Out" campaign, which incentivises farmers to reduce the use of
MERLIN in Key Economic Sectors | Page 22
harmful pesticides like metaldehyde. The campaign has successfully reduced metaldehyde
levels in reservoirs by 94%, demonstrating that engaging stakeholders and adopting
sustainable agricultural practices can significantly improve water quality at its source.
à Sustainable Drainage Systems (SuDS): Anglian Water implements SuDS to manage stormwater
runoff naturally. These systems mimic natural water cycles, incorporating features such as
green roofs, permeable pavements, and constructed wetlands to slow down and treat runoff.
This approach reduces the burden on conventional drainage systems and mitigates flood risks,
thus protecting homes and enhancing urban resilience against extreme weather events.
Water processing
à Wetland Treatment Systems: Anglian Water has developed wetland treatment facilities in
partnership with organisations such as the Norfolk Rivers Trust. These wetlands use native
plants to naturally filter and clean water for the freshwater treatment, removing
contaminants such as ammonia and phosphate for the waste water retreatment before the
water is returned to rivers. For example, the wetland at the River Ingol in Norfolk treats over a
million litres of water per day, significantly enhancing water quality while supporting local
biodiversity by attracting species such as breeding birds and amphibians. This £500,000
project not only protects the river from waste water pollution but also provides recreational
and educational spaces for the community.
à NbS Phosphorus Removal: The company explores natural methods to remove phosphorus
from water in the processing step (both downstream and upstream), a crucial step in
preventing eutrophication in water bodies. By using natural filtration methods, Anglian Water
reduces its reliance on chemical treatments, thereby lowering carbon footprints and
operational costs. These innovative methods align with broader sustainability goals and
enhance the ecological health of water systems.
Additional NbS
à Environmental Net Gain and River Restoration: Anglian Water incorporates biodiversity net
gain principles into their infrastructure projects in distribution step, ensuring that
developments provide ecological benefits. Through initiatives like RiverCare and BeachCare,
local volunteers are engaged in river and coastal ecosystem restoration activities. These
efforts not only improve habitat health but also foster community engagement and
stewardship of local water resources.
à Carbon Sequestration: Deploying revegetation actions on their land holdings, Anglian Water
actively removes residual emissions, contributing to their ambitious goal of becoming a net-
zero carbon business by 2030. This initiative complements other efforts to replace carbon-
intensive infrastructure with NbS, further enhancing environmental sustainability.
2.4.3 Benefits and performance improvements
NbS have demonstrated significant performance improvements and benefits across various dimensions,
offering a viable alternative to traditional infrastructure and management:
à Holistic Value Creation: Anglian Water employs a "six capitals" approach, encompassing
natural, social, financial, manufactured, human, and intellectual capitals. This comprehensive
approach integrates environmental and social considerations into their decision-making
process, ensuring initiatives generate broad, sustainable value. This strategy benefits both the
company and the wider community, promoting a balanced and inclusive model of value
creation as mentioned in the extended definition of value chain in this study (see section 2).
à Cost-Effectiveness: NbS are highly cost-efficient, yielding substantial returns on investment.
In Norfolk, each £1 invested in NbS delivers £6.70 in benefits, underscoring the financial
viability of these approaches. This cost-effectiveness makes NbS an attractive option
compared to conventional methods.
à Environmental Impact: NbS contribute positively to the environment by improving water
quality, enhancing habitats for wildlife, and supporting biodiversity. These solutions bolster
the resilience of water resources, particularly in the context of climate change, providing long-
term ecological benefits.
MERLIN in Key Economic Sectors | Page 23
à Carbon Reduction: By replacing carbon-intensive infrastructure with NbS, Anglian Water
significantly reduces its carbon emissions. This shift is essential for achieving their net-zero
carbon goals by 2030, reflecting a strong commitment to sustainable practices.
à Flood Risk Management: Sustainable Drainage Systems (SuDS) and other green infrastructures
effectively manage flood risks. They retain and naturally soak away water, alleviating pressure
on traditional drainage systems and protecting communities from flooding.
2.4.4 Mainstreaming NbS in WSS sector using a VCA
Anglian Water’s journey from regulatory compliance to proactively integrating NbS into their mainstream
practices underscores the critical role of VCA in the WSS sector. Mainstreaming NbS within this sector
necessitates systemic efforts that extend beyond the implementation of individual solutions. VCA provides a
framework to identify and engage multiple actors beyond the primary utility company, highlighting the
importance of collaborative partnerships and the need for public-private funding to realise the full potential of
NbS. This approach is not solely about economic cost savings but also about leveraging the multifaceted
environmental and social benefits that NbS can offer.
Anglian Water has effectively embedded NbS into its corporate strategy, prioritising nature-first approaches in
its investment plans. These solutions are crucial for addressing nutrient reduction, drought resilience, natural
flood risk management, and storm overflow treatment, demonstrating a comprehensive commitment to
sustainability. By relying on scientifically informed research, Anglian Water ensures that its initiatives are both
targeted and impactful, thereby enhancing the overall efficacy of its environmental strategies. For example,
natural methods for phosphorus removal help prevent eutrophication in water bodies, reduce reliance on
chemical treatments, and lower operational costs.
Through VCA, Anglian Water has recognised the importance of working closely with regulators, local
stakeholders, and community groups to ensure that NbS are not only compliant with existing regulations but
also contribute positively to broader environmental goals. Initiatives such as the Norfolk Water Fund, which
aims to invest £30 million in NbS to address water security challenges, exemplify how public-private
partnerships can create shared value for all stakeholders involved. Additionally, leveraging NbS on their land
holdings allows Anglian Water to actively reduce residual emissions, contributing to their goal of becoming a
net-zero carbon business by 2030. The adoption of biodiversity net gain principles ensures that infrastructure
developments provide ecological benefits.
Community and customer engagement, as revealed through VCA, have been pivotal in the successful adoption
and scaling of NbS. Initiatives such as RiverCare and BeachCare involve local volunteers in river and coastal
ecosystem restoration activities, improving habitat health and fostering community engagement. By engaging
local communities, Anglian Water has fostered a shared sense of environmental stewardship, ensuring
sustained support and participation. VCA highlights that the successful integration of NbS into the WSS sector
is contingent upon the collaboration of diverse actors and the alignment of their interests, rather than relying
solely on traditional economic cost-saving measures.
In summary, VCA provides a comprehensive approach to mainstreaming NbS in the WSS sector, demonstrating
that their successful implementation requires coordinated efforts across various levels of governance, funding,
and community involvement. Anglian Water’s approach sets a precedent for the industry, showing that by
focusing on these aspects, stakeholders can unlock the full potential of NbS, achieving sustainable water
management and enhanced environmental outcomes while ensuring a sustainable future.
2.5 Case and sector conclusion
The Value Chain Analysis (VCA) applied to the Water Supply and Sanitation (WSS) sector has underscored the
crucial role of integrating Nature-based Solutions (NbS) across various stages of the value chain, from water
abstraction to discharge. The case study of Anglian Water demonstrates that when NbS are strategically
embedded into corporate frameworks, they can generate substantial environmental and social benefits,
extending beyond purely economic gains. By leveraging natural approaches for securing water supply, reducing
nutrient loads, managing floods, and enhancing biodiversity, Anglian Water exemplifies how NbS can contribute
MERLIN in Key Economic Sectors | Page 24
to achieving sustainability goals within the WSS sector. Notably, there is significant potential to place greater
emphasis on the role of freshwater NbS in mitigating water scarcity, particularly at the initial stage of the value
chain (catchment management and abstraction), as illustrated in Figure 1.
In terms of water quantity management, Anglian Water has historically relied on annual drought plans to
manage worsening water scarcity driven by environmental changes. However, there is limited evidence of NbS
being systematically implemented in their water cycle management activities related to drought mitigation.
More attention should therefore be given to the potential role of freshwater NbS in buffering against water
scarcity, particularly at the initial stage of the value chain, such as catchment management and abstraction
(see Figure 1). By enhancing natural systems at the catchment level, water utilities such as Anglian Water could
improve water retention, facilitate groundwater recharge, and build resilience to droughts.
However, the effectiveness and scalability of NbS in the WSS sector depend heavily on robust governance
frameworks and multi-stakeholder collaboration. The VCA framework helps identify where such collaborative
efforts are most needed and how they can be structured to maximize the benefits of NbS. It also highlights
that the integration of NbS is not merely a cost-saving measure but a strategy to enhance overall value across
the value chain, including ecological and social outcomes.
While Anglian Water’s approach offers a replicable model for other regions, it is important to recognize the
potential challenges and limitations. The successful application of NbS depends on local ecological conditions,
regulatory environments, and community engagement, all of which can vary significantly from one region to
another. Moreover, while VCA provides a comprehensive framework, its success hinges on continuous
monitoring and adaptive management to ensure that NbS meet the necessary standards for water quality and
ecosystem health.
It is also essential to consider the broader context of the WSS sector, particularly in light of recent
controversies involving Anglian Water. The company has faced significant fines for environmental violations,
including illegal sewage discharges into water bodies, raising concerns about the consistency and reliability of
its environmental practices. These incidents suggest that while NbS can offer substantial benefits, they must
be part of a broader, well-regulated strategy that ensures accountability and transparency to maintain public
trust (UK Government, 2023).
In conclusion, while VCA has proven valuable in guiding the integration of NbS within the WSS sector, there
remain critical challenges related to regulatory compliance, stakeholder engagement, and operational integrity.
To ensure NbS can be effectively mainstreamed, the sector must continue to innovate, adapt, and enforce
strong governance structures. Only by doing so can it create a more sustainable and resilient water
management system that balances economic, ecological, and social objectives.
MERLIN in Key Economic Sectors | Page 25
3 Agriculture
Sector authors: Lea Ilgeroth-Hiadzi, Jianyu Chen
To be cited as:
Ilgeroth-Hiadzi, L., Chen, J. (2024) Agriculture. In Jianyu Chen, Kirsty Blackstock, Alhassan Ibrahim, Levin Scholl,
Lea Ilgeroth-Hiadzi, Audrey Vion Loisel, Marine Boulard, Milo Fiasconaro, Fanni Nyírő, Viviane Malveira
Cavalcanti, Sebastian Birk, Eva Hernandez Herrero. 2024. Value Chain Analysis in Key Economic Sectors. EU
H2020 research and innovation project MERLIN deliverable D4.4. pp. https://project-
merlin.eu/outcomes/deliverables.html
3.1 Sectoral introduction
3.1.1 Key terms in the sector
3.1.2 NbS in the agriculture sector
NbS in agriculture involve using the complex ecosystem to enhance agricultural productivity, resilience, and
sustainability. These solutions integrate ecological principles into farming practices to improve soil health,
water management, and biodiversity while reducing environmental impacts. A typical application of NbS in the
agriculture sector is conservation agriculture which involves minimal soil disturbance and diversifying crop
rotations. By incorporating NbS in the agriculture, we can promote a more sustainable food production value
chain, not only to conserve the value adding process of the conventional farming industry, but also to
contribute to climate change mitigation, biodiversity conservation, and ecosystem restoration. This includes the
economic, social and environmental value-creation into the Value Chain Analysis.
The term 'agriculture’, often used as a single category, encompasses a vast array of sub-sectors, such as crop
production, livestock farming, horticulture, aquaculture, and agroforestry. This diversity, as outlined in the
Methodology section, results in a wide range of complex activities that make developing a universal value chain
map challenging. Consequently, a case-specific approach is employed, mapping an individual cross-sectoral
case study (dairy farming, see section 5.2 and 5.3) into value chains. This method allows for a more nuanced
understanding of the sector's value-adding mechanisms and reveals the potential of NbS through targeted
cross-sectoral cooperation.
3.1.3 Connecting agriculture to freshwater ecosystem restoration
The agriculture sector plays a crucial role in freshwater ecosystem restoration projects for several
interconnected reasons. Firstly, agriculture is the largest consumer of freshwater resources globally,
accounting for approximately 70% of withdrawals (Turner et al., 2004). This extensive water usage significantly
Organic Farming
refers to an agricultural system that relies on natural processes and
inputs, emphasising the use of organic fertilisers, crop rotation, and
biological pest control to enhance soil fertility and ecological
balance, while avoiding synthetic pesticides, fertilisers, and
genetically modified organisms (Lamkin et al., 2000)
Water Catchment area
is the geographical region from which all precipitation collects and
drains into a common water body, such as a river, lake, or reservoir.
This area plays a critical role in managing water resources, including
water quality and quantity, as it channels surface water and
groundwater flow toward a specific outlet (Heathcote, 2009).
MERLIN in Key Economic Sectors | Page 26
impacts freshwater ecosystems through altered hydrological flows and habitat degradation. Secondly,
agricultural fields have an extensive cover of land, taking over about half of the world’s habitable land (Viana,
2021), often bordering or including freshwater ecosystems such as wetlands and riparian zones. Lastly, many
freshwater species depend on habitats that intersect with agricultural lands. Implementing sustainable farming
practices can therefore help preserve these habitats and support biodiversity conservation efforts. However,
non-sustainable agricultural practices have significantly impacted freshwater ecosystems. For example,
agricultural runoff, a major source of water pollution, introduces fertilisers, pesticides, and sediment into
freshwater bodies, further degrading freshwater ecosystems (Eionet Forum, 2020).
Given these challenges, utilising NbS in agriculture to facilitate freshwater ecosystem restoration is highly
beneficial, due to its significant impact on water resources. For example, improving water use efficiency in
agriculture can reduce pressure on freshwater resources, allowing for the recovery of freshwater ecosystem.
Moreover, as mentioned in the Value Chain Analysis of the water supply and sanitation (WSS) sector, reducing
agriculture-sourced water pollution helps the value-creation process of the WSS sector prior to WSS value
chain when water goes from the natural environment into water-treatment facilities. Certain NbS-oriented
agricultural practices, such as restoring wetlands on farmland, can additionally contribute to carbon
sequestration (Convention on Wetlands, 2021), addressing both climate change and ecosystem restoration
goals. NbS in agriculture not only promises to enhance the environmental restoration, but also offers economic
benefits by reducing farming costs (UNEP, 2023), a crucial aspect for the 65% of working adults dependent on
agriculture. This in turn brings more environmental and social benefits in the long term. A quantitative
comparison study confirms the economic benefits of ecological farming across several EU countries (van der
Ploeg et al., 2019).
Despite these benefits, NbS are not yet widely implemented. Therefore, the engagement of the agriculture
sector is key to mainstreaming and scaling up the implementation of NbS measures. This would allow for wider
stakeholder engagement and deeper collaboration between various sectors, thereby enhancing the overall
impact on freshwater ecosystem restoration.
3.2 A cross-sectoral value chain: The impact of conventional agriculture on WWS
Based on the strong interdependencies between the agriculture and WSS sectors, a comprehensive cross-
sectoral value chain has been developed. This approach enables us to identify potential value chain challenges
and promote the adoption of NbS as effective solutions to address these issues.
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MERLIN in Key Economic Sectors | Page 27
The value chain map provides a comprehensive overview of the flow of economic and environmental value
across the agriculture and WSS sectors, emphasising the significant impact of pollution from conventional
agriculture (specifically during the farming stage) on water quality (particularly during the water cycle
management stage in WSS). While the WSS value chain is analysed in detail in Section 2.2 (see above), the
focus here is on the agriculture value chain. This value chain is a complex network of activities and actors, each
playing a critical role in transforming raw materials into consumable goods while generating economic, social
and environmental value at every step.
Farming
At the farming stage, activities such as cattle farming, crop cultivation, and land management are conducted by
farmers and farming companies. These actors are responsible for the primary production processes, which
include the application of fertilisers and pesticides, as well as the management of water resources to ensure
the growth and maintenance of crops and livestock. While their work forms the foundation of the entire value
chain, it also introduces environmental challenges, particularly in the form of pollution that can negatively
impact downstream water quality.
Producing
In the producing stage, raw agricultural products are transported to production plants where they are
processed into consumable goods and packaged for distribution. This stage involves producers, logistic
operators, and suppliers, who are essential in converting raw materials into market-ready products. Their
responsibilities extend beyond production to include the logistics of moving these goods efficiently to the next
phase of the value chain.
Wholesale
During the wholesale stage, the focus shifts to the bulk distribution of agricultural products. Wholesalers,
alongside logistic operators and suppliers, manage the storage and transportation of these goods to various
markets and retailers. This stage is crucial for maintaining the efficient flow of products from producers to
retailers on a large scale.
Retail
The retail stage brings products closer to consumers. Retailers, supported by logistic operators, sell agricultural
products directly to end consumers. This stage includes supermarkets, small local stores, and online platforms,
which serve as the final points of sale before products reach their ultimate users.
End use
Finally, at the end use stage, consumers—including individuals, households, and businesses such as restaurants
and food processors—purchase and consume the agricultural products. This stage represents the culmination
of the value chain, where the economic value created in previous steps is realised as products that are
consumed by the final users.
Throughout these stages, the activities and actors are interdependent, each contributing to the successive
creation of economic value while also influencing the overall environmental impact of the value chain. Effective
management of these interactions is crucial for maintaining a balance between economic growth and
environmental sustainability in the agriculture sector.
However, pollution generated from conventional farming practices stands at the intersection of the agriculture
and WSS sectors as a significant cross-sectoral challenge. Practices in conventional agriculture, which often
involve the heavy use of synthetic fertilisers and intensive livestock farming, lead to substantial nitrate runoff
into nearby water bodies and groundwater. This pollution not only degrades water quality but also imposes
considerable costs on the WSS sector, which must invest in extensive treatment processes to ensure safe
drinking water. The negative impact of pollution from conventional farming practices extends across multiple
stages of both the agriculture and WSS value chains, creating a series of interconnected challenges:
à Increased Water Treatment Costs: As pollution from agricultural runoff contaminates water
sources, the WSS sector faces significantly higher treatment costs. Removing nitrates and
other pollutants from water requires advanced and expensive processes, straining the
financial resources of water operators.
MERLIN in Key Economic Sectors | Page 28
à Public Health Risks: Elevated levels of pollutants such as nitrates in drinking water pose
serious health risks to the public. This not only increases the burden on healthcare systems
but also erodes public trust in the safety of water supplies, complicating efforts to manage
the WSS value chain effectively.
