Appendix D: NbS Rating Methodology --- Full Specification

This appendix provides the complete, fully specified NbS rating methodology referenced throughout the main report. It consolidates the design principles, scoring tables, aggregation formula, rating scale, and assessment process into a single reference document suitable for adoption by independent rating agencies, bank internal sustainability teams, or government assessment bodies. All thresholds, weights, and procedures are disclosed in full, ensuring transparency, reproducibility, and independent verifiability.

1. Overview and Purpose

1.1 Gap Addressed

The ratings gap analysis in Section 3 (Layer 2) of this report established that existing carbon credit rating agencies --- Sylvera, BeZero Carbon, Calyx Global, and Verra's Nature Framework --- provide comprehensive coverage of carbon integrity dimensions (additionality, permanence, leakage, over-crediting) but leave ecosystem extent, ecosystem condition, biodiversity, water regulation, soil health, social outcomes, and economic asset value largely unassessed [1]. This creates a structural mismatch between what is measured (carbon tonnes) and what NbS projects deliver (multi-dimensional ecological, social, and economic value). A bank marketing an NbS Impact Term Deposit on the basis of nature-positive outcomes cannot rely on carbon-only ratings to substantiate those claims.

This methodology fills that gap by providing a standardised, multi-domain assessment framework that produces an alphanumeric rating covering environmental integrity, social outcomes, and economic viability in a single composite score.

1.2 Design Principles

Six principles govern the methodology's architecture, each responding to a specific constraint identified in the research:

1. Scalability across all eight NbS typologies. The methodology accommodates the full range of NbS project types identified in Layer 1 --- from REDD+ concessions to seagrass restoration --- by anchoring indicators to SEEA EA account structures that are ecosystem-type-agnostic by design [2].

2. SEEA EA compatibility. Every indicator maps to a defined SEEA EA account type, ensuring that data collected for rating purposes can be directly incorporated into national ecosystem accounting programmes [2].

3. TNFD LEAP alignment. The data inputs required for each assessment domain map directly to TNFD LEAP phases (Locate, Evaluate, Assess, Prepare), enabling banks to use NbS rating data as a primary input to entity-level TNFD disclosures without duplicative data collection [3].

4. Alphanumeric output recognisable to credit analysts. The rating output fits within the cognitive framework of banking professionals trained in credit analysis, modelled on familiar S&P/Moody's rating conventions [4].

5. Transparency, reproducibility, and independent verifiability. All scoring thresholds and weighting parameters are fully specified and publicly disclosed. Any qualified assessor can apply the methodology to the same project and arrive at the same rating, given the same input data.

6. Forward compatibility with ISSB nature standards. The indicator set aligns with the disclosure categories anticipated under the ISSB's Research Project on Biodiversity, Ecosystems and Ecosystem Services, with an exposure draft expected in October 2026 [5].

1.3 Relationship to Existing Frameworks

2. Assessment Domain: Environmental (Weight: 50%)

The Environmental Domain carries the greatest weight because the ecological performance of an NbS project is the foundational determinant of its value as a nature-based solution. A project that delivers strong financial returns but fails to maintain or restore ecosystem health is, by definition, not a credible NbS intervention. Three sub-indicators, each mapped to a distinct SEEA EA account type, comprise this domain.

2.1 Ecosystem Extent Change

SEEA EA mapping: Ecosystem Extent Account

Definition: Measures the net change in the total area of the target ecosystem type within the project boundary over the assessment period (typically 12 months for annual ratings; longer periods for initial assessments of multi-year projects).

Calculation: Net Change (%) = [(Closing Extent - Opening Extent) / Opening Extent] x 100

Additions include hectares restored through active planting, natural regeneration, and hydrological rehabilitation. Reductions include hectares lost through conversion, degradation below ecosystem-type threshold, encroachment, fire, or natural disturbance.

Scoring Table

Typology-specific notes:

• For avoided deforestation (REDD+) projects, where the primary objective is preventing loss rather than expanding extent, a score of 2 (maintained) may represent strong performance if the counterfactual deforestation rate is high. The assessor should document the counterfactual scenario and the avoided loss.
• For peatland rewetting projects, extent change includes both the area of rewetted peat (where water table has been raised above the degradation threshold) and the area of vegetation recovery on rewetted surfaces.
• For agroforestry projects, extent is measured as the area of tree canopy cover at or above a minimum threshold (typically 20% canopy cover, consistent with FAO forest definition adapted for agroforestry contexts).

2.2 Ecosystem Condition Index

SEEA EA mapping: Ecosystem Condition Account

Definition: Measures the health or quality of the ecosystem relative to a reference condition, using biotic and abiotic indicators aggregated into a composite condition index normalised on a 0--1 scale. A score of 1.0 represents reference condition (the best available condition for the ecosystem type in the same biogeographic region); 0.0 represents complete degradation.