à Environmental Degradation: The runoff from conventional farming contributes to broader
environmental degradation, affecting not just water quality but also aquatic ecosystems and
biodiversity. This degradation can have long-term impacts on the sustainability of both the
agricultural and WSS sectors.
à Regulatory and Compliance Pressures: As pollution levels rise, both sectors face increased
regulatory scrutiny and the potential for more stringent environmental regulations.
Compliance with these regulations can be costly and challenging, particularly if existing
practices are not adapted to meet new standards.
à Climate Change and Environmental Instability: Climate change exacerbates the challenges
posed by pollution, as extreme weather events can lead to increased runoff and greater
variability in water quality. This environmental instability further complicates the ability of the
WSS sector to maintain consistent and safe water supplies.
This negative value chain analysis highlights the central role of pollution from conventional farming practices
as a cross-chain level issue that affects both the agriculture and WSS sectors. The resulting challenges—
ranging from increased treatment costs to environmental degradation and regulatory pressures—underscore
the need for more comprehensive and systematic approaches to managing these interconnected value chains.
Addressing these issues proactively is crucial for ensuring the long-term viability and sustainability of both
sectors.
3.3 A cross-sectoral case study in agriculture and WSS: Stadtwerke München, Germany
Given the significant challenges identified in the value chain analysis—particularly the environmental and
economic impacts of pollution from conventional farming practices—it is crucial to explore practical solutions
that can mitigate these issues. To this end, we have selected a case study within the agriculture sector that
exemplifies how NbS can be effectively implemented. By focusing on this specific case, we aim to gain detailed
insights into the challenges and opportunities associated with NbS, allowing us to develop tailored strategies
that can enhance sustainability and economic viability within the sector. This case study will also help to
identify critical entry points and leverage opportunities for broader support of NbS. In this context, the NbS
refers to organic dairy farming practices, which involve producing dairy products using ecological methods,
such as feeding cows organic feed, ensuring pasture grazing, avoiding synthetic hormones and antibiotics, and
upholding high standards of animal welfare, all while minimising environmental impact. This approach not only
addresses the negative effects highlighted in the Value Chain Analysis but also demonstrates the potential for
NbS to drive sustainable practices within the agricultural sector.
More to know:
The issue of nitrate contamination has had broad implications across EU countries in the farming sector.
For example, in Germany, this concern escalated in 2016 when the European Commission filed a complaint
against Germany with the European Court of Justice, accusing it of insufficient action against nitrate
pollution from agricultural sources. By 2018, the Court condemned Germany for its inadequate measures,
demanding more stringent regulations to curb nitrate contamination.
The Court ruling significantly pressured Germany's farming sector, traditionally reliant on fertilisers and
manure, which contributed to excessive nitrate leaching into groundwater. This situation not only posed
health risks but also contravened the EU Nitrates Directive. In response, Germany introduced stricter
fertilisation regulations, including extended no-fertilisation periods and specific restrictions in vulnerable
areas, to reduce nitrate levels and comply with EU standards. These regulatory changes required farmers to
adopt more sustainable practices, balancing agricultural productivity with environmental protection
(Science Media Centre Germany, 2018; Zeit.de, 2018).
MERLIN in Key Economic Sectors | Page 29
3.3.1 A Brief History of the Mangfall Case study
Since the mid-1960s, an increasing nitrate pollution of the drinking water in the city of Munich has been
measurable. At the beginning of the 1990s, traces of pesticides were also detected for the first time. The city of
Munich faced a growing environmental and public health challenge as nitrate levels were constantly rising in
the water. The deteriorating quality of water posed a significant problem for Stadtwerke München (SWM), the
local water company, as treating groundwater to remove nitrates is not only complex but also extremely costly
(SWM, 2023).
Faced with these challenges, SWM had to devise an effective strategy to restore water quality and reduce the
high nitrate levels. Their journey began with a thorough analysis of the regional situation. Most of the water
(80%) used by SWM was sourced from the Mangfall river, a 58 km long river and left tributary of the Inn in
Upper Bavaria, which is the outflow of Lake Tegernsee and flows into the Inn in Rosenheim (Wikipedia, 2024).
Mangfalltal, the valley area of the Mangfall river, is a region characterised by intensive agricultural activities,
especially cattle farming. The extensive use of manure and fertilisers in this area significantly contributed to
nitrate runoff into the groundwater (Figure 3).
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In response to this, SWM identified organic farming as a viable solution. Organic farming practices in Europe are
strictly regulated, ensuring that practices are not only effective but also rigorously monitored. Organic farmers
typically engage in area-based livestock farming, which naturally limits manure production and reduces the
application of artificial fertilisers. These methods help reduce nitrates, preventing excess runoff into the
groundwater, thereby improving the general water quality in the catchment area.
Mainstreaming organic farming methods requires systemic and collaborative efforts. In Munich, a revolutionary
idea was born through the close cooperation between SWM, eco-associations such as Naturland, Bioland, and
Demeter, the farmers' association, and the municipal estates of the state capital. The project aimed to convert
over 6,000 hectares of land located in the drinking water protection areas Mühlthal and Reisach-Gotzing-
Thalham South and North to organic farming, starting with a start-up financing program in 1992. This program
provided financial compensation to farmers to ease the initial burden of transitioning to organic farming, which
takes up to three years before produce can be marketed as organic. The transition period is crucial as farmers
need support while adjusting their practices and waiting for certification. Recognising the ongoing need for
support, SWM continued to provide financial aid to ensure the sustainability of new practices.
MERLIN in Key Economic Sectors | Page 30
In 1993, 23 companies became the "eco-farmers" of the first hour by signing cooperation agreements with
SWM. As the number of partner companies grew, the project expanded beyond its initial areato include the
Munich gravel plain, increasing the conversion area to approximately 9,000 hectares. This regional expansion
addressed the high demand for continued support for organic farmers. The amount of the payment is staged:
the closer a farm is to the spring, the higher payments they receive. On average the current amount is around
300€/ha. As a private funding scheme, the bureaucratic burdens were kept low, allowing any farmer in the area
to join by presenting their organic certificate during their annual organic check.
3.3.2 Project in continuity and expansion
The transition to organic farming in the region surrounding Munich represents a strategic solution to a critical
VC problem in the WSS sector. Specifically, high nitrate levels in the water supply, which originate from
conventional farming practices, posed significant challenges during the abstraction and processing phases of
drinking water production (refer to Fig. 1). To address this problem, SWM, the water operator, partnered with
more than 185 farms in organic farming, managing approximately 4,650 hectares—one of the largest
ecologically managed agricultural areas in Germany. The transition to organic farming has significantly and
sustainably reduced the nitrate levels in Munich's drinking water, which now averages 6.3 mg/l. This
collaborative and systemic approach not only supports farmers but also enhances environmental sustainability
and water quality in the region. Therefore, the cross-sectoral cooperation between agriculture and WSS sector
showcased the mutual benefits that NbS can bring to sectors to enhance value creation and go beyond merely
economic value-creation, such as ensuring public health. A more detailed Value Chain Analysis will be
presented in section 3.3.3 (see below).
Recognising the ongoing need for support, SWM extended its assistance beyond the initial transition phase.
Farmers in the program continued to receive EU agricultural funding, and the compensation from SWM was
higher for those closer to water sources, where the impact on water quality was more significant. This initiative
proved to be highly successful, leading to substantial improvements in water quality and a reduction in nitrate
levels. The cost savings from reduced water treatment expenses were significant for SWM.
The success of this project also fostered broader collaborations between the WSS and the agricultural sector.
Nearly 200 farmers joined the SWM program, making the Mangfalltal area one of the largest contiguous regions
under organic farming in Germany.
3.3.3 Benefits of implementing organic farming for improving water quality
The success in Mangfalltal in improving water quality through organic farming highlighted the potential for
sustainable practices to benefit the environment. It also paved the way for the creation of local organic dairy
products. Collaborations emerged with upstream value chain partners such as the dairy farm Berchtesgadener
Land Molkerei (BGL) who created the ‘Unser Land’ (‘our land’) milk brand. All milk for the ‘Unser Land’ brand is
sourced from the Mangfalltal area, and the products proudly display the project’s details on their cartons and
website, informing consumers about the sustainable practices behind their milk.
MERLIN in Key Economic Sectors | Page 31
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These collaborations have strengthened the local economy by providing farmers with new market opportunities
and creating a brand identity based on sustainability. The organic dairy products from Mangfalltal are now well-
recognised, highlighting how sustainable agricultural practices can lead to both environmental and economic
benefits. The region has become a model of how targeted support, and collaborative efforts can promote
sustainable agriculture, benefiting socially and financially the farmers and the broader community.
By focusing on this specific case study, we can draw valuable insights and develop targeted strategies for NbS
implementation. This approach demonstrates the potential for broader application of sustainable practices and
collaborative efforts in agriculture, setting a model for other regions facing similar challenges. An improved
positive value chain map is drawn based on the case study as follows:
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MERLIN in Key Economic Sectors | Page 32
The value chain map above depicts the collaborative value-adding process between the WSS and agriculture
sector. This analysis focuses on how organic farming practices can enhance water quality in catchment areas,
showcasing a synergistic effort involving various actors, activities, and supporting frameworks to achieve both
environmental and economic benefits.
Farmers located near springs that supply public or privatised fresh water to cities or regions significantly
impact water quality. In the scenario showcased by the Mangfalltal case study, the process of transition to
organic farming is in the centre of the value chain, but also serves as the intersection of value exchanging and
value adding. The water operator compensates farmers for transitioning to and maintaining organic farming
practices on their farms. This transition positively affects water quality, resulting in lower water treatment
costs for the water supplier. Consequently, households receive high-quality tap water, mitigating public health
risks. Additionally, farmers in the region can market their products as supportive of water quality, adding a
unique value proposition to their organic products.
In this cross-sectoral value chain map, the WWS value chain is rather simplified compared to how it was
depicted previously (for the complete value chain of WWS, refer to Figure 1). The upstream water treatment
and supply is the main stage involved in this cross-sectoral cooperation. In general, water operators abstract,
process and deliver the water to household consumers. These household consumers are the end-users who
benefit from the clean water supply. In the agricultural sector, farmers and farming companies are pivotal as
they transition to and maintain organic farming practices, which are crucial for reducing nitrate levels in water
sources. This shift not only adds environmental value by improving water quality but also contributes to the
economic value through increased income for farmers and reduced water treatment costs for water operators.
Meanwhile, regulatory compliance ensures that all practices meet stringent environmental and health
standards, which are monitored by quality control agencies and organic farming certification bodies.
Collaborative partnerships between water operators, farmers, and certifying organisations are essential to
promote and sustain organic farming practices.
This cross-sectoral integration of organic farming within the WSS value chain exemplifies a sustainable
approach that leverages the strengths of both sectors. By engaging various actors and aligning activities with
regulatory frameworks, this approach not only improves water quality and public health but also enhances the
economic viability of transiting to organic farming.
3.4 Sector standards review: systemic integration NbS in cross-sectoral cooperation
With the implementation of NbS in this cross-sectoral case study, we witness a successful example of using
NbS to solve a cross-value-chain level problem, which involves reducing pollutants from the dairy farming
sector to benefit both the agriculture and WSS value-creation. In this section, a review of sectoral standards in
both agriculture and WSS is conducted to identify the potential for systemic integration of NbS in cooperation
between these sectors.
The standards review and grouping is based on the International Trade Centre (ITC) Standard Map. We
identified 17 relevant standards for the value chain problem described, that is too high nitrate levels in
Munich’s drinking water, leading to costs for SWM and potential problems for households and farmers. Fifteen
of those standards were identified on the ITC platform and 2 additional regional standards were identified from
other sources to diversify the range of standard labels included in this comparison and to draw stronger
conclusions. Furthermore, the value chain also considers regional labelling as a topic, hence the inclusion of
one of these labels (see following Table 1).
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MERLIN in Key Economic Sectors | Page 33
Name of Standard
Category
NbS-Related
WSS-Related
Agriculture-Related
Bio-Knospe
Organic
Promotes soil health through
natural methods, emphasises
buffer zones to protect water
bodies.
In risk areas, a water
management plan is required.
No effluents or seepage must
impair water.
No chemical-synthetic fertilisers
or pesticides are allowed. Crop
rotation and humus management
to improve soil health and reduce
erosion.
EU Organic Farming
Organic
Integrates NbS by enhancing soil
organic matter, avoiding
synthetic inputs, and improving
water retention.
Effluents must be filtered and
monitored. Water cycle
protection via soil retention
and erosion prevention.
Enhancement of soil life, fertility,
and biodiversity; use of
authorised fertilisers; crop
rotation to improve soil health.
FairWild
Fair Trade
Limited NbS-related measures,
primarily focused on non-organic
input control.
Not covered.
Only known non-organic inputs in
defined spots; limited impact on
agriculture.
Fairtrade International
- Agricultural
Standards
Fair Trade
Establishes buffer zones and
promotes rational water use to
protect ecosystems.
Efficient and rational use of
water sources.
Soil erosion prevention,
enhancing soil fertility, buffer
zones around water bodies.
For Life
Private
Emphasises buffer zones and
agrochemical reduction, aligning
with NbS principles.
Surface and groundwater use
must be permitted and
managed. Water
contamination must be
minimised.
Crop rotation, reduced use of
synthetic agrochemicals, buffer
zones to protect water bodies.
GLOBAL G.A.P.
Industry
Supports NbS through crop
rotation, soil health
improvement, and buffer zone
establishment.
Valid permits for water use are
required. Wastewater must
not pose a risk to water
sources.
Soil health and biodiversity
management via crop rotation;
use of authorised plant protection
products; buffer zones along
aquatic ecosystems.
IFOAM Standard
Organic
NbS integrated via erosion
prevention, nutrient
management, and biodiversity
protection.
Prevent excessive water
resource exploitation, preserve
water quality, minimise
nutrient release.
Erosion prevention, reduced soil
degradation, allowed inputs to
maintain soil fertility; maintaining
on-farm wildlife refuge habitats.
IFS Food
Industry
Limited focus on NbS; emphasis
on preventing contamination in
manufacturing processes.
Water management focused
on hygienic disposal,
preventing contamination, and
ensuring safe drainage.
Value chain focus on
manufacturing, pest control
compliance with local laws.
Naturland Organic
Aquaculture
Organic
Strong NbS focus on ecological
function protection, water
management, and biodiversity
promotion.
Ensure no significant
deterioration of water quality,
manage water extraction
responsibly.
Use of organic fertilisers,
protection of ecological functions
in farm areas, promoting
biodiversity through natural
vegetation management.
Naturland Standards
on Production
Organic
Promotes NbS through
sustainable water use,
biodiversity conservation, and
natural vegetation.
Avoid excessive water
exploitation, maintain water
quality, prevent salinisation.
Prohibition of synthetic chemical
fertilisers, promotion of
biodiversity through buffer zones,
maintaining natural vegetation
along water bodies.
MERLIN in Key Economic Sectors | Page 34
Name of Standard
Category
NbS-Related
WSS-Related
Agriculture-Related
Soil Association
Organic Standards
Organic
NbS principles applied via water
management, pollution
minimisation, and organic soil
practices.
Minimise pollution to
watercourses, clean and reuse
water where possible, maintain
efficient irrigation.
Management of soil fertility,
prevention of nutrient loss,
restricted use of pesticides, and
maintaining soil health through
organic practices.
Sustainable Outcomes
in Agriculture
Standard (Syngenta)
Industry
Integrates NbS through efficient
water use, crop rotation, and
targeted pest management to
enhance sustainability.
Efficient water use, irrigation
planning, drainage
management to protect water
quality.
Crop rotation, management of
soil health, targeted pest
management, conservation
practices for biodiversity and
water quality.
Unilever Sustainable
Agriculture Code
Private
Focus on NbS via biodiversity
action plans, wildlife corridor
maintenance, and sustainable
nutrient management.
Sustainable water supply
management, minimisation of
nutrient loss, and prevention
of water pollution.
Implementation of soil
conservation plans, biodiversity
action plans, maintenance of
wildlife corridors, and appropriate
nutrient management.
Demeter
Organic
NbS incorporated through
biodynamic practices, soil
improvement, and dedicated
biodiversity areas.
Responsible water extraction
and irrigation management to
prevent erosion and
salinisation.
Biodynamic soil management to
improve water retention, strict
fertiliser rules, maintenance of
10% of farm land as biodiversity
areas.
Bioland
Organic
NbS included through water
conservation, organic
fertilisation, and diverse crop
rotation to enhance biodiversity.
Use water sparingly, observe
effects of water extraction,
collect and use rainwater
where possible.
Prohibition of synthetic
pesticides, promotion of
biodiversity through diverse crop
rotation, using organic material
from the farm for fertilisation.
Bio Austria
Organic
Supports NbS via organic
methods, biodiversity promotion,
and avoidance of synthetic
inputs.
Measures related to water
management not clearly
specified, focus on preventing
water contamination.
Prohibition of chemical-synthetic
plant protection agents,
enhancement of soil fertility,
promotion of biodiversity through
crop rotation and point system.
Regionalfenster
Regional
Not covered
Not applicable - only covers
statements on origin and
processing location.
Not applicable - only covers origin
of agricultural ingredients used,
location of processing, and
proportion of regional raw
materials.
Fifteen standards explicitly related to organic farming, such as Bio-Knospe, EU Organic Farming, Demeter,
Naturland, Bio Austria, and Soil Association Organic Standards, emphasise environmentally sustainable
practices. These standards prohibit synthetic chemical fertilisers and pesticides, focusing instead on natural
soil enhancement techniques such as crop rotation, erosion prevention, and humus management, which are
crucial for maintaining soil health and fertility.
Sixteen standards, including Fairtrade International - Agricultural Standards, For Life, and Naturland Organic
Aquaculture, focus on improving water quality and protecting freshwater ecosystems. These standards
implement criteria to prevent water resource exploitation and contamination, requiring water management
plans in high-risk areas, effluent filtering, and buffer zones to protect water bodies and promote biodiversity.
MERLIN in Key Economic Sectors | Page 35
Three standards—EU Organic Farming, Naturland Organic Aquaculture, and Soil Association Organic
Standards—integrate both organic farming practices and water improvement measures, providing a holistic
approach to environmental protection. These standards ensure soil fertility and biodiversity while preventing
water exploitation and contamination, offering a comprehensive strategy for sustainability.
NbS are incorporated into 16 standards, primarily focusing on establishing buffer zones to protect water bodies
and maintain biodiversity. These zones act as natural barriers against pollutants and help maintain ecosystem
health. Additionally, these standards promote natural soil management practices, enhancing soil fertility and
reducing reliance on non-organic inputs, thereby fostering a more sustainable agricultural system.
The EU-organic regulation, which underpins many organic standards, aligns with several IUCN NbS criteria,
making it one of the most ambitious. Organic farming, by enhancing soil organic matter, eliminating synthetic
pesticides, implementing diverse crop rotations, and reducing fossil energy use, directly address critical societal
challenges such as climate change, biodiversity loss, and water security. This approach not only supports
environmental sustainability but also proves economically viable, offering lower external costs and higher
profitability compared to conventional farming.
Regional labels, such as ‘Regionalfenster’ reviewed here, focus primarily on the regional sourcing of agricultural
products without addressing product quality or sustainability, making them less reliable for general use.
Additionally, private standards from companies like Syngenta and Unilever offer opportunities for integrating
NbS across diverse agricultural value chains.
In conclusion, the current integration of NbS into standards shows a promising start, particularly within organic
farming practices and water protection measures. Many existing standards, like those related to EU Organic
Farming and Soil Association Organic Standards, already incorporate NbS by promoting sustainable soil
management, establishing buffer zones, and enhancing biodiversity. However, while these efforts are
commendable, they remain concentrated in a limited number of standards, leaving significant room for broader
implementation. The potential for expanding NbS within agricultural standards is considerable. By adopting
more comprehensive NbS practices, such as improving water management and enhancing biodiversity,
agricultural standards can play a crucial role in addressing environmental challenges such as climate change
and water security. These standards can evolve to include more rigorous NbS criteria, fostering a more resilient
and sustainable agricultural system.
Moreover, there is substantial potential for cross-sectoral standards to integrate NbS more effectively. By
aligning agricultural practices with water management and biodiversity conservation across different sectors,
cross-sectoral standards can facilitate a more holistic approach to sustainability. This integration could lead to
improved environmental outcomes, cost savings, and the creation of synergies between the agriculture and
WSS sectors, ultimately supporting sustainable development goals on a larger scale.
3.5 Enhancing value chains with NbS in cross-sectoral cooperation: Key Insights and
Lessons
The Value Chain Analysis of the Mangfalltal has highlighted the critical importance of creating financial
advantages for long-term NbS implementation. A key takeaway is the necessity of establishing win-win
situations for all actors involved, particularly concerning the resources investment and financial arrangements.
The success of NbS in the Mangfalltal was facilitated by leveraging an existing certification scheme and
marketing channel through the EU-Organic label. This integration required minimal effort and proved highly
effective and sustainable, offering a reliable market presence in the long term.
The most important ecosystem service supported by the NbS measures in the Mangfalltal case is the provision
of clean water. This was achieved through organic certification and area-based livestock farming, which limits
manure overproduction and subsequent water pollution. Other critical ecosystem services provided by NbS in
agricultural value chains include water storage and infiltration capacities through humus-rich soils. These
services are increasingly vital as the climate crisis intensifies, bringing more frequent extreme weather events.
In flood-prone areas, value chains and collaborations could focus on enhancing these capacities, coupled with
strategic marketing approaches.
MERLIN in Key Economic Sectors | Page 36
However, the VCA also revealed that while NbS such as wetland restoration, buffer zones, natural water
retention measures (NWRM), and floodplain restoration are effectively integrated into certain standards, there
is substantial potential to mainstream these measures further. For instance, while water management is
generally addressed, the explicit promotion of these specific NbS could be more robust across standards. The
VCA helped identify key points where NbS could be more effectively utilised, shedding light on new
opportunities for enhancing standards that might have been overlooked without this analysis.
The Mangfalltal case demonstrates how NbS can be successfully integrated into livestock systems across the
EU. However, this case also emphasises the importance of regional context, as variations in soil conditions,
water management practices, and farmer engagement may affect the replicability of these approaches in other
regions. While this case study focuses primarily on livestock, similar opportunities exist in arable farming
systems, where NbS such as crop rotation, agroforestry, and cover cropping can improve soil health and
resilience. Nonetheless, it proved challenging to find examples that adopt a value chain approach to agriculture,
where supporting wetland or river restoration is seen as adding value to agricultural products. This remains an
area that requires further research.
The VCA was instrumental in identifying critical points where NbS can add value to the agriculture and WSS
sectors. It highlighted areas where NbS could be more effectively integrated to address specific challenges,
such as water contamination and soil degradation, that might not have been as apparent without this thorough
analysis. The VCA not only reinforced the importance of existing NbS but also pointed out opportunities to
expand their application, particularly in enhancing biodiversity and improving water management.
Institutional frameworks and external factors play a pivotal role in advancing NbS integration. Revising land use
policies to encourage NbS adoption, providing financial incentives for sustainable practices, and enhancing
stakeholder engagement are crucial steps toward mainstreaming these solutions. Strengthening institutional
capacities to support research and development in NbS, alongside creating platforms for knowledge sharing
and collaboration, can further facilitate the widespread adoption of these practices.
In conclusion, while there has been notable progress in implementing NbS within certain standards, there is
still considerable potential to expand these practices, particularly in water management, biodiversity, and other
key MERLIN measures such as wetland and floodplain restoration. By addressing the identified challenges and
leveraging the insights gained from the VCA, stakeholders can unlock the full potential of NbS, driving positive
environmental, social, and economic impacts. However, scaling these practices beyond successful projects may
encounter challenges related to regional differences, which need to be carefully managed to ensure broader
impact and sustainability goals are met.
MERLIN in Key Economic Sectors | Page 37
4 Insurance
Sector author: Audrey Vion-Loisel, Jianyu Chen
To be cited as:
Vion-Loisel, A., Chen, J. (2024) Insurace. In Jianyu Chen, Kirsty Blackstock, Alhassan Ibrahim, Levin Scholl, Lea
Ilgeroth-Hiadzi, Audrey Vion Loisel, Marine Boulard, Milo Fiasconaro, Fanni Nyírő, Viviane Malveira Cavalcanti,
Sebastian Birk, Eva Hernandez Herrero. 2024. Value Chain Analysis in Key Economic Sectors. EU H2020 research
and innovation project MERLIN deliverable D4.4. pp. https://project-merlin.eu/outcomes/deliverables.html
4.1 Sectoral introduction
4.1.1 Key terms in the sector
4.1.2 NbS in the insurance sector
The insurance sector plays a pivotal role in advancing climate actions through its non-life insurance products.
As understanding grows regarding the capacity of NbS to mitigate environmental hazards, the insurance sector
is evolving their products to reflect potential risk reductions and devising ways to insure environment
restoration projects where NbS are implemented.
NbS in the insurance sector involve using ecosystem services to mitigate risks and enhance environment
resilience against undesired events and environmental hazards. In the MERLIN context, by investing in the
restoration of freshwater-related environments such as coastal ecosystems, floodplains, and watersheds,
insurers can reduce the frequency and severity of claims, lower premiums, and promote sustainable risk
management. Consequently, the insurance sector emerges as an enabler which provides incentives for adopting
NbS, the value chain of both the insurers and the insurees benefits thus from the implementation of NbS in a
cross-sectoral cooperative way.
This value chain analysis aims to better understand and facilitate the enabling process of the insurance sector
in NbS-related projects. With exemplary case studies, actions are explored for mainstreaming NbS in insurance
Reinsurance
is a practice where one insurance company (called the reinsurer)
agrees to cover some of the risks taken on by another insurance
company (called ceding company). Reinsurance helps the ceding
company to manage large amounts of risk, maintain stable financial
performance, and protect itself from major losses (Adiel, 1996).
Parametric insurance
or index-based insurance, is a type of indemnity insurance that pays
a predefined amount when a specific event occurs (e.g., a natural
disaster), based on measurable parameters (such as wind speed or
earthquake magnitude). The payout is triggered automatically when
these parameters exceed a predetermined threshold, streamlining
the claims process and enabling faster payouts, with independent
verification ensuring accuracy (Swiss Re, 2024).
Construction All Risk (CAR)
also known as Contractor’s All Risk insurance is a comprehensive
insurance policy that covers a wide range of risks associated with
construction projects. It typically provides protection against
physical damage to the works in progress, materials, and equipment
on site, as well as third-party liability for property damage or bodily
injury arising from the construction activities (Harrington & Niehaus,
2003).
MERLIN in Key Economic Sectors | Page 38
activities, such as developing innovative products, data sharing, long-term monitoring, establishing sector
standards for disaster risk reduction with NbS.
4.1.3 Benefits of integrating (re)insurance into restoration projects
Integrating (re)insurance into ecosystem restoration projects offers numerous benefits. 1) By reducing perceived
financial risks, (re)insurance makes the restoration projects more attractive to investors, leading to increased
funding and long-term support for NbS. 2) Sustainable financial investment is needed for NbS restoration
projects due to their typically longer timeframes. Adapted insurance policies ensure that the necessary funds
are available to undertake restoration efforts as a recovery from adverse events, maintaining the momentum of
restoration activities and enabling ecosystems to continue providing valuable services without prolonged
interruptions. 3) Additionally, insurance could also cover long-term maintenance costs even after the
restoration, ensuring that restored ecosystems remain functional and resilient over time, which is especially
important for nature-based infrastructure requiring ongoing care.
Moreover, the involvement of the insurance sector in restoration projects can enhance stakeholder
engagement. For instance, healthy freshwater ecosystems offer essential services such as flood mitigation,
water purification, and biodiversity habitats. By insuring these ecosystems, (re)insurance helps protect these
services, reducing the overall risk to surrounding communities and economies.
Insurance companies can also incentivize conservation and restoration by offering reduced premiums to
individuals or communities investing in risk-reducing NbS on the company’s insured assets. This financial
incentive promotes broader implementation of NbS, resulting in greater ecological and economic benefits.
Ecosystem restoration projects frequently encounter significant financial risks due to the unpredictability of
natural events; innovative (re)insurance policies can provide a financial safety net by covering potential losses
from these events, ensuring the continuity of projects even after a disaster. A typical example will be the
parametric insurance policies, which provide payouts based on predefined events, and can deliver immediate
funds enabling restoration efforts in the areas affected by the insured event. Unlike conventional insurance,
which requires a lengthy claims assessment process, parametric insurance offers rapid disbursements,
ensuring timely support for restoration activities. Therefore, integrating NbS in insurance activities can inspire
innovative product development and benefiting both the insurance sector (by creating business opportunities)
and stakeholders (by mitigating financial risk related to restoration projects), particularly those in high-risk
zones. Thus, the involvement of the insurance sector can increase the financial resilience of ecosystem
restoration projects and mitigate various risks associated with project management.
4.2 Value chain of the insurance sector: engaging internal and external actors
For better understanding how the NbS can be integrated in the insurance sector, a sectoral value chain
mapping is performed. In the general value chain mapping process, the intention is to produce a value chain
map suitable for the EU insurance sector, since it is designed for application across the EU rather than a
specific country. However, because the insurance sector is heavily regulated and functions differently in various
countries (GFIA, 2024), this map will differ not only between companies but also from one country to another.
Consequently, a more adaptive perspective is recommended when considering applying the value chain map in
specific geographical areas or sectoral context.
For example, in Spain, the public entity Consorcio de Compensación de Seguros (Consortium for Insurance
Compensation) is the sole organisation in Spain responsible for covering flood losses; whereas, in some other
EU countries, multiple companies compete for this coverage (OCU, 2023). Therefore, a general value chain map
is created as follows, based on the several previously established frameworks of the sector (KPMG, 2020; van
Rossum et al., 2002, Rodrigues, 2020, Deloitte, nd):
MERLIN in Key Economic Sectors | Page 39
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+,)P'<==<;'Y&,2"66&;'/:P'@+16"B&'[/6&%/+6"2/+,;'<=<=?'
Figure 6 illustrates the comprehensive value chain of the insurance sector, detailing how each component
contributes to the overall value creation, particularly focusing on the roles of internal and external actors, and
highlighting opportunities for enhancing value through strategic interventions. The general value chain map
should be read like a table, where key actors (row 3 and 4) interact on various value chain steps (columns in
deep blue and green). Actors either perform the step (e.g., advisors handling claim management), aid in its
execution (e.g., data providers assisting actuaries with risk analysis), or drive the step (e.g., product design
driven by societal demand). Moreover, actors are specific to each step, and the columns are organized in an
upstream/downstream manner, with the leftmost column representing the beginning of the value chain and the
rightmost column representing the end. The general value chain steps are:
à Insurer’s Risk Protection: The initial or overarching step of the value chain involves insurer’s
risk protection, primarily managed through reinsurance. This step ensures that primary
insurers transfer risk to reinsurance companies, thereby mitigating potential financial losses,
for example, in the case of a high-risk event that would require to pay out large sums to
compensate policyholders (Insuranceopedia, 2023). Key internal actors include the primary
insurer deciding to transfer the risk, while the reinsurance company takes on the transferred
risk as the main external actor.
à Research and Development: The research and development step is crucial for designing
innovative insurance products tailored to customer needs and emerging market demands. This
step is segmented into product design, actuarial analysis1, and product deployment. Internal
actors involved are product managers, innovation specialists, actuaries, and underwriters who
utilize public or private Natural Catastrophe data (NatCat) provided by external actors. The
customer's needs and demands drive this phase, ensuring the development of relevant and
effective insurance solutions. Especially in the case of developing parametric insurance
policies, customers are placed in the centre of the research and development step due to
their role in expressing demand for tailored insurance products, thus driving the creation or
shaping of innovative products.
à Distribution: This step encompasses product marketing, distribution, and sales, ensuring that
the developed insurance products reach the intended market. Commercial departments of
insurance companies, marketers, and insurance agents or advisors are the key internal actors
driving this step. Advertising companies and insurance brokers play significant roles as
external actors, facilitating effective market penetration and customer acquisition.
à Utilization: This step involves claim management and asset and investment management. This
step ensures that policyholders receive prompt and fair claim settlements, maintaining
customer trust and satisfaction. Internal actors include insurance agents or advisors and
1 Actuarial analysis is the application of mathematical and statistical methods to assess financial risks associated with insurance
policies, it is used to evaluate the likelihood of future events (such as accidents, illnesses, or natural disasters) and their potential
financial impact.
MERLIN in Key Economic Sectors | Page 40
claims adjusters who handle the claims process, while policyholders2 and beneficiaries are the
primary external actors benefiting from this service. Additionally, risk analysts and investors
manage the assets and investments, ensuring that funds are effectively utilized to generate
returns.
In this map, we have chosen to refer to the end users of insurance products in three different ways, depending
on their role along the value chain. To avoid confusion, the following rationale explains why they are not
grouped in the same step and why various terms are used.
à Customers are placed in the research and development step due to their role in expressing
demand for certain products, thus driving the creation or shaping of innovative products.
Here, the customer reflects societal needs in a particular area or targeted risk.
à The term policyholder refers to the end user once a commercial relationship is established
and the policy is agreed upon. We distinguish between policyholders and beneficiaries, as the
latter can be different from the policyholder, such as when a company provides insurance for
its employees (e.g., health insurance).
Throughout the entire value chain, insurance associations, regulators, and competitors play significant roles.
These entities influence regulatory compliance, industry standards, and competitive dynamics, shaping the
operational environment for insurance companies.
à Regulators are depicted as key external actors throughout the entire value chain due to their
significant role in a heavily regulated sector. For example, in Romania, a specific body of the
Financial Supervisory Authority (ASF) is responsible for regulating, licensing, and supervising
all risk undertakers and distributors. This institution closely monitors insurers’ risk
management policies, actuarial procedures, and consumer protection issues.
à Insurance associations are also crucial in promoting sector advancement by advocating for
regulatory improvements, defending industry interests, and fostering initiatives for public
financial and risk education.
à Competitors are also depicted as key actors through the value chain since throughout their
activities, insurance companies share the market with other companies offering similar
services and which also motivate their drive for innovating in their proposed solutions.
4.2.1 Potential of NbS in parametric insurance value chains
The main objective of this value chain mapping and analysis is not only to clearly depict the value-adding
process across the insurance value chain, but also to identify where and how NbS can be fitted into the value
chain, and how the integration of NbS in the insurance activities can enhance the value-adding process of the
sector. From the analysis above, we can observe that the overall value-adding process of the insurance sector
depends on the reduction of the amount paid out in losses, compared to the amount of premium earned
(which is called “loss ratio” according to Corporate Finance Institute, 2024). Thus, reducing the loss ratio, which
involves continuous improvement in underwriting practices, risk assessment, and claims management to
minimize financial losses, is the key action for value increasement. For enhancing this action, innovation is
crucial so that insurance companies can remain competitive by developing new products or services that
address emerging demands (Sandquist, 2022). For example, sector-specific policies were developed when
insurance companies worked with the agricultural sector in Romania. In the co-development of the insurance
policies, insurance companies offered additional services, such as meteorological information and weather
alerts for farmers, tailored products for different agricultural crops, and interaction portals to expedite the
claims process, to retain their end-user loyalty.
Integrating NbS into insurance products offers more potential for innovating actions in the sector. By
integrating NbS into insurance activities, insurers must rethink their approaches to offer alternatives to
traditional solutions and incentivize the broader use of NbS, which can reduce claims and benefit society
through enhanced protection. An example is the Mexican Coastal Reef Protection that we will present further
down in a case study. In this case, a parametric insurance product was developed that provides pre-agreed
2 To put it simple: all policyholders are customers, but not all customers are policyholders. The policyholder specifically owns and
controls the insurance policy, while "customers" refers to a wider range of individuals or organisations interacting with the insurance
company. More specific differences between the two terms will be explained in the coming paragraphs.
MERLIN in Key Economic Sectors | Page 41
payouts based on predefined events along the coastal areas, such as specific wind speeds. When the triggering
threshold is met, funds are automatically transferred to the policy beneficiaries without the need for damage
assessment (Swiss Re, 2023).