Calculation of Composite Condition Index (ECI):

1. Select indicators appropriate to the ecosystem type (see indicator tables below).
2. For each indicator, measure the current value at the project site.
3. For each indicator, identify the reference value from the best available reference site in the same biogeographic region.
4. Normalise each indicator: Indicator Score = Current Value / Reference Value, bounded at 0.0 and 1.0.
5. Calculate the ECI as the arithmetic mean of all normalised indicator scores.

Scoring Table

Indicators by NbS Typology

The following indicator sets define the condition assessment for each of the eight NbS typologies. A minimum of six indicators (at least two biotic, two abiotic, and one landscape-level) must be assessed for each project. Additional indicators may be included where data are available.

Forests (Typologies 1--3: Avoided Deforestation, Reforestation, IFM)

Mangrove (Typology 6)

Peatland (Typology 7)

Agroforestry (Typology 4)

Soil Carbon Management (Typology 5)

Seagrass / Coral Reef (Typology 8)

2.3 Ecosystem Services Delivery

SEEA EA mapping: Ecosystem Service Supply and Use Account (Physical)

Definition: Measures the flow of ecosystem services generated by the project site as a percentage of the services that would be delivered by the same area in reference condition. This percentage-of-reference approach ensures cross-ecosystem comparability: a mangrove delivering 65% of its reference services and a peatland delivering 65% of its reference services are scored equivalently.

Calculation:

1. Identify the relevant ecosystem services for the project's ecosystem type (see service list below).
2. For each service, estimate the reference-condition flow (the flow that would be expected from the same area in reference condition, based on published literature, reference site measurements, or modelled estimates).
3. For each service, measure or model the current flow from the project site.
4. Calculate the percentage of reference for each service: Current Flow / Reference Flow x 100.
5. Calculate the aggregate percentage as the arithmetic mean across all assessed services.

Scoring Table

Service categories by ecosystem type:

3. Assessment Domain: Social (Weight: 25%)

The Social Domain assesses whether the NbS project generates positive outcomes for the communities that depend on or are affected by the ecosystem. This domain reflects the IUCN Global Standard for NbS, which requires that NbS deliver societal benefits through inclusive, transparent governance and equitable benefit-sharing [6]. Three sub-indicators comprise this domain.

3.1 Community Outcomes

Definition: Measures the proportion of target households (those within or adjacent to the project area) that experience measurable improvement in livelihoods, food security, health, or other well-being indicators attributable to the project.

Data requirements: Household surveys (structured questionnaire administered to a statistically representative sample of target households, minimum sample size of 10% of target households or 100 households, whichever is larger); baseline survey at project commencement; follow-up surveys at annual intervals; comparison with control communities where feasible.

Scoring Table

Well-being dimensions: Income (from project employment, ecosystem product sales, benefit-sharing payments); food security (dietary diversity, meal frequency, access to protein from project-associated fisheries or agriculture); health (reduction in waterborne disease, respiratory illness from reduced burning, occupational safety); access to resources (clean water, sustainable energy, transport infrastructure improved by the project).

3.2 Rights and Governance

Definition: Composite assessment of the project's compliance with Free, Prior and Informed Consent (FPIC) protocols, the security of land tenure arrangements, the transparency and functionality of benefit-sharing mechanisms, and the quality of governance structures.

Data requirements: FPIC documentation review (consent records, meeting minutes, community agreements); land tenure analysis (title documents, lease agreements, government gazettals, customary tenure recognition); benefit-sharing mechanism review (contracts, payment records, community fund accounts); governance structure assessment (board composition, meeting records, grievance mechanism records, publicly available documents).

Scoring Table

3.3 Livelihood Diversification

Definition: Measures the number of distinct income streams created or materially enhanced by the project for participating communities. A diverse income base increases community resilience to economic shocks and reduces dependence on any single revenue source (including the NbS project itself).

Data requirements: Livelihood assessment surveys; enumeration of income-generating activities by type and number of participating households; comparison with pre-project livelihood profile.

Scoring Table

Distinct income streams: An income stream is classified as "distinct" if it derives from a different economic activity and does not merely represent a variation of an existing livelihood. For example, a farmer who adds cacao production to existing coffee production and also receives carbon credit revenue payments has two new income streams (cacao and carbon revenue), even if both relate to the same agroforestry plot.

4. Assessment Domain: Economic (Weight: 25%)

The Economic Domain assesses the financial viability and value-for-money of the NbS project, ensuring that depositor capital is allocated to projects with credible economic foundations. This domain is anchored to the monetary accounts of SEEA EA. Three sub-indicators comprise this domain.

4.1 Financial Viability

SEEA EA mapping: Monetary Ecosystem Asset Account

Definition: Assesses the project's net present value (NPV) and revenue model diversity, evaluating whether the project is financially sustainable over its intended lifetime.