Integrating NbS and innovative insurance products can further enhance value creation within the sector, as
these solutions can mitigate risks associated with natural catastrophes, thereby reducing claims and improving
loss ratios (World Bank, 2023). Additionally, developing new insurance products tailored to emerging
environmental challenges can open new market opportunities and drive sustainable growth. This strategic
approach not only benefits insurers by reducing potential losses but also supports broader societal resilience
against environmental risks. In summary, integrating innovative insurance products (like parametric insurance)
offers great benefits such as rapid response to long-term ecosystem restoration, which can be generalised
across various EU geographical contexts.
To illustrate the practical application of the value chain map, the design of a parametric insurance product fits
under the research and development step. Here, actuaries and underwriters evaluate risks and define
appropriate thresholds and compensation for the policy, helped by independent third parties providing the
necessary data, such as National Meteorological Agencies (Swiss Re, 2023). The product’s commercialization
occurs in the distribution step, followed by its purchase in the sales step. Utilization indicates that the
triggering event has occurred, unlocking the funds.
The value chain problem identified in the insurance sector is a multi-step value chain problem, primarily
centred on the research and development (R&D) and utilization steps. On the one hand, to remain competitive,
R&D teams need adopting innovative methods to develop new products and improve existing ones, focusing on
adapting to changing risks, leveraging technology, and enhancing customer experiences by offering more
tailored insurance products. This includes reallocating resources to support breakthrough initiatives and
investing in advanced technologies for long-term monitoring, data collection and analysis. R&D efforts also
extend to eco-friendly products or environment-related insurance policies (Mitisek, 2021).
On the other hand, the shift to innovative insurance products is driving faster, more efficient claims processing
and data-driven risk management, fundamentally altering how insurance companies handle claims and
investments. In parametric insurance, claims management teams benefit from automatic payouts triggered by
predefined indices, such as wind speed or rainfall, streamlining the process and speeding up support for
policyholders. Asset and investment teams are also adapting, incorporating advanced analytics and technology
to better assess risks and manage basis risk. The increasing influence of technologies and reliance on
measurable triggers are pushing investment strategies towards greater precision and efficiency.
Simultaneously, shifting to more innovative insurance can also pose impacts on the distribution step, especially
the sales activities, as the insurance advisors and insurance brokers need to acquire more integrated
information and work more in-depth with other internal actors to better decide the insurability of the assets
provided by the customers.
4.3 Innovating insurance products for environment restoration projects using NbS
Exploring the role of innovative insurance policies in environmental restoration, two case studies illustrate how
these solutions can support and enhance restoration projects. The integration of NbS and innovative insurance
products addresses value chain challenges, making previously uninsurable objects insurable and offering
financial security while promoting sustainability.
The case of Quintana Roo in Mexico highlights the application of parametric insurance to protect the
Mesoamerican Barrier Reef System from hurricane damage. This approach mitigates the associated risks under
which the local population and economy would be in the absence of recovery due to the damage suffered by
the reef (Scotti, 2021). Therefore, this case study demonstrates the potential of NbS to enhance product
development and risk management in the insurance sector. It underscores the synergy between ecological
preservation and economic stability, benefiting both the insurance industry and local stakeholders in high-risk
areas.
Similarly, the Prince Hendrik Sand Dyke Project in the Netherlands showcases the use of Construction All Risks
(CAR) insurance policies combined with NbS to safeguard protective infrastructure from erosion and enhance
MERLIN in Key Economic Sectors | Page 42
local natural habitats (Gray, 2024). This project exemplifies the dual benefits of integrating traditional insurance
with NbS to protect both infrastructure and the environment, showing that innovative insurance products can
be applied beyond parametric solutions.
Both case studies specifically address the value chain problem in the research and product development step
and also the risk analysis step. For example, by reducing the risk of hurricane-induced damages on inland
tourism activities within the geographical area, the insurers introduce a new product line for the insuree, using
localised data to develop tailored parametric insurance policies.
Moreover, this approach in the case study indirectly impacts on the sales stage, which, if unresolved, could
lead to the uninsurability of certain activities or policies due to prohibitively high premiums. For instance, when
flooding risks are extremely high, insurance companies must cover potentially significant costs by raising
premiums, making insurance unaffordable for policyholders. The incorporation of NbS provides added value by
transforming otherwise uninsurable objects into insurable ones, benefiting the insurance sector through new
business opportunities and aiding stakeholders, particularly those in high-risk zones.
These case studies collectively underscore the critical role of innovative insurance policies in environmental
restoration. By integrating NbS with both parametric and CAR insurance products, these projects reduce risks,
promote sustainable development, and support economic resilience, highlighting the importance of innovative
insurance solutions in advancing the broader adoption of NbS.
4.3.1 Parametric insurance in environment restoration: State of Quintana Roo, Mexico
The Mesoamerican Barrier Reef System, particularly along Mexico's Yucatan Peninsula, exemplifies innovative
practices within the insurance value chain. This reef, spanning nearly 1,000 kilometres across the Caribbean
coasts of Mexico, Belize, Guatemala, and Honduras, is the largest in the Americas. The reef's significance is
multifaceted, contributing an estimated $6.2 billion annually through tourism, commercial fishing, and coastal
development, while also playing a critical role in storm protection, coastal erosion prevention, and supporting
diverse marine life (World Economic Forum, 2021).
Faced with threats from climate change, storm damage, and human activities leading to declining health of the
Reef system, the Quintana Roo government took a proactive stance by insuring the reef. This initiative was
validated when Hurricane Delta in 2020 triggered an insurance payout of $800,000 for the reef's repair and
restoration. A key element of this strategy was the establishment of the "Coastal Zone Management Trust" by
The Nature Conservancy and the State Government of Quintana Roo, showcasing the integration of NbS into
both economic and environmental spheres (World Economic Forum, 2021).
This initiative aims to preserve a vital section of the reef, an ecosystem integral to the region's economic fabric,
particularly through its tourism industry, which generates around USD 9 billion annually (PreventionWeb, 2018).
Central to this conservation effort is the world's first parametric insurance policy for a coral reef, marking a
pioneering venture in utilizing insurance for environmental protection.
Parametric insurance pays out when a specified, verifiable event occurs (Kousky and Light, 2019). In this case,
when wind speeds exceed certain thresholds, policy payouts are triggered. This type of insurance obviates the
need for assessors to evaluate the damage, eliminates the need for economic valuation of the damage, and
resolves potential disputes over the extent of the damage. The aim is to provide funds to restore the reef
quickly, ensuring swift financial recovery following natural disasters and safeguarding the reef's structure and
the local economy's stability.
The benefits of this initiative are manifold. It supports biodiversity and the tourism industry and offers several
advantages to the insurance companies who initiate such products, including the development and sale of an
innovative product already replicated in other areas such as Hawaii (The Nature Conservancy, 2024), reduction
of losses on insured assets (assuming some assets protected by the coral reef are insured by the company
financing the parametric insurance), and potential marketing and reputational gains through innovation and
good practice dissemination.
The broader benefits of this NbS initiative aim to bolster economic resilience, encourage conservation, and
establish a new market niche within the insurance industry. Like other projects for mainstreaming NbS as the
method for environmental restoration, the collaborative nature of this project involves a wide range of
MERLIN in Key Economic Sectors | Page 43
stakeholders, from government bodies to hotel associations and academic institutions, blending The Nature
Conservancy's scientific knowledge with Swiss Re's risk management expertise, initially supported by The
Rockefeller Foundation, and the Mexico-based insurer Afirme Seguros Grupo Financiero SA de CV (Afirme
Insurance Financial Group, Inc.) (Kousky & Light, 2019; PreventionWeb, 2018). Specifically, in this case, the cost
of the insurance policy that secures the maintenance and restoration of the coral reef in the event of a
hurricane is funded by the tourism industry through taxes (Kousky & Light, 2019).
This case study not only highlights the role of insurance in environmental conservation but also underscores
the importance of NbS in coastal defence and climate resilience. Notably, a healthy coral reef can reduce 97%
of a wave's energy (PreventionWeb, 2018), significantly decreasing land damage. It illustrates the insurance
sector's capacity to devise innovative solutions for protecting crucial natural assets and supporting local
economies, thereby emphasizing the synergy between ecological preservation and economic sustainability.
While parametric insurance itself is not new, the innovation in this case lies in the collective action of
beneficiaries (the tourism sector) of a public good (the coral reef) to insure an ecosystem that they do not own.
4.3.2 CAR insurance in environment restoration: Prince Hendrik Sand Dyke, Netherlands
The Prince Hendrik Sand Dyke Project in the Netherlands stands as a notable example of how insurance
solutions can support large-scale infrastructure projects while simultaneously promoting ecological health. This
case study underscores the project's successful use of a Construction All Risks (CAR, or Contractor’s All Risk)
insurance policy, which played a crucial role in mitigating financial risks and ensuring timely project delivery.
Additionally, the project exemplifies how NbS can be integrated into infrastructural developments to yield both
infrastructural and environmental benefits.
Initiated to address the pressing issue of dyke erosion along the Dutch island of Texel, the Prince Hendrik Sand
Dyke Project aimed to reinforce the dyke, preventing further erosion and securing the coastline against the
rising sea levels exacerbated by climate change. The project's primary focus was to enhance the dyke's
integrity, which is critical for protecting the low-lying areas from flooding.
The project involved NbS by constructing a sand dyke, which not only reinforced the existing dyke but also
created new natural habitats for local wildlife (Fordeyn and Lemey, 2019). By depositing sand along the
coastline, the project fostered the development of dunes and wetlands, which serve as vital habitats for
various plant and animal species (Temmerman et al., 2013). These newly formed natural habitats have
enhanced local biodiversity and contributed to the region's ecological health.
The project's design also incorporated measures to ensure that the sand dyke would continue to evolve
naturally, adapting to changing environmental conditions and providing long-term ecological benefits (van
Slobbe et al., 2013). This integration of NbS into the project's framework highlights the potential for
infrastructure projects to deliver both environmental and protective benefits, aligning with sustainable
development goals.
Given the scale and complexity of the project, a comprehensive risk management strategy was essential. The
project team opted for a CAR insurance policy to cover potential risks associated with the construction phase.
This type of insurance protects against a wide range of perils, including physical damage to the works, third-
party liability (Musundire & Aigbavboa, 2015), and project delays (Gray, 2024). Similar to parametric insurance,
which offers swift payouts based on predefined triggers, the CAR insurance policy ensured that any unforeseen
issues could be swiftly addressed without derailing the project timeline, providing the project stakeholders with
the confidence to proceed, knowing that potential disruptions can be managed efficiently, allowing for the
continuation of innovative construction methods.
The Prince Hendrik Sand Dyke Project exemplifies how integrating comprehensive insurance strategies and NbS
into infrastructure projects can yield multiple benefits. The use of a CAR insurance policy effectively mitigated
financial risks, ensuring timely project completion and protecting against potential delays and failures.
Simultaneously, the project's innovative approach to dyke construction safeguarded the coastline and
enhanced local natural habitats, demonstrating the potential for NbS to contribute to ecosystems.
This case study underscores the importance of adopting comprehensive risk management strategies and
integrating NbS in large-scale infrastructure projects. The Prince Hendrik Sand Dyke Project serves as a model
for future endeavours, illustrating how insurance and NbS can play pivotal roles in achieving sustainable
development goals and enhancing resilience against environmental challenges.
MERLIN in Key Economic Sectors | Page 44
In summary, the integration of NbS into the insurance sector presents a significant opportunity to innovate and
enhance value creation across the insurance value chain. By incorporating NbS into products such as
parametric and CAR insurance, insurers can offer more responsive and tailored financial solutions in
environment restoration projects, mitigate risks associated with natural catastrophes, reduce claims, and
improve loss ratios. Case studies such as the Mesoamerican Barrier Reef and the Prince Hendrik Sand Dyke
demonstrate how NbS can be effectively combined with innovative insurance products to support
environmental restoration, protect critical infrastructure, and foster both environmental and economic
resilience. These examples highlight the importance of advancing efforts in the research and development step,
leveraging technologies, and fostering collaboration across sectors to drive sustainable development and
address emerging challenges.
4.4 Review of sectoral standards: playground for great innovation potential
In the previous sections, we explored examples of integrating NbS with innovative insurance policies,
demonstrating how this approach can reduce loss ratios, enhance value creation in the insurance value chain,
and ensure the smooth execution of environmental restoration projects. However, these integrations have so
far been limited to a few exceptional cases rather than being adopted on a larger scale. In this section, we will
conduct a review of sector standards to better understand the unique characteristics of the insurance industry
and to identify how these successful examples can be promoted more broadly.
This section reviews a selection of standards and principles to determine their potential to incentivize the
insurance sector to consider freshwater NbS as disaster risk reduction measures. The initial methodology
involved a review of sectoral standards via the ITC standard map tool3. However, the insurance sector is not
explicitly included in the ITC platform. Given our focus on insurance and its intersection with freshwater
environments, we explored relevant external sectoral standards, particularly agriculture, finance, and tourism,
as well as extending our analysis to standards from other sources directly linked to insurance sector.
Several standards are identified related to the certification of farming practices, such as the Organic
Agriculture Standard (European Commission, 2018) and the DEMETER international standard for biodynamic
agriculture (DEMETER, 2023). These standards emphasize biodiversity and environmental sustainability. For
instance, DEMETER has gained traction in Romania with several farms certified across different agricultural
subsectors. The link between these standards and the insurance sector could be inferred, should they prove to
enhance crop resilience to climatic disasters, benefiting insurers by reducing the payout amounts in case of
disasters. However, these standards do not explicitly mention insurance.
In the agrifood sector, the GLOBAL GAP standard is relevant for its focus on on-farm biodiversity and habitat
restoration, protection, and enhancement (Global G.A.P., 2022). This certification is becoming popular as a
prerequisite for conducting business with retail chains in Romania. Although it does not directly mention
insurance, the rationale is similar to organic agriculture standards, potentially benefiting insurers through
reduced risk.
Regarding the tourism industry, the ITC standard map highlights standards that relate to the marine
environment and tourism, such as the UNCTAD BioTrade Principles & Criteria (UNCTAD, 2020). This standard
emphasizes the sustainable use of biodiversity, including measures that strengthen resilience and adaptive
capacity to climate-related hazards and natural disasters. While this standard is not directly related to
insurance, it can be argued that the Mexican coral reef case study could be seen as a biodiversity-based
service that links to some UNCTAD BioTrade principles via resilience strengthening and increased adaptive
capacity. This suggests that insurance could act as an enabler for compliance with sustainability standards by
providing funds through innovative products. On the other hand, such standards can help the insurance sector
recognise certified sustainable activities to engage with.
Regarding sources external of the ITC standard map, the EU Taxonomy, a compulsory regulation, is highly
relevant to the insurance sector. It classifies sustainable activities for use by insurance and other sectors, with
mention of non-life insurance as well as reinsurance as activities contributing to climate change adaptation
(European Commission, nd). A reporting requirement is established which mandates the alignment of insurance
3 Information source: https://www.standardsmap.org/en/home, accessed in May 2024.
MERLIN in Key Economic Sectors | Page 45
activities with the Taxonomy, including contributing to one of the six environmental objectives and do no
significant harm to the other five4. This regulation helps guiding insurers in supporting disaster risk reduction
and adaptation through sustainable practices.
The Principles for Sustainable Insurance (UN PSI) offer a global framework for addressing environmental, social,
and governance (ESG) risks and opportunities in the insurance sector (UNEP FI, nd). Although not explicitly
mentioning freshwater NbS, principle 2 of the UN PSI suggests collaboration with clients and partners to
develop solutions, which can be an entry point into discussing NbS as potential innovative risk reduction
measures.
Finally, the Global Reporting Initiative (GRI), which has developed a framework for “communicate and
demonstrate accountability for their impacts on the environment, economy and people” (GRI, nd), is currently
developing insurance-specific standards that are expected to be public by the fourth quarter of 2024.
In summary, while there is a weak direct link between existing standards and the insurance sector's support
for freshwater NbS, there is great potential for the alignment. Enhancing these standards to explicitly include
insurance incentives for NbS can drive more comprehensive and integrated approaches to disaster risk
reduction and sustainability. A summary of this discussion is available in the following table:
S+8,&'<)'5$00+%O'23'"/9$%+/-&'9&-62%'96+/:+%:9'%&B"&C'
Standard, certification
or principle
Related
sector
Relation to
What is the link?
Freshwater
ecosystem
Insuranc
e sector
NbS for
reducing risk
Organic Agriculture
Agricultu
re
Yes
No
Weak
If these farming practices can
be proven to make crops
more resilient to climatic
disasters like floods, they can
reduce the payouts required
by the insurance sector.
DEMETER
GLOBAL GAP
UNCTAD BioTrade
Principles & Criteria
Tourism
Yes
No
Weak
Principle 2 emphasizes the
“adaptive capacity of species
and ecosystems to climate-
related hazards and natural
disasters.” This theme is
crucial for MERLIN's ongoing
development efforts in
relation to the insurance
sector.
European Taxonomy
on Sustainable
Activities
Financial
Yes, in the
standards
in general
but not in
the part
relating to
insurance,
the
taxonomy
being
multi-
sectoral)
Yes
Medium
Two insurance activities are
listed as sustainable
activities: “reinsurance” and
“underwriting of climate-
related perils,” the latter
specifying the offer of
“rewards for preventive
actions taken by
policyholders.”
UN PSI
Insuranc
e
No
Yes
Weak
Discussions arising from
Principle 2, which calls for
raising awareness of
environmental, social, and
4 These six environmental objectives are 1) climate change mitigation, 2) climate change adaptation, 3) sustainable use and protection of water
and marine resources, 4) transition to a circular economy, 5) pollution prevention and control 5) and protection and 6) protection and
restoration of biodiversity and ecosystems (Insurance Europe, nd)
MERLIN in Key Economic Sectors | Page 46
governance issues, managing
risk, and developing solutions,
can lead to the consideration
of such solutions being NbS.
4.5 Proposition for sectoral standards improvement for integrating NbS
As discussed in the previous section, few existing standards are relevant both for the freshwater ecosystem
restoration and the insurance sector. This is partly because the idea of including NbS in insurance activities is a
relatively new concept for the sector. However, in the participatory activities organized within MERLIN on May
2024, it became clear that actors within the sector are willing to learn more about how NbS can be included in
their underwriting or investment strategies. It has also been mentioned that solutions or recommendations
about NbS should come from governments or public administrations. In this way, as identified and detailed in
the MERLIN Sectoral Strategy to be published in January 2025, the development of standards or tools could
help the insurance sector understand the risk reduction potential of NbS and how they can enhance the value
creating process.
Standards could take the form of criteria for restoration or the design of NbS that would guarantee a certain
risk reduction potential, allowing insurers to rely on such tools when underwriting policies where a specific NbS
has been implemented. To be relevant, this approach should always take into consideration the local
conditions and specificities of the restoration or NbS project, meaning a complete standardisation is difficult.
However, some recommendations on key areas of sectoral standard improvements can be made.
Enhancing Resilience through NbS Incentives
One of the primary improvements needed is the explicit inclusion of NbS as recognized risk mitigation
strategies within insurance policies. Based on the already existing requirement given in the EU Taxonomy for
insurance to offer incentives to policyholders who implement NbS, standards could help guide the insurer’s
analysis of the effective risk reduction observed by implementing these measures based on local conditions.
This approach would align with the EU Taxonomy's emphasis on sustainable activities and the Principles for
Sustainable Insurance (UNEP PSI), which encourage solutions for environmental, social, and governance (ESG)
issues (StandardsMap; UNEP FI).
Case Study Insights: Innovative Insurance and NbS
The Quintana Roo case study in Mexico highlights the successful use of parametric insurance to support coral
reef restoration, demonstrating how innovative insurance products can integrate NbS effectively. Parametric
insurance, which provides payouts based on predefined triggers, ensures rapid financial support for NbS
implementation following natural disasters. Similarly, the Prince Hendrik Sand Dyke Project in the Netherlands
showcases the combined implementation of NbS and innovative insurance policies (the Construction All Risks
insurance in this case). It not only safeguarded local natural habitats, but also demonstrated how insurance
can protect infrastructure and promote ecological health. By combining innovative insurance policies with NbS,
insurers can not only mitigate risks more effectively and reduce long-term loss ratio, but also develop new
markets of projects addressing complex environmental challenges. This model can be expanded and
standardized across the sector, emphasizing the role of NbS in reducing risks and promoting ecological health.
Leveraging Existing Standards for Broader Adoption
Existing standards such as the EU Organic Farming and GLOBAL GAP can serve as models for incorporating NbS
criteria. These standards already include practices that enhance resilience, such as crop rotation and
biodiversity protection. By adapting these standards to explicitly address the insurance sector, insurers can
better align their products with sustainable practices that reduce risk and support ecosystem services
(European Union; Global GAP).
Regulatory and Reporting Frameworks
Incorporating NbS into regulatory and reporting frameworks, such as the EU Taxonomy and the Global
Reporting Initiative (GRI), is crucial. The EU Taxonomy includes insurance activities such as reinsurance and
MERLIN in Key Economic Sectors | Page 47
underwriting of climate-related perils, which include the need to reward preventive NbS actions taken by
policyholders. Additionally, forthcoming insurance-specific standards from the GRI should explicitly address
sustainability aspects, ensuring comprehensive reporting on the environmental impact of insured activities (EU
Taxonomy; GRI).
Promoting Collaborative Efforts and Awareness
Finally, promoting collaborative efforts between insurers, regulators, and other stakeholders is essential.
Principle 2 of the UN PSI encourages raising awareness and developing solutions for ESG issues. Discussions
under this principle should explicitly include NbS as viable solutions for managing risks and enhancing
resilience. By fostering partnerships and increasing awareness, the insurance sector can play a pivotal role in
mainstreaming NbS (UNEP FI).
There is considerable potential for the sector to further incorporate NbS into their value chains, moving beyond
regulatory compliance to leverage the EU Taxonomy in addressing both environmental and societal challenges.
However, several preconditions must be met to mainstream these solutions effectively. For NbS to be fully
integrated into the insurance sector, standards need to evolve to explicitly recognise and incentivise such
approaches. By building on successful case studies, adapting existing standards, and strengthening regulatory
frameworks, the insurance industry can play a key role in enhancing environmental resilience and sustainability.
These advancements would not only reduce risks but also unlock new business opportunities while supporting
the long-term health of ecosystems and communities.
In conclusion, integrating NbS into the insurance sector requires the development and improvement of sectoral
standards that explicitly recognize and incentivize NbS in restoration projects. The limit of current standards
constitutes a timely opportunity and great potential for sectoral actors to explore NbS, as highlighted in
sectoral roundtables within MERLIN. By learning from successful case studies, such as those in Mexico and the
Netherlands, and leveraging existing standards like the EU Taxonomy and UN PSI, the insurance industry can
enhance its role in promoting environmental NbS. Evolving these existing standards will not only mitigate risks
but also open new markets and support sustainable development across ecosystems and communities.
MERLIN in Key Economic Sectors | Page 48
5 Peat-Extraction
Sector author: Alhassan Ibrahim
To be cited as:
Ibrahim, A. (2024) Peat Extraction. In Jianyu Chen, Kirsty Blackstock, Alhassan Ibrahim, Levin Scholl, Lea
Ilgeroth-Hiadzi, Audrey Vion Loisel, Marine Boulard, Milo Fiasconaro, Fanni Nyírő, Viviane Malveira Cavalcanti,
Sebastian Birk, Eva Hernandez Herrero. 2024. Value Chain Analysis in Key Economic Sectors. EU H2020 research
and innovation project MERLIN deliverable D4.4. pp. https://project-merlin.eu/outcomes/deliverables.html
5.1 Sectoral introduction
5.1.1 Key terms in the sector
5.1.2 NbS in peat-extraction
The peat extraction sector engaged in MERLIN argued that the sector plays a crucial role in both the economy
and the environment, particularly in the context of horticulture. However, as awareness of the environmental
impacts of peat extraction grows and international commitments such as the Paris Agreement, there is an
increasing focus on integrating NbS to mitigate these effects to realise the full potential of peatlands through
rewetting of peat extraction sites and application of sphagnum farming. NbS in peat extraction are often
implemented in the pre- and after-extraction phase, they involve leveraging ecosystem services to restore
degraded peatlands, enhance carbon sequestration, and improve biodiversity, thereby contributing to climate
mitigation and environmental resilience.
This study aims to qualitatively examine the peat extraction value chain and seeks to understand how NbS can
be integrated and scaled within the value chain to enhance its performance. The approach explores the
environmental footprint of peat extraction and its horticultural applications, assessing the Responsibly
Produced Peat (RPP) certification for its strengths and weaknesses in integrating Nature-based Solutions (NbS).
Diverse perspectives were considered, and the views expressed are solely those of the author, not representing
IPS or RPP stakeholders.
By analysing the value chain, the study identifies opportunities for connecting business sectors to NbS,
demonstrating that the implementation of NbS can yield commercial benefits that extend beyond mere social
responsibility or "green marketing". While peat remains a vital component in horticulture today, this analysis
acknowledges the importance of ongoing discussions about transitioning to more sustainable alternatives.
However, during the period in which peat continues to be used, there is a need to explore how NbS can be
integrated to mitigate environmental impacts. Hence, the analysis will highlight the potential for peat extraction
Peat extraction
refers to “the removal and drying of wet peat and the collection,
transport and storage of the dried product.” (Joosten & Clarke, 2002,
p. 48).
Responsibly Produced Peat (RPP)
is a voluntary certification scheme that ensures peat extraction and
production are conducted in an environmentally responsible and
sustainable manner. The RPP certification aims to minimize the
environmental impact of peat harvesting by adhering to strict
guidelines on biodiversity protection, carbon footprint reduction, and
the restoration of harvested peatlands. It provides assurance that
peat producers are following best practices in sustainable resource
management, contributing to the conservation of peatland
ecosystems (RPP, 2017).
MERLIN in Key Economic Sectors | Page 49
companies to innovate by adopting NbS, thereby improving sustainability and driving long-term development of
the sector. This value chain analysis will also explore how strategic integration of NbS can lead to stronger,
more resilient ecosystems while simultaneously benefiting the economic interests of stakeholders involved in
peat-extraction activities.
5.1.3 A sector at the edge
Peat extraction has a long history, dating back centuries when it was primarily used for domestic purposes
such as cooking and heating (Kitir et al., 2018; Wheeler, 1996). It was during the twentieth century that
commercial excavation of peat expanded significantly, driven by demands for fuel (especially electricity
generation) and horticulture, which includes decorative plants and food security (Hirschler & Osterburg, 2022).
Today, peat's most common use worldwide is in horticulture (although there is still energy use), where it
constitutes approximately 75% of all growing media and soil improvers for both professional and amateur
markets across Europe (Blok et al., 2019; Kekkilä-BVB, 2022). The preference of peat as a growing medium is
due to its favourable physical, chemical, and biological properties at a low cost compared to other materials
(Bos et al., 2011; Paoli et al., 2022). Despite ongoing exploration of new growing media ingredients, peat is
projected to remain the predominant component by 2050 (Blok et al., 2019).
The significance of the peat-extraction sector extends beyond its economic value, as it has profound
environmental implications. Peatlands play a crucial role in carbon sequestration and climate mitigation, yet
peat extraction can disrupt these functions, leading to increased carbon emissions (Alexander et al., 2008; Kitir
et al., 2018). Peatlands are also essential for protecting biodiversity and maintaining geochemical cycles, making
them ecosystems of exceptional conservation value (Mitchell et al., 2004). However, peatland drainage for
forestry, agriculture, and other commercial uses has resulted in substantial losses of European peatlands
(European Commission, 2020).
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Growing media component
2017 (Mm3 y-1)
2050 (Mm3 y-1)
Peat
40
80
Coir
11
46
Wood fibre
3
30
Bark
2
10
Compost
1
5
Perlite
1.5
10
Stone wool
0.9
4
Soils / tuffs
8
33
New
0
65
Total
67
283
52$%-&R'^,2K'&6'+,)'7<=(>?'
Despite the considerable environmental impacts, the growing consumer demand for peat in various sectors,
especially horticulture, highlight the ongoing need for this resource. Peat remains a vital ingredient as growing
medium, supporting the horticulture industry's growth, even as calls to conserve peatlands and prevent further
drainage intensify (Mitchell et al., 2004). While life-cycle analyses have highlighted the environmental impacts
of peat production and use (Paoli et al., 2022; Stichnothe, 2022), there has been limited exploration of how
diverse actors within the peat value chain can collaborate using industry standards to address these
environmental, social, and economic challenges.
To better understand the complexities of the peat-extraction sector, its environmental impacts and its value
creation process, the following section will undertake a detailed value chain mapping and analysis. The
objective is to identify key steps or activities within the value chain where improvements can be made,
particularly through the integration of NbS that could mitigate the environmental consequences of peat
extraction while enhancing the sector’s sustainability.
MERLIN in Key Economic Sectors | Page 50
5.2 Value chain of the peat-extraction sector: “before-” and “after-”
This section presents a graphical flowchart of peat production and use, (see Fig 7) highlighting the key steps
and activities involved in developing quality peat and delivering it to consumers. The after-extraction
restoration is considered as a notable advantage of this value chain analysis. The flowchart identifies key actors
for each activity, depicting the governance and institutional framework, and explains the socio-economic and
environmental values and impacts of each activity.
Rather than attempting to map a universal value chain suitable for every peat-related industry, this value chain
analysis of peat extraction focuses specifically on horticultural peat. The goal is to understand how NbS can be
integrated and mainstreamed within the value chain to enhance its performance. The peat value chain in the
horticulture industry varies by extraction company and EU country. For instance, some companies mix peat
with other ingredients before final product development, making the value chain non-linear. Klasmann-
Deilmann, a major peat extraction company in Europe, identifies activities such as extraction, transportation,
processing, mixing, dosing, packing, loading, and shipping (Gilke, 2018). Paoli et al. (2022) outline eight steps:
peat field preparation, extraction, transport to factory, refinement, packaging, distribution, use, and end-of-life.
These frameworks do not include the after-use step, they can be regrouped into five categories: (1) pre-
extraction processes, (2) extraction, (3) processing, (4) marketing, selling, and distribution, and (5) use in
growing media.
In addition, as mentioned above, a comprehensive analysis of the peat value chain must consider the after-use
phase, which involves (6) closing the peat extraction site and (7) implementing an after-use scenario. This
includes activities such as site aftercare, infrastructure removal, and determining the future use of the land,
significantly impacting environmental outcomes and land value.
In this analysis, the various steps and activities within the peat extraction value chain are reframed into three
distinct phases to better capture the operations and actors involved in the sector: pre-extraction and
extraction, processing to consumption, and after-use. However, it is important to note that these phases are
structured to aid understanding and do not fully reflect the complexity of real-world operations, as some
activities may occur simultaneously and do not necessarily follow the sequential order presented.
5.2.1 Analysis of Value Chain steps
Pre-production process: Before extraction, companies conduct research to assess site suitability, covering land
use, peat depth, water level, vegetation, environmental impact, and peat quality (Gilke, 2018a; Paoli et al., 2022).
Land rental agreements and environmental permits are secured (Neova Group, 2022a, 2022b).
Pre-extraction and extraction:
à Pre-extraction: This preparation phase involves two main categories of activities. The first
category includes desk-based tasks, such as conducting field research, planning the site
layout, developing post-extraction land-use plans, and applying for necessary exploitation
permits and licenses. The second category involves on-site activities, including constructing
access roads, draining bogs, and clearing vegetation. These tasks are essential to prepare the
site for peat extraction. These activities ensure that the site is ready for extracting peats. Key
actors include extraction firms, environmental agencies, certification bodies, and landowners
(Bos et al., 2011; Kapetaki et al., 2021; Lukjanova et al., 2020).
à Peat Extraction: This phase involves the actual harvesting of peat using specialized machinery.
This step is implemented by the extraction firms.
From processing to consumption:
à Processing: Harvested peat is transported to processing plants, conditioned, mixed with other
ingredients, and packaged. Transport can be by train, truck, or ship, with processing possibly
occurring in a different country (Gilke, 2018b; Paoli et al., 2022).
à Marketing, Selling, and Distribution: Peat is distributed to wholesalers and retailers via inland
water, rail, or road transport. Key actors include logistic operators, haulers, supermarkets,
international suppliers, and distributors (Koseoglu et al., 2023; IndexBox, 2021).
à Use of Peat as Growing Media: Peat is used for indoor or open-field horticulture by farmers,
professional growers, amateur gardeners, and the general public. The largest consumers in the
MERLIN in Key Economic Sectors | Page 51
EU are Finland, Germany, and Sweden (Growing Media Europe, 2021; Koseoglu et al., 2023;
IndexBox, 2021).
After-use restoration:
à Closing the Peat Extraction Site: Before extraction ceases, a decision is made on closing the
site and its after-use. This involves aftercare of the site, including removing infrastructure and
clearing the area (Peronius, 2023). The land is then handed over to the landowner, who
decides on its after-use (Ibrahim & Nyírő, 2023; Neova Group, 2022b)
à Implementing After-Use Scenario: Depending on various factors, the site may be restored to a
wet or revegetated ecosystem, cultivated for food, or other plantation such as forestry and
grassland, used for renewable energy, or abandoned. Restoration is prioritized in many
European countries (Klasmann-Deilmann Group, 2021; Neova Group, 2022a, 2022b; Priede &
Gancone, 2019). After-use scenarios like rewetting and revegetation offer key ecosystem
benefits, including biodiversity recovery and carbon sequestration. These efforts support the
gradual phase-out of peat extraction and the restoration of degraded peatlands.
The value chain involves various actors at different steps, all contributing to the overall value of peat products.
Producers add value through field preparation; processors manufacture growing media for domestic and
commercial horticulture use. There is also an increasing export component for both bulk milled peat and
processed peat-containing growing media (stakeholder 31A). The production flow outlines the journey from peat
extraction to final use, while cash flow traces the monetary transactions at each step. Through in-depth
research, desk reviews, and discussions with experts, this study identifies how NbS can be incorporated into
the peat value chain, aiming to connect business sectors to NbS for both commercial benefits and
environmental sustainability.
MERLIN in Key Economic Sectors | Page 52
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MERLIN in Key Economic Sectors | Page 53
5.2.2 Overall values and environmental Impact
Even though in recent times, peat extraction occurs mostly on degraded peatlands with less environmental
values, the extraction still has negative environmental impacts (Foundation Responsibly Produced Peat, 2021).
Overall, the environmental footprint of extracting, processing and using peat as growing medium is
characterised by direct emissions, chemical pollution, reduction of wildlife habitat, loss of biodiversity, and
disruption of water systems (Paoli et al., 2022; Räsänen et al., 2023; Stichnothe, 2022), particularly if the land is
not managed responsibly before and during extraction, and restored afterwards.
In terms of positive economic and social impacts, the horticulture industry, which uses the peat employs over
550,000 people in Europe and helps provide quality growing media to support food productivity and good
quality ornamental plants (Kekkilä-BVB, 2022). The after-use stage can also either positively or negatively
affect the environment depending on the after-use option implemented and the conditions involved.
Therefore, the net environmental impact and values depend on a range of factors, including the location and
size of the peat extraction, yield, peat density and restoration measures taken. The sector's shift towards
sustainability, including restoration efforts, is crucial in mitigating the negative impacts and ensuring
environmental protection across the value chain, while harnessing the positive benefits of a sustainable supply
chain. The following analysis outlines the potential environmental impacts of all the value chain steps (More
specific analysis is available in the annexe).
à Pre-production process: This is the first stage to ensure that peat production is regulated,
covering the entire value chain process. The possible value of the initial research is that it
provides knowledge about the peatland and its ecosystems, including soil and water
conditions (King, 2022). No specific negative environmental impact was identified for this
stage.
à Peat extraction: Activities such as field preparation, extraction, and the transportation of raw
peat to processing facilities contribute significantly to emissions, largely due to the use of
diesel-powered machinery (Paoli et al., 2022). This leads to adverse effects on human health,
climate change, ecosystem degradation, and resource utilization. Moreover, the extraction
leads to chemical pollution through nutrient runoff, heavy metals, organic pollutants,
acidification, greenhouse gas emissions, and the use of pesticides, adversely affecting
ecosystems and water quality (Baird et al., 2011; Hoffman et al., 2018; Waddington et al., 2015).
Finally, the raw peat that is taken from the bog may never or take centuries to return
(Stichnothe, 2022). In terms of value, this stage provides the raw peat for processing, although
there is no direct benefit to the environment at this stage, but only environmental damages.
à Processing: This stage helps to increase the value of the raw peat by removing contaminants
such as silt particles, excess nutrients and heavy metals (Cao et al., 2017; Tóth et al., 2018;
Harrison et al., 2014) and unwanted peat materials. Mixing with other ingredients increase the
quality based on existing quality standards (e.g. RHP) and customer specification. However,
this stage can lead to emissions as well as release of effluents.
à Marketing, selling and distribution: In this stage, transportation emerges as a critical phase
with substantial environmental implications, predominantly emissions-related, influenced by
the mode of transport and the distances covered (KPMG Oy Ab, 2022; Stichnothe, 2022). This
stage is highlighted as a significant contributor to climate impacts given the prevalent use of
road transport for distribution in certain scenarios (Paoli et al., 2022). However, it is also an
important phase to ensure the peat reaches wholesalers and retailers. Some of the actors,
particularly wholesalers in this stage are concerned about environmental impacts of peat
extraction and have called for peat alternatives and responsible production, which the sector
seems to be embracing (Atzori et al., 2021; Kitir et al., 2018; Koseoglu et al., 2023) The
involvement of peat extraction companies in these stages presents an opportunity for these
entities to support restoration initiatives, aligning with a broader industry shift towards
sustainable practices and the exploration of alternatives.
à Use of peat in growing media: The use of peat, primarily in horticulture, has its own set of
environmental challenges, including emissions from the oxidation of peat (Paoli et al., 2022),
contributing to climate change and potential harm to natural ecosystems even if that is
negligible (KPMG Oy Ab, 2022). However, use of peat is linked with enhancing food security as
it is the best growing media ingredient for mushroom production (Growing Media Europe,
2021). Other values include aesthetics, pollution sequestration, water filtration and heat
mitigation (Growing Media Europe, 2021).
MERLIN in Key Economic Sectors | Page 54
à Closing the peat extraction site: this operation helps to clear the site of all equipment,
machinery and other contaminants.
à Implementing after-use scenario: The actual value and environmental impacts in this stage
will depend on the type of after-use measures and their outcome (Räsänen et al., 2023).
o Restoration using rewetting can enhance biodiversity, regulate the water cycle, and
support carbon sequestration (Priede & Gancone, 2019). However, excessive rewetting
can lead to methane emissions, so an optimal approach involves balancing rewetting
and revegetation. This can include the application of sphagnum moss to boost both
sequestration and biodiversity (Seggern, 2023; Short, 2013), while also providing
spaces for recreation. On a larger scale, restoration efforts at peat extraction sites
could explore payment for ecosystem services, such as carbon credits, as seen in the
‘Valuta voor Veen’ (‘Currency for Peat’) scheme in the Netherlands. However, further
research is needed to determine how to implement such a market, particularly since
after-use is required as part of license or permit conditions. Additional ecosystem
services would need to be demonstrated to justify the investment in these schemes.
o Cultivation & plantation is particularly strong in provisioning services such as food
production when the site is used for agriculture or paludiculture, while afforestation
can help sequester carbon and air purification (Priede & Gancone, 2019). However,
biodiversity outcome of this scenario is often low.
o Renewable energy using solar and wind panels support supply of energy with minimal
environmental impacts (Bord and Móna, 2015). While the long-term impacts are not
fully reported, using solar panels and wind farms can also create impacts on peatland
hydrology and contribute to emissions (Chico et al., 2023).
o Abandoning the peatland without a restoration measure creates conditions for carbon
and methane emissions (Rankin et al., 2018). Although spontaneous vegetation
following abandonment may provide biodiversity (Räsänen et al., 2023), there is also a
considerable chance of invasive species emerging on the peatland (Rankin et al.,
2018).
In summary, environmental impacts associated with the peat value chain, such as emissions and freshwater
ecosystem degradation, have led to pressure to stop the sale of peat products and adopt alternative growing
media (Kekkilä-BVB, 2022; Kitir et al., 2018; Koseoglu et al., 2023). For example, some supermarkets have
directed growers to reduce peat use (Kitir et al., 2018). Halting peat use could affect food production due to the
unavailability of peat as a growing medium and could impact economic activities, including employment in the
sector (Ibrahim et al., 2022).
These concerns highlight the need to balance the demand for peat in horticulture with preserving
environmental integrity. The Dutch Covenant on the Environmental Impact of Potting Soil and Substrates (2022)
emphasizes the urgency for responsible approaches, including integrating NbS through restoration to address
environmental concerns while ensuring the horticulture industry's supply chain sustainability.
Given the significant repercussions across the peat extraction industry, the value chain problem is considered
as a whole-value-chain problem. This categorization underscores the challenge's pervasive nature, affecting
various stages of the value chain from production to end-use. Recognizing the problem at this level highlights
the necessity for comprehensive and integrated solutions that address environmental and operational facets
across the entire value chain.
5.3 Integrating NbS in peat-extraction value chain
As mentioned in the beginning of this section, NbS in the peat extraction sector means leveraging ecosystem
services to restore degraded peatlands, enhance carbon sequestration, and improve biodiversity, thereby
contributing to climate mitigation and environmental resilience. This section presents a case study on how NbS
addressed value chain problems related to peat substrates. The focus is on the Foundation Responsibly
Produced Peat (RPP), which runs a voluntary certification scheme in Europe to ensure responsible peat
extraction and after-use practices. Leading horticulture companies in Europe adopt RPP’s approach to ensure
responsible practices throughout their value chains (Peters & von Unger, 2017).
MERLIN in Key Economic Sectors | Page 55
5.3.1 Context of the selected case study
The sector's use of NbS primarily occurs in steps 1 (pre-extraction), 6 (closing peat extraction sites), and 7
(after-use), with limited focus on marketing, selling, distribution, and end-use. Operating across Europe, RPP
has certified locations in Germany, Sweden, Finland, Polan, Latvia, Estonia, and Lithuania. Apart from banning
peat harvesting in high environmental value peatlands, RPP also focuses on NbS such as rewetting and
revegetation after the extraction to enhance biodiversity and sequester carbon. Companies such as Bord and
Móna (2015) and Neova Group (2022b) highlight in their sustainability reports their intention to use NbS to
address environmental and biodiversity challenges throughout the value chain. While the case study does not
show specific NbS implementations, it underscores the potential for such measures.
RPP is a collaboration of scientists, NGOs, and peat extraction companies, aiming to protect pristine peatlands
and ensure responsible use of extraction sites (Klasmann-Deilmann Group, 2021). The certification addresses
value chain challenges by promoting awareness of peatlands' biodiversity and climate mitigation potential. It
aims to counter negative perceptions and calls for peat extraction bans by reducing environmental impacts.
Recognizing peat as a crucial constituent for growing media, RPP emphasizes responsible production to
minimize environmental risks. Supported by the Dutch Covenant on the Environmental Impact of Potting Soil
and Substrates (2022), which calls for all peat containing substrates to be certified by 2025, RPP focuses on
preventing extraction from peatlands with High Conservation Values and prioritizing extraction from degraded
peatlands followed by restoration. RPP uses a chain of custody system, allowing some mixing of certified and
non-certified peat while aiming for full certification (Foundation Responsibly Produced Peat, 2018). The
following sub-section shows how the RPP certification is delivered with the integration of NbS.
5.3.2 Responsibly Produced Peat Certification
Value additions offered by the RPP certification
There are several benefits (value additions) to the peat extraction companies who receive RPP-certification:
à Involvement of environmental NGOs: several peat extraction companies and authorities help
increase the credibility and trust in the peat as promoted by the Dutch Covenant on the
Environmental Impact of Potting Soil and Substrates (The Parties, 2022)
à Certification promotes societal acceptance of peat extraction and use of peat in growing
media, where no viable alternative growing media are available (Foundation Responsibly
Produced Peat, n.d.).
à The certification process increases awareness of responsible production of peat, which
minimises the environmental impact and potential to prioritise peatland restoration as the
best after-use option.
à If the certification is able to guarantee responsible production, it can ensure peat is available
to meet the essential need of growing media and support food availability.
à Overall, the RPP-certification can help build the reputation of the peat extraction companies.
Therefore, the RPP process could enhance the value chain governance due to increased stakeholder
partnership and cooperation, particularly communication between peat extraction companies and buyers of
peat to raise awareness of the environmental challenges and the roles of all stakeholders in the chain.
Governance of RPP-certification
Presently, the RPP Certification is supported by diverse stakeholders, including scientists, peat extraction
companies certified by the RPP scheme, growing media producers and environmental NGOs, including Wetland
International and Estonian Fund for Nature5. The certification scheme is governed by multiple actors through
the Board, the Committee of Experts, executive team and independent experts.
à The Board with representatives from the Growing Media Producers Association, Environmental
NGOs (e.g. Wetlands International), and National Peat Associations (e.g. Latvia Peat
5 https://www.responsiblyproducedpeat.org/en/who-we-are
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Association) makes the final decision on granting RPP certificate and supervises the Executive
team.
à The Committee of Experts comprises members from peat production companies, scientific
research institutions, International Peatland Society (IPS), certification experts and peatland
and ecological restoration experts. They manage the certification scheme (development and
assessment) and advise the Board.
à The Executive team runs the daily aspects of the foundation, including certification and
supports the Board with strategic planning and development of the scheme.
à The Independent inspectors, who are qualified peatland experts assess peat extraction sites,
to ensure they comply with the RPP Principles and criteria. These criteria cover aspects of
legality, site selection, production, management and after-use implementation.
To strengthen the certification, a coalition of the Dutch Government Agencies, the horticulture sector (including
growing media businesses) and NGOs signed an agreement (known as the Dutch Covenant) in 2022 with the
aim to reduce the environmental impacts of growing media.6 One key attribute of the agreement is that all
entrepreneurs use only RPP-certified peat or equivalent by 2025 (Foundation Responsibly Produced Peat,
2022).7
Presently, an increasing number of peat extraction companies have received the RPP certification, and growing
media producers have joined the Chain of Custody, the system that controls the volumes of certified peat
brought into the market. These companies are listed on the RPP website under ‘peat producers’ and ‘peat
users’, which allows potential buyers of RPP-certified peat to easily find the companies.8 These growing media
producing companies can apply the RPP label to their products.
Restoration through NbS framework under RPP
The RPP certification aims to protect peatland biodiversity, safeguard the environment and support restoration
efforts to improve peatland conditions. For instance, the certification promotes peat extraction only in highly
degraded peatland areas and ensures that extraction does not occur on pristine peatlands or negatively impact
surrounding areas with significant natural values. Moreover, the certification requires rehabilitation, restoration
or rewetting measures as preferred 'after-use' option when peat extraction on the site ceases. The first RPP-
Certified area to enter the after-use phase (Value chain step 7)) was Budwity from AGARIS. For this location,
the licensing required a reclamation, leading to restoration of the peat extraction site.9 The reclamation was
then undertaken and approved by responsible authorities.
6 https://www.devpn.nl/in-de-media/brede-maatschappelijke-coalitie/
7 https://www.responsiblyproducedpeat.org/en/what-we-do
8 https://www.responsiblyproducedpeat.org/en/rpp-registered-companies
9 https://www.responsiblyproducedpeat.org/en/budwity-is-the-first-rpp-certified-location-that-entered-the-after-use-
phase
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Hence, the RPP’s measures in step 7 of the value chain could be considered as a NbS per the IUCN NbS criteria
(see definitions) since it is an action to restore nature. However, there are nuances and variation when
compared with each criterion of the IUCN Global Standard for NbS. This section briefly assesses the extent to
which RPP certification support for restoration leads to NbS and the corresponding value chain steps where
these could occur:
à NbS effectively address societal challenges: The restoration of peatlands following extraction
(step 7) through the RPP focuses on climate mitigation by addressing peatland degradation
and carbon emissions. The main targeted benefit is carbon sequestration.
à NbS is designed and implemented across scale: Presently, designing the restoration (step 1)
and the actual implementation (step 7) is based on the site certified for peat extraction.
Therefore, restoration beyond the extraction site and cross-sectoral consideration is not clear
in the RPP approach. However, there is ongoing exploration of how the peat extraction sector
could support large-scale restoration.
à NbS leads to biodiversity net gain: While regulations for the after-use of peat extraction sites
vary between different countries, RPP requires that the condition of the peatland after
extraction (step 6 & 7) is better than that before extraction by undertaking restoration
measures or maintaining the wetness of the peatland to ensure biodiversity net gain. An
example is sphagnum-farming, which can keep the land wet while remaining productive.
However, the preferred biodiversity type, and whether native species are preferred or not is
not specified.
à NbS is economically viable: Funding model and its feasibility for restoration is not clearly
detailed under the RPP, but the responsibility usually lies with the individual companies with
guidance from RPP.
à NbS is inclusive and transparent: RPP requires that selection of sites for peat extraction (step
1) and undertaking of after-use, whether or not restoration, (step 6 & 7)) goes through
consultation with stakeholders, including local authorities, environmental NGOs and local
communities.
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à NbS is managed adaptively: It is not clear how restored peatlands following extraction can be
maintained and adapted to changing circumstances.
à NbS equitably balances trade-offs: While the actual trade-offs involved are not mentioned
explicitly the decision on selecting a site for extraction and the after-use option will need to
balance the interests of different stakeholders particularly landowners, focusing on whether
the land should be used for peatland restoration to enhance biodiversity and sequester
carbon or for cultivation.
à NbS sustainable and mainstreamed: The selection of sites for peat extraction (step 1) needs
to comply with Member State regulations and EU Directives. Thus, for a company to receive
RPP certification, they should have a “valid license for extraction and land rental or
ownership”. Moreover, RPP is recognised across Europe and their framework is being
mainstreamed through the Dutch Covenant on the Environmental Impact of Potting Soil and
Substrates (2022). However, how lessons learned from the restoration of peat extraction sites
help to support implementation of large-scale landscape restoration is unclear.
5.4 Review of sectoral standards
This section reviews standards associated with peat production, typically adopted on a voluntary basis but
potentially evolving into mandatory requirements. In the peat extraction sector or growing media industry,
certain processing facilities and sites require certification to meet quality standards and prevent contamination
(Gilke, 2018; Paoli et al., 2022). The ultimate goal is to produce high-quality peat or peat-containing products
that are reliable, consistent, available, and have the lowest possible carbon footprint. Some standards also
mandate minimizing the carbon footprint of the processes involved.
The objectives of this section are to provide a thorough understanding of how current industry standards within
the peat extraction sector support freshwater ecosystem restoration and the implementation of Nature-based
Solutions (NbS), to ascertain how these standards can guide practices towards the adoption of NbS and
freshwater ecosystem restoration, and to identify and discuss potential improvements needed to enhance the
effectiveness of these standards in promoting the uptake of NbS within sectoral value chains.
In the previous section, the RPP (Responsible Peatland Practices) certification was used as a case study to
assess how certification could support and promote NbS and associated value additions. This section will
review and compare additional standards alongside the RPP to identify similarities, differences, associated
value chain steps, and alignment with NbS based on specific criteria. This comparative analysis will help
elucidate how standards can better support sustainable practices and freshwater ecosystem restoration in the
peat production sector.
5.4.1 Brief description of standards and their focus
Standards retrieved from the ITC
à GLOBALG.A.P. Crops (The GLOBALG.A.P. Integrated Farm Assurance (IFA) Standard): The main
sectors are the agriculture and Floriculture & Horticulture, covering the production and
manufacturing stages of the value chain. The standard is about responsible farming practices.
Their impact areas include food safety, environmental sustainability and production process.
Although it mentions fertiliser and bio stimulants as part of its core topics in the impact
areas, there is no direct mention of the use of horticultural peat or other growing media in
their supply chain.
à Naturland Standards on Production is about organic agriculture and enhancing quality of
organic food productions while protecting the environment (Naturland, 2023). In terms of a
link with peat, it stresses that ‘extensive use of peat” for soil improvement is not permitted
and should be kept to a minimum. However, the peat composition can be 80% maximum
when used in seedling cultivation. However, the standard does not say anything specifically
about responsible production of peat used as part of soil enhancement substances.
à Naturland Fair: This standard is associated with the Naturland standards and concerns a fair
trading of Naturland certified organic products through enhanced networking between actors
in the value chain to enhance economic sustainability. Therefore, it does not mention anything
about use of peat or a direct relation with restoration.
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à Sustainably Grown: Among all the standards from the ITC, this is the most explicit when it
comes to the role of peat products. Their aim is to promote sustainable futures, covering
several industries including climate change, food safety, responsibly sourcing and sustainable
agriculture. Under their ‘Responsibly Source’ service, they have “Responsibly Managed
Peatlands” and “Carbon Footprint Calculation”. The “Responsibly Managed Peatlands” is a
Veriflora certification scheme aiming to provide a “third-party assurance for responsible peat
moss production” by certifying companies that minimise negative impacts on the environment
and enhance welfare of communities10. Its scope covers peatland-related issues, including
preparing and opening of peat bog, extraction, restoration and rehabilitation activities.
à EU Organic Farming: Concerns the Regulation (EU) 2018/848 and lays down the principles and
rules of organic production. Its value-chain focuses are mainly on production, manufacturing
and distribution. The main area where the peat extraction sector may be relevant is that in
producing organic mushrooms, no chemically treated peat product as a substrate is
permitted. It also mentions that only ‘organically produced substrate’ (or 5% or non-organic
from December 31, 2023 can be used for producing organic yeast (https://eur-
lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32018R0848). This shows that peat is
remotely associated with this standard. In particular, it does not mention anything about
restoration of peatlands following extraction.
à ISCC EU (The International Sustainability and Carbon Certification): The aim of this standard is
to reduce greenhouse gas emissions through the entire supply chain. Three core areas of
focus are deforestation, circular economy and bioeconomy. This is covered by the EU
Renewable Energy Directive, aiming to analyse of GHG in biofuels. However, peat is not one of
the products covered under this standard, hence, less relevance to restoration. This omission
is significant, considering the extensive areas of degraded peatlands are in need of restoration
(For example, in Finland, the area of extracted peatland is approximately 100,000 hectares).
The inclusion of peatland restoration, especially in the context of carbon capture and storage,
would align with the standard's goals of reducing greenhouse gas emissions and enhancing
sustainability in bioeconomy practices.
Standards identified based on further review and engagement with the sector stakeholders
à Responsibly Produced Peat (RPP) Certification: As shown in Section 1.4 this has a specific
focus on responsible production of peat. Therefore, its main aim is to ensure that peat
extraction does not occur on peatlands of high conservation value, and that restoration will be
undertaken following extraction.
à RHP: RHP is a quality standard that covers the growing media industry, in which peat is
included. Its processes include undertaking a series of tests – e.g. for weeds, insects,
pathogens etc. – to ensure the growing media is clean and safe. Therefore, the RHP, while
relevant for the development of quality peat, does not address any issues concerning
restoration or environmental impacts of the value chain.
à Horticert: This is a certification system which aims to support the development of peat
substitutes using organic and mineral materials in an ecological, social and economic friendly
manner. These materials include coconut, green compost, wood fibre and minerals. It
therefore hopes that with the development of alternatives, peatlands can be protected.
However, it does not have a direct connection with the responsible production of peat,
including restoration of peatlands.
5.4.2 Analysis of standards alignment with Nature-based Solutions for the sector
Apart from RPP and Veriflora certification, none of the above standards have a direct link with production and
use of peat and restoration of peat extraction sites. For instance, Horticert is about developing alternatives,
while Naturland Standards on Production focuses on organic farming and restriction on the amount of peat
that can be used. Therefore, further analysis in this section will focus on RPP and Veriflora to assess the
extent of their support for Nature-based Solutions based on the identified criteria. Both standards are selected
because they are most ambitious in terms of restoration of peatlands following extraction. Table 3 assesses
key attributes of both standards, in terms of their similarities, differences, support for restoration and
responsibilities.
10 https://www.scsglobalservices.com/services/responsibly-managed-peatlands
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Criteria assessed
Comparative analyses
Similarities
Both promote responsible peat production for horticultural use, and explicitly
promote restoration and rehabilitation and preferred after-use.
Both are voluntary standards.
Main value chain stages covered are pre-production (VC 1), extraction (VC2) and
rehabilitation and restoration (VC7).11
Both standards provide labelling for certified products.
Differences
Veriflora mostly operates in Canada and USA (although it claims to be a global
standard), while RPP operates in Europe
Veriflora includes quality and fair labour practices, RPP does not.
Veriflora provides specific timelines in implementing requirements, while RPP is
generic focusing mainly on value chain stages.
RPP reaches to other actors beyond the peat production companies, while Veriflora’s
main users are the peat producers.
Requirement for
restoration and
conditions
Both standards require restoration as part of after-use depending on site, national
regulation and land ownership conditions.
Certified companies do not have restoration responsibility during the periods of peat
extraction which can take many years.
Responsibilities
RPP’s responsibilities for pre-production and after-use measures are assigned to the
peat extraction companies, certain labelling responsibilities are assigned to other
actors like traders, retailers, and other growing media companies who do not extract
peat. This includes applying labelling of raw peat based on specified rules and
documenting their sources.
Veriflora responsibilities are mostly assigned to the peat production companies.
These include adopting responsible production, including restoration, managing and
protecting the ecosystem and traceability of certified peat.
5.4.3 Assessment of criteria important for NbS and ecosystem restoration
Table 5 summarises water, biodiversity and climate sustainability issues relevant in NbS across both standards.
Generally, the RPP does not address separate water, biodiversity and climate concerns in detail. These are
however integrated in the three key value chain steps: Step 1 Pre-extraction (covering legality and site
selection); Step 2 Extraction and Step 7 After-use (Foundation Responsibly Produced Peat, 2021). While
Veriflora does not have a separate topic on climate, it addresses water issues under water quality management
and drainage, and biodiversity under ecosystem management and protection. The climate issues come under
resource conservation and energy efficiency.
Water: Both standards cover developing water quality management plans and undertaking measures to address
impacts on surrounding waterbodies. Veriflora insists on developing buffer zones and tracking contamination
sources, while RPP mostly requires this to be done through an Environmental Impact Assessment and
compliance with relevant EU directives, including the Water Framework Directive.
Biodiversity: In the RPP, the Environmental Impact Assessment (EIA) must map biotope types, assess species,
and only certify areas without high biodiversity value. Restoration should be prioritised when natural peat-
accumulating conditions allow, minimise impacts on special protected species, prohibit site selection near high
biodiversity value, develop rehabilitation plans, and maintain ecologically valuable areas.
Climate: Both standards require companies to state emissions inventory, expected GHG emissions from
extraction, reduction of emissions during extraction and promote climate mitigation measures. However, the
RPP does not specifically mention increasing carbon sequestration during production processes.
11 In Veriflora the terms used are opening, harvesting, and restoration or rehabilitation.
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Focus
RPP
Veriflora
Water
Doesn’t mention drainage during extraction,
but prioritise peatlands already drained.
Rewetting preferred after-use when feasible
(VC7)
EIA must assess minimise negative off-site
impacts on hydrology of adjacent areas (VC
1)
EIA must assess and take measures to
minimise negative off-site impacts on water
quality and flood (VC 1)
Requires water quality management plans
which consider the surrounding wetland
environment.
Requires concrete measures including
buffer zones to address impacts on water
quality during operation.
Requires creation of buffer zones around
waterbodies and must be effective in
protecting water quality.
Requires regular monitoring of measures to
protect water bodies and quality.
Companies need to track source of
contamination and minimise impacts on
water.
Biodiversity
EIA must map biotope types and assess
fauna and other species (VC 1)
Only certifies areas without high biodiversity
value (VC 1)
Prioritise restoration when returning to
natural peat-accumulating situation is
possible (VC7)
Requires EIA or quick scan to minimise
impacts on special protected species
Prohibit selecting sites adjacent to areas of
high biodiversity value if the impact on these
sites cannot be mitigated
Clearly prohibits extraction on areas of HCV
Doesn’t mention assessment of net-gain in
biodiversity but requires after-use
conditions to be better than before.
Requires companies to develop
rehabilitation and restoration plans.
Requires restoration or sphagnum farming
after extraction ceases with targets for
vegetation species.
Requires producers to maintain areas of
high-ecological values (HCV) within the
extraction sites.
Clearly prohibits extraction on areas of HCV
Climate
Requires EIA to state expected GHG
emissions from extraction.
Requires reduction of emissions during
extraction (VC2) on-site and off-site.
Requires prevention of uncontrolled
emissions
Doesn’t mention restoration leading to
carbon sequestration.
Promotes implementing climate mitigation
measures when full restoration is not
possible.
Companies to conduct baseline inventory
and set targets for reducing emissions
during operation
Require procedures to monitor air quality
during operation.
Companies to adopt an approach to
increase carbon sequestration during
production processes, including maintaining
wetlands and buffer zones.
Note: Other IUCN NbS criteria such as inclusivity, economic viability and designing at scale not accessed to
keep it simple.
5.4.4 Value chain coordination to promote or mandate ecosystem restoration or NbS.
Generally, both standards are explicit on their preference for restoration or rehabilitation to return peat
extraction sites to a condition better than before extraction took place. However, in terms of value chain
coordination for NbS, both standards do not adopt a whole of value chain approach in supporting restoration.
The standards mostly focus on the peat extraction companies as opposed to other actors within the value
chain. While the current industry perspective focuses on peat as a necessary resource, it is crucial that the
sector aligns with broader EU sustainability goals, including carbon neutrality and biodiversity restoration.
Future peat use must increasingly focus on alternatives and responsible restoration practices.
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RPP Value chain coordination:
The RPP separates the value chain in two, comprising Business Cycle and Supply Chain. Business Cycle covers
value chain steps 1 (Pre-duction process covering site selection, After-use plans and Permit acquisition), 2
(Peat extraction), 6 (Closing of sites) & 7 (After-use). Supply Chain covers value chain steps 2 (Peat extraction),
3 (Processing to produce growing media), 4 (Marketing, Selling & Distribution) and 5 (End-use).
In the RPP, the coordination for restoration mainly occurs in the Business Cycle. The RPP is clear that they
"cannot prescribe the behaviour of other than individual companies such as the industry as a whole or
government" (Foundation Responsibly Produced Peat, 2021, p. 4). This has the following implications:
à Certified peat extraction companies are main actors responsible for undertaking responsible
production and restoration of the peat extraction sites once extraction ceases.
à The only role of other actors in the supply chain, such as growing media companies, retailers
and traders, concerns documentation and labelling of certified peats. Hence, such actors do
not have direct role to play in terms of restoration of peat extraction sites following
restoration. However, their role could help ensure that responsibly sourced peat is available
on the market.
à While the certification requires companies to undertake stakeholder consultation in selecting
sites and undertaking after-use, it does not specify the role of mediating actors such as
public authorities, landowners and conservation agencies in facilitating restoration.
à Since the focus is only on the business cycle, the environmental impacts (e.g. emissions) from
the use of peat and role of actors in reducing that are not covered by the standard.
Veriflora value chain coordination:
Veriflora applies to the peat extraction companies (producers), covering site selection, extraction and
restoration or rehabilitation. The companies’ role also covers processing and trading of the peat products, up to
the point that the company does not own the peat. Therefore, the following coordination responsibilities can be
made:
à The standard does not specifically mention who the specific actors within the supply chain
are apart from the companies who produce peat.
à Hence, mediating actors such as local governments, landowners and traders do not have any
obligation whether for restoration or ensuring appropriate trading of certified peat on the
market.
à Companies are required to engage with stakeholders such as local communities, regional
authorities and other experts.
à Similar to the RPP, the environmental impacts (e.g. emissions) from the use of peat and role
of actors in reducing that are not covered by the standard.
5.5 Proposition for sectoral standards improvement
The standards analysed (RPP and Veriflora) aim to ensure the practical operations of site selection, peat
extraction, process and after-use are of the highest standards, and promote restoration and reduction of
emissions. However, there are other areas of the standards that could be enhanced to better promote
restoration throughout the entire value chain. The following propositions are made based on the findings from
sections 5.4.1 – 5.4.4.
à Currently, while the RPP chain of custody encourages RPP registered companies (with RPP
certified locations) to certify all their locations, companies can extract peat from certified
peat extraction site and non-certified sites once certain strict conditions are met (e.g. legality,
separation of peat from certified sites from non-certified sites, undertaking appropriate after-
use on the non-certified sites etc.). This means that RPP still has not achieved its target of
MERLIN in Key Economic Sectors | Page 63
having 100% of peat certified. Hence, the standards could ensure certified companies
extracting peat only from certified sources.
à The standards are voluntary, which implies that non-certified companies may still be
operating under different conditions that may not promote freshwater restoration. Therefore,
both standards could expand their coverage to cover all peat production companies to ensure
there is 100% certification of all peat products. However, this will need support of relevant
governments and other actors to ensure compliance by all companies as done by the Dutch
Government with the introduction of the Covenant on the Environmental Impact of Potting
Soil and Substrates.
à While the standards aim to reduce emissions, the nature and quality of the peat itself is not
subject to standardisation. This means that emissions from the use of the peat and the role
of actors in reducing it are not covered. Other standards focusing on quality and use of
growing media such as RHP standard, Naturland Standards on Production, EU Organic
Farming, ISCC EU, could support RPP and Veriflora in tracking the environmental impacts
covering peat and other growing media ingredients. However, evident from the analysis, these
standards lay little emphasis on peat despite peat being the most dominant ingredient in all
growing media.
à RPP and Veriflora could engage other standards mentioned above to facilitate the tracing of
peat use and require peat users and traders to support restoration whether on the peat
extraction sites or sites of use (e.g. farms) to atone for the emissions during usage. The
engagement with such actors could also help to address the challenges involved with the
varying physical, chemical and biological properties of peat at different levels within a peat
profile. It could also offer accurate information on the nature of peat in the peat-containing
products purchased within the value chain.
à Provision of clear information on the role of peat extraction companies in supporting large-
scale restoration beyond the peat extraction sites to atone for the on-site and off-site
environmental impacts (on surface/ground water, emissions & biodiversity) during the period
of peat extraction. This is important because peat extraction on a single site takes a long-time
(decades), and after-use can only occur once extraction ceases. Hence, it might not be
sensible to wait for such long duration before the environmental impacts can be
compensated.
à To enable RPP to implement the above recommendations, an enabling policy environment at
the higher level is needed, because RPP’s roles is on the peat extraction level that could
support transition to more sustainable growing media. Thus RPP must be complemented by
robust regulatory frameworks and enforcement mechanisms to ensure meaningful
environmental outcomes. EU policies should require peat in growing media to be certified,
produced responsibly and set standards on addressing the environmental impacts during and
after production of peat. Moreover, a European level agreement reached through collaboration
with different actors in the value chain, policy makers, scientists and environmental
organizations could help support the RPP to achieve this goal. Other States could draw on the
model adopted by the Dutch Covenant on the Environmental Impact of Potting Soil and
Substrates to draw a clear policy direction on use of peat and procedures to undertaking
large-scale restoration. A stronger focus on restoration and peatland alternatives is essential
to achieving long-term sustainability. The role of the EU Restoration Law could be explored.
This analysis explored the value chain of peat use in growing media by the horticulture industry to identify their
environmental impacts and possible role of NbS in addressing the impacts. Exploring the existing standards
helped to identify the windows of opportunities for integrating NbS in the value chain to address the challenges
while maximising the value provided.
In summary, the section provides an extensive analysis of the peat extraction value chain, highlighting the
integration of NbS to address environmental challenges and enhance sustainability of the economic sector. The
value chain of peat in horticulture encompasses various processes from pre-extraction activities such as site
research and permitting, through extraction, processing, and distribution, to the final use of peat in
horticulture. It also includes the after-use phase, where sites are either restored or abandoned. Key economic
values added throughout the sector value chain include transforming raw peat into high-quality growing media,
which supports food production and ornamental plant cultivation. On the other hand, the key environmental
value is added during the after-use restoration of peatlands which enhances biodiversity, sequesters carbon,
and improves water management. According to our case study, NbS are primarily integrated in the after-use
phase of the value chain, where degraded peatlands are restored through rewetting, revegetation, or other
MERLIN in Key Economic Sectors | Page 64
ecological methods. NbS are also considered in the pre-extraction phase through careful site selection to
minimise environmental impacts. However, during the period in which peat continues to be used, integrating
NbS to mitigate environmental impacts remains critical.
Main recommendations from the study include strengthening and mandating certification standards such as
RPP and Veriflora to adopt more ambitious measures for mainstreaming NbS and supporting the sector's
transition to alternative and renewable growing media. This is essential to address the wider environmental
impacts of peat extraction and ensure that all activities throughout the value chain incorporate responsible and
sustainable practices. Expanding the role of these strengthened standards across the sector, including during
the use of peat as growing media, is also advised. Moreover, addressing these impacts requires not only
restoration efforts but also the gradual reduction of peat extraction and the promotion of alternatives. In
conclusion, the value chain analysis is instrumental in identifying new ways to mainstream NbS, revealing
opportunities to integrate NbS at multiple stages of the value chain and highlighting the importance of
comprehensive approaches to promote sustainability in the peat extraction sector.
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6 Discussion
Enablers and Barriers to NbS Integration
This report draws on several important examples of how key economic sector value chains are incorporating
freshwater NbS to address multiple goals, including climate action for mitigation and adaptation, biodiversity,
societal wellbeing, and private business resilience or competitiveness. With multiple benefits of NbS stated and
exemplified in the report, several barriers persist in integrating NbS into sectoral value chains. A significant
challenge is the high initial investment required for large-scale NbS projects, such as the wetland restoration
undertaken by Anglian Water or peatland restoration in the peat extraction sector. These costs pose a
challenge, especially for smaller businesses or industries with tight financial margins. Furthermore, the long-
term nature of NbS outcomes—where ecological and economic benefits may take years to materialize—can
discourage businesses seeking immediate returns.
Institutional and regulatory challenges also create hurdles. In highly regulated sectors like WSS, incorporating
NbS may require complex adjustments to existing regulations, which can slow down adoption. Furthermore, the
fragmentation of governance across sectors complicates cross-sectoral NbS implementation, as seen in the
collaboration issues between the WSS and agriculture sectors. The lack of policy coherence, where different
sectors operate under conflicting regulatory frameworks, often results in fragmented, piecemeal adoption of
NbS, reducing their broader impact and application.
Key enabling conditions are essential for overcoming the barriers to promote the integration of NbS across
sectors. Financial mechanisms, such as government subsidies, public-private partnerships, payment for
ecosystem services and insurance products, are crucial in offsetting the high costs associated with
implementing NbS. For instance, in the Mangfalltal case, cooperative financial models enabled small-scale
farmers to transition to organic farming, distributing financial responsibilities across the community. In the
WSS sector, capital investments helped Anglian Water implement large-scale NbS, significantly reducing long-
term operational costs while also improving environmental outcomes.
Another vital enabler is the role of sectoral standards and certification schemes. In sectors such as peat
extraction, the RPP certification has provided clear standards that promote the use of NbS, ensuring the
sustainability of operations. However, in other sectors such as insurance, there is a clear gap in robust
standards for promoting NbS integration. This highlights the importance of developing regulatory frameworks
and certification schemes to support mainstreaming NbS across different sectors. These standards provide
structured guidelines for businesses, ensuring that NbS are effectively adopted while also aligning with
sustainability goals.
Relevance of NbS for Businesses
NbS offer to businesses valuable ways to align environmental sustainability with economic goals. Businesses
that rely on ecosystem services, such as agriculture and water management, can ensure long-term resource
availability by integrating NbS, thereby reducing operational risks tied to resource depletion. Additionally, NbS
help companies mitigate reputational risks, as consumers and investors increasingly prioritize sustainability.
Early adoption of NbS can enhance a company’s brand image and establish leadership in meeting
Environmental, Social, and Governance (ESG) standards, giving businesses a competitive edge (WBCSD, 2020;
S&P Global, 2023).
NbS also provide financial opportunities by creating diversified revenue streams, such as through conservation
efforts or carbon credits (WWF, 2022). In sectors such as peat extraction, restoring degraded peatlands helps
businesses align financial objectives with ecological goals. Moreover, companies that adopt NbS are better
positioned to comply with evolving environmental regulations and may influence policy development through
collaboration with stakeholders. This proactive approach not only avoids penalties but also drives innovation
within sectors while fostering long-term sustainability.
Critiques of NbS-related VCA and the Report’s Focus
While NbS present a promising approach for sustainable development, certain critiques remain, particularly
concerning how Value Chain Analysis (VCA) captures the benefits of NbS. As stated at the very beginning of this
report, conventional VCA tends to focus on monetizing economic value, which can lead to the
underrepresentation of environmental and social benefits. This limitation is particularly evident in sectors such
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as insurance, where the absence of clear regulatory frameworks and certification schemes hinders the
comprehensive integration of NbS. For instance, although the RPP certification has proven beneficial in
promoting sustainable peat extraction practices, many other NbS lack visibility in the marketplace, making it
difficult to encourage broader adoption. Therefore, it is essential that when VCA is related to the
implementation of NbS or general environment restoration project, the extended method and concept of VCA
needs to be taken into account.
Another notable critique is the lack of empirical examples. Although this report includes case studies from four
key sectors, there remains a broader research gap regarding how NbS can be integrated into various value
chains. For instance, there is significant interest in exploring how byproducts from one value chain (e.g., crop
residues) can be repurposed to create new value chains (e.g., biofuels), and whether similar concepts could be
applied to harvesting reeds from wetlands or using wetland plants for health products (Ziegler et al., 2021).
Expanding the number of case studies and refining the methodologies used to evaluate NbS within value chain
contexts will be essential in demonstrating their applicability and scalability across different industries. Such
evidence will be pivotal in supporting MERLIN's overarching goal of mainstreaming NbS into conventional
business practices by 2050, a target that will be further addressed in the forthcoming MERLIN Sectoral
Strategies, scheduled for release in January 2025.
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7 General conclusions
This comprehensive analysis underscores the significant potential of integrating NbS into value chains across
various sectors, including water supply and sanitation (WSS), agriculture, insurance, and peat extraction. By
addressing sector-specific challenges, whether environmental or financial, NbS can enhance both economic
sustainability and environmental resilience, making them indispensable components of value chains, especially
in the context of the climate crisis. The findings demonstrate that NbS contribute to long-term environmental
and economic benefits, positioning them not merely as tools for corporate responsibility but as strategic assets
for sustainable development. To fully realise these benefits, sectoral standards and policies must evolve to
explicitly recognise and incentivise NbS within their value chains, thereby ensuring their widespread adoption
and effectiveness.
Achieving Economic and Ecological Synergies through NbS
One of the key insights from this study is the ability of Nature-based Solutions (NbS) to address both
environmental and economic challenges simultaneously, effectively eliminating the perceived duality between
commercial development and environmental stewardship. Initially, value chain problems in sectors such as
water supply and sanitation (WSS), agriculture, insurance, and peat extraction often presented as intertwined
environmental and economic issues. By integrating NbS, these sectors can address both challenges
concurrently, offering solutions that provide immediate and long-term benefits for businesses and the
environment.
In the WSS sector, the Anglian Water case demonstrates how NbS can maintain water quantity while reducing
the need for extensive and costly infrastructure construction. Through wetland restoration and other NbS,
Anglian Water has been able to enhance water quality and manage stormwater effectively, leading to significant
cost savings and improved service delivery. These NbS help avoid the high costs associated with building and
maintaining large-scale treatment facilities, thereby offering both economic and ecological benefits.
In agriculture, the Mangfalltal case highlights the transition to organic farming as a powerful NbS, improving
water quality and soil health while reducing nitrate pollution in water sources. This case illustrates how NbS
can drive economic benefits by enhancing agricultural productivity and sustainability, proving that ecological
stewardship can directly contribute to a sector's economic success.
The insurance sector, exemplified by projects such as the Mesoamerican Barrier Reef and the Prince Hendrik
Sand Dyke, showcases how NbS can be pivotal in risk mitigation. These cases highlight the immediate financial
protection offered by insurance products like parametric insurance and Construction All Risks (CAR) insurance
when linked with NbS. These solutions not only provide economic security but also bolster long-term
environmental resilience.
In contrast, the peat extraction sector demonstrates that while NbS, such as sustainable peatland
management, may not offer immediate financial returns, they are essential for the sector's long-term
sustainability. As societal and regulatory pressures for wetland conservation grow, the strategic integration of
NbS in this sector ensures its viability and alignment with broader environmental goals.
In summary, integrating NbS into sectoral value chains effectively resolves the dual challenges of economic and
environmental concerns. While immediate benefits are evident in the WSS, agriculture, and insurance sectors,
the peat extraction sector shows that long-term benefits are crucial for ensuring sustainability, particularly as
environmental conservation becomes increasingly important.
Financial Support for NbS in Value Chains
While NbS have the potential to bring both economic and environmental benefits to various sectors, targeted
investments and financial incentives are essential for facilitating their adoption within value chains. For large-
scale industries, such as water supply and sanitation or peat extraction, significant capital investments are
necessary to cover the costs associated with infrastructure development and the procurement of specialised
equipment. For instance, in the Anglian Water case, considerable financial investment was needed to integrate
NbS such as wetland restoration into their water treatment processes. This capital infusion not only ensured
the maintenance of water quantity and quality but also eliminated the need for costly infrastructure expansion,
leading to long-term savings and enhanced service delivery. Similarly, in the peat extraction sector, restoring
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degraded peatlands demands substantial investments for large-scale site work and the use of specialised
machinery, emphasising the importance of financial backing in achieving ecological restoration.
In contrast, smaller businesses, particularly in agriculture, often rely on decentralised financial models. These
cooperative financial incentives allow smaller actors to pool resources and collectively implement NbS. The
Mangfalltal case highlights how farmers, through cooperative initiatives, were able to transition to organic
farming practices, improving water quality and soil health. This collaborative financial structure not only
distributed the financial burden but also ensured that the benefits of NbS were shared across the community,
contributing to both environmental sustainability and economic resilience.
Insurance also plays a pivotal role in the long-term viability of NbS by mitigating the financial risks associated
with their implementation. Innovative products like parametric insurance and Construction All Risks (CAR)
insurance offer financial safeguards that protect against potential losses during the deployment and operation
of NbS. For example, in projects such as the Mesoamerican Barrier Reef and the Prince Hendrik Sand Dyke,
insurance was critical in protecting both infrastructure and ecological health. By providing this financial
security, insurance mechanisms help sustain NbS over the long term, making them more attractive to
businesses and investors.
In all cases, the financial support mechanisms—whether through large-scale capital investments, cooperative
initiatives, or insurance products—are integral to ensuring the successful integration and sustainability of NbS
within sectoral value chains. While some sectors may initially require external investment or support, the long-
term commercial benefits of NbS, such as cost savings, enhanced resilience, and risk mitigation, demonstrate
that these solutions can eventually become self-sustaining and economically viable without continual external
subsidies. This reinforces the business case for investment in NbS, making their integration both commercially
viable and strategically beneficial in the long run.
Role of NbS-related Standards in Value Chains
Updating and refining sectoral standards to fully integrate NbS is essential for mainstreaming these practices
across diverse value chains. The successful adoption of NbS depends on sector-specific dynamics, as
highlighted through value chain analysis, but also on the unique political, geographical, social, and economic
contexts of individual cases. While case studies offer valuable insights into how value chains can integrate NbS
and engage business partners, it is important to recognise that no single approach fits all. Each sector and
region presents distinct challenges that demand tailored solutions.
This variability emphasises the importance of sectoral standards as systematic, adaptable tools for
mainstreaming NbS. Certification schemes and consumer labels, while providing institutional frameworks, must
be strengthened to ensure more flexible and context-sensitive implementation of NbS. Standards such as RPP
provide excellent support for freshwater NbS, but they often remain invisible to final consumers. The confusion
surrounding the multitude of existing standards, some of which lack accountability mechanisms, limits their
effectiveness. Clear, transparent standards can align NbS with business operations, promoting long-term
economic and ecological benefits while fostering consumer trust and support.
To successfully update sectoral standards for NbS, broader cooperation is needed across governance levels,
industries, and communities. Collaborative efforts among stakeholders—including regulatory bodies, industry
leaders, and local communities—are essential to ensure that standards reflect best practices and can be
adapted to various contexts. This cooperation will create a strong foundation for widespread NbS adoption and
reinforce their role in driving sustainable development across sectors.
Additionally, there remains a significant gap in the insurance sector, where no relevant standards were
identified, despite its critical role in providing financial support for NbS. The development of specific standards
within this sector is needed to facilitate the integration of NbS and promote their adoption in other industries.
This highlights the urgent need for coordinated action to fill these gaps and ensure the full potential of NbS is
realised across value chains.
Broader Stakeholder Engagement in Value Chains
The successful integration of NbS across value chains fundamentally relies on the collective efforts of a diverse
array of stakeholders. In all the analysed cases, NbS were not implemented in isolation but rather required
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active collaboration among various actors, including public agencies, private companies, NGOs, and local
communities.
For example, in the agricultural sector, the Mangfalltal case in Germany highlighted how NbS such as organic
farming were successfully implemented through a coordinated effort involving local farmers and the Munich
water utility (SWM). This collaboration was crucial in transitioning to organic practices, which in turn improved
water quality by reducing nitrate levels. The partnership between farmers and a water utility—a key actor from
another value chain—demonstrates how NbS can create synergies across different sectors, benefiting both the
environment and the broader community.
In the water supply and sanitation sector, the Anglian Water case illustrated how NbS such as wetland
restoration were implemented through partnerships between the water utility, local authorities, and
environmental NGOs. These collaborative efforts were essential for maintaining water quantity and quality
while avoiding the need for extensive and costly infrastructure investments. This case underscores the
importance of cross-sectoral cooperation in maximising the benefits of NbS, highlighting that a holistic
approach is necessary to address complex environmental and economic challenges.
The insurance sector, particularly in the Mesoamerican Barrier Reef case, demonstrated how innovative
financial mechanisms, such as parametric insurance, can support NbS. This initiative, designed to fund coral
reef restoration after storm damage, required the coordination of insurance companies, environmental NGOs,
local governments, and the tourism industry. The success of this NbS project was largely dependent on the
alignment of interests across various sectors, illustrating the need for systematic cooperation.
The peat-extraction sector presents a unique model where the integration of NbS is monitored by third-party
certifiers, ensuring that the entire process aligns with sustainability standards. This external oversight adds an
additional layer of accountability and ensures that NbS are effectively implemented throughout the value chain.
The engagement of third-party certifiers in monitoring the adoption of NbS in peat extraction not only
enhances transparency but also builds trust among stakeholders, reinforcing the sector's commitment to
sustainable practices.
These cases exemplify the systemic nature of NbS, where the interconnectedness of different value chains
necessitates a coordinated and comprehensive approach. Conducting a systematic value chain analysis is
crucial, as it helps identify where and how different stakeholders can best contribute to the successful
implementation of NbS. By recognising these interdependencies and fostering collaboration, stakeholders can
work together more effectively to ensure that NbS deliver widespread and enduring benefits.
Future Research and Development in Value Chains
Continuous research and development are essential for advancing the integration of NbS within sectoral value
chains, contributing to both the practical application of scientific knowledge and a deeper understanding of the
social dynamics that drive their adoption. However, challenges remain, particularly in linking NbS with
conventional value chain analysis, which traditionally focuses on monetary or economic value, often neglecting
environmental and social dimensions.
While this deliverable presents a few key examples of NbS integration within sectoral value chains, the current
research base is limited. This highlights a broader gap in understanding how to operationalise NbS across a
wider range of industries. Existing case studies tend to focus on a handful of sectors, such as water
management and agriculture, leaving numerous other industries underexplored. For instance, sectors such as
manufacturing, transportation, and urban development could benefit from further research into how NbS could
be integrated to address both environmental and economic goals. Without a broader empirical foundation, the
potential scalability and applicability of NbS within diverse value chains remain uncertain. Therefore, additional
research is essential to provide a more comprehensive set of examples and frameworks that can guide the
effective and widespread adoption of NbS across different sectors. This research should focus not only on
scientific and technical aspects but also on policy, governance, and financing mechanisms that can enable
successful integration.
The utilisation of byproducts from NbS interventions, such as perennial plants, offers a promising avenue for
creating circular economy models within value chains. Paludiculture, for example, involves cultivating wetland
plants such as reeds and sedges in rewetted peatlands. These plants can serve dual purposes: they help
restore ecosystems while also providing biomass for biofuel production or health-related products. Harvesting
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perennials for biofuels can reduce dependence on fossil fuels and contribute to a low-carbon economy,
aligning with climate action goals. Additionally, some wetland plants have potential for use in health foods or
nutraceuticals, which can add economic value while promoting ecosystem restoration. Integrating these
byproducts into existing value chains requires cross-sectoral collaboration and innovation. For instance,
bioenergy producers, health food companies, and ecosystem managers could work together to create new
market opportunities that benefit both the environment and the economy. However, these ideas remain under-
researched, and further study is needed to explore how such value-added byproducts could be standardised
and scaled across different regions and industries.
Further research scheduled for release in 2025 as part of the MERLIN case studies will delve deeper into the
cost-benefit analysis of various restoration measures. This research is expected to provide critical insights into
the economic viability of NbS, assessing not only the upfront costs but also the long-term ecological and
economic benefits. Such analyses will help clarify the financial feasibility of NbS projects, especially for sectors
hesitant to invest due to perceived risks or delayed returns on investment. In parallel, upcoming 'off-the-shelf'
instruments will explore different forms of payments for ecosystem services (PES), such as carbon credits
generated from agricultural and forestry practices. These mechanisms, including schemes such as carbon
offsetting in afforestation or reforestation projects, could provide financial incentives for businesses to adopt
NbS. For example, agriculture could benefit from soil carbon credits, while forestry initiatives might capitalise
on carbon sequestration. As more PES frameworks become available, they will complement existing findings by
offering tangible financial tools for integrating NbS into value chains. This research will be critical for
illustrating how economic incentives can drive the uptake of NbS and align with traditional value chain analysis,
ultimately enhancing their integration into conventional business practices.
In summary, advancing NbS within value chains demands a balanced approach that integrates both scientific
research and social dynamics. While the systematic application of scientific knowledge ensures the technical
effectiveness of NbS, social sciences research guarantees their social and economic viability. Addressing the
current gaps in value chain analysis literature and standards, and extending the value chain concept to include
environmental and social value, are crucial for sustaining the benefits of NbS and effectively addressing the
complex environmental challenges across multiple sectors.
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MERLIN in Key Economic Sectors | Page 77
9 Annexe
Phase
Activity
Ecosystem services (values added)
Issue with natural environment
Pre-
production
processes
Field research
and after use
plans
● Improved knowledge about peatland
ecosystem and conditions
● Licensing and stakeholder engagement (if
done responsibly) increase public trust and
acceptance
● N/A
Extraction
Field
preparation
● Increase access to the peat bog for
extraction and facilitate dying process
(Short, 2013).
● Remove unwanted plant fragments (Short,
2013)
● No direct environmental benefit
● Climate impact due to natural resource
waste and emissions (Paoli et al., 2022;
Stichnothe, 2022).
● Drainage of water and removal of surface
vegetation (Paoli et al., 2022; Stichnothe,
2022).
● Possible conversion of peatland which
cannot return to previous functional state
(Stichnothe, 2022).
Harvesting of
the peat
● Using vacuum harvesters provide raw peat
with fine particles12
● No specific environmental benefit.
● Climate impact due to natural resource use
and emissions (Paoli et al., 2022).
● Harvested peat cannot be replaced,
accumulation of new peat takes several
years (Stichnothe, 2022).
● Loss of peatland living organisms and
species, soil, water, etc.
● Can also impose stress on groundwater and
affect biodiversity (KPMG Oy Ab, 2022).
Processing
Transportation
to production
plant
● N/A
● Most likely issue is impact on the
ecosystem quality due to emissions (Paoli et
al., 2022).
Processing,
mixing, dosing
& packing and
documentation
● Support grading of peat into different
components
● Increase the quality, reliability and
homogeneity of the peat substrate and
avoid contamination (Gilke, 2018)
● Meet customer specifications.
● Branding to make it saleable.
● Likely to lead to resource use (e.g. water)
and generate climate and human health
impacts due to emissions (KPMG Oy Ab,
2022; Paoli et al., 2022).
● Packing poses negligible amount of
emissions.
Marketing,
selling &
Distribution
Inland water,
rail and road
transport
● Ensure product reaches the wholesalers and
retailers.
● Most likely environmental issues will be due
to climate impact due to emissions.
● Road transport provides the most significant
negative impacts on ecosystem quality and
climate (Paoli et al., 2022)
Wholesaling
● Profit and financial income to wholesalers.
● N/A
Retailing
● Profit and financial income to retailers.
● N/A
12 https://www.pindstrup.com/about/production-and-quality-control#
MERLIN in Key Economic Sectors | Page 78
Consumption
Use as growing
media
● Support the horticulture to increase yield
and food production (e.g. mushroom, fruits)
● Support leisure, recreation and reducing
stress.
● Can also support green house, including
planting of trees.
● Decomposition over time releases carbon
into the atmosphere.
● Waste generation from packaging materials
which can contaminate the soil.
Closing the
peat
extraction
site
● Clear the peatland of machinery and other
equipment.
● Enable use of the peatland for other
purposes.
● N/A
After-use
Restoration
● Support biodiversity (Bos et al., 2011;
Räsänen et al., 2023).
● Leads to carbon sequestration.
● Help purify water and groundwater
● Too much rewetting can lead to nitrogen
and methane emission.
● Original biodiversity values before extraction
may not return (Bos et al., 2011)
Cultivation &
plantation
● Support provisioning of food and raw
materials (e.g. wood, berries).
● Can contribute to biodiversity.
● Forestry can contribute to carbon
sequestration and air purification.
● Waterbodies help regulate the water cycle
● Leads to low biodiversity gain and aesthetic
value (Peršēvica & Priede, 2019)
● Some form of cultivation(e.g.) agriculture
can further degrade the peatland and
increase emissions.
Renewable
energy
● Support provisioning of renewable energies
(King, 2022).
● Wind farms are not NbS and does not
contribute to biodiversity and returning of
the peatland species.
Abandoning
● May lead to spontaneous vegetation that
could include biodiversity
● Long-term drainage of peatland not
reverted.
● Continues emissions from the peatland and
create invasive species (Rankin et al., 2018)