Data requirements: Financial model with projected revenues and costs over the project lifetime; NPV calculation using a 5% real discount rate (with sensitivity at 3% and 8%); revenue source enumeration; stress testing under adverse scenarios (e.g., 30% carbon price decline, 50% reduction in most volatile revenue stream).

Scoring Table

4.2 Cost-Effectiveness

Definition: Benchmarks the project's costs against sector comparators, measuring cost per hectare of ecosystem condition improvement and cost per tonne of CO2-equivalent sequestered or avoided.

Data requirements: Total project costs (capital and operating, annualised); ecosystem condition improvement (change in ECI multiplied by project area in hectares); carbon outcome (tonnes CO2e sequestered or avoided per year); sector benchmarks from published literature and comparable project databases.

Sector benchmarks (indicative; updated annually from published sources):

Scoring Table

4.3 Financial Additionality

Definition: Assesses whether the project would have proceeded in the absence of the specific financing provided through the NbS banking product. This indicator ensures that depositor capital generates marginal impact rather than displacing existing funding.

Data requirements: Analysis of the project's funding sources and commitments prior to the NbS financing; counterfactual assessment (what would have happened without this financing); review of project sponsor statements and financial records; assessment of availability of alternative financing.

Scoring Table

5. Aggregation Formula

5.1 Domain Score Calculation

Within each domain, sub-indicator scores are averaged to produce the domain score:

• Environmental Domain Score = (Extent Change Score + Condition Index Score + Services Delivery Score) / 3
• Social Domain Score = (Community Outcomes Score + Rights & Governance Score + Livelihood Diversification Score) / 3
• Economic Domain Score = (Financial Viability Score + Cost-Effectiveness Score + Financial Additionality Score) / 3

5.2 Composite Score Calculation

Composite Score = (Environmental Domain Score x 0.50) + (Social Domain Score x 0.25) + (Economic Domain Score x 0.25)

The composite score ranges from a minimum of 1.00 (all domains score 1) to a maximum of 5.00 (all domains score 5).

5.3 Weight Rationale

The 50/25/25 weighting reflects three considerations:

1. Ecological primacy: A project cannot be a credible nature-based solution if its environmental performance is poor, regardless of social and economic outcomes. The 50% weight ensures that the composite score is anchored by ecological reality.

2. Social and economic materiality: Social outcomes (community welfare, rights, governance) and economic viability (financial sustainability, cost-effectiveness, additionality) each receive 25%, sufficient to meaningfully differentiate projects within the same environmental performance band and to prevent projects with strong ecological but poor social or economic outcomes from receiving top-tier ratings.

3. Alignment with IUCN NbS Standard: The IUCN Global Standard for NbS requires that NbS "effectively address societal challenges" (Criteria 1--2), "are determined by site-specific natural and cultural contexts" (Criterion 4), and "provide equitable governance" (Criterion 5) [6]. The 25% weight on the Social Domain ensures that these requirements are materially reflected in the rating.

6. Rating Scale

6.1 Primary Rating Bands

6.2 Modifier System (+/-)

Within each primary rating band, +/- modifiers indicate position relative to the band:

• Plus (+): composite score in the upper third of the band (e.g., NbS-AA+: 4.35--4.49)
• No modifier: composite score in the middle third of the band (e.g., NbS-AA: 4.15--4.34)
• Minus (-): composite score in the lower third of the band (e.g., NbS-AA-: 4.00--4.14)

The modifier system applies to all bands except NbS-AAA (which has no + modifier, as 5.00 is the ceiling) and NbS-D (which has no - modifier, as 1.00 is the floor).

Complete rating scale with modifiers and score ranges:

7. Worked Examples

7.1 Worked Example A: Mangrove Restoration --- Vietnam, Mekong Delta

Project description: A community-led mangrove restoration project covering 2,400 hectares in Ca Mau and Ben Tre provinces, Mekong Delta, Vietnam. The project commenced in 2018 and combines mangrove replanting on degraded aquaculture ponds with sustainable shrimp-mangrove co-management, eco-tourism development, and blue carbon credit generation under VCS methodology VM0033. The project is sponsored by a Vietnamese environmental NGO in partnership with the provincial government and supported by a GIZ technical assistance grant for initial planting. Operational for five years at the time of assessment.

Environmental Domain

Environmental Domain Score: (5 + 4 + 4) / 3 = 4.33

Social Domain

Social Domain Score: (5 + 4 + 5) / 3 = 4.67

Economic Domain

Economic Domain Score: (4 + 4 + 4) / 3 = 4.00

Composite Score: (4.33 x 0.50) + (4.67 x 0.25) + (4.00 x 0.25) = 2.165 + 1.168 + 1.000 = 4.33

Rating: NbS-AA (composite score 4.33 falls within the NbS-AA band of 4.15--4.34)

Rationale: This project achieves a Very Strong rating by combining robust ecological recovery (12.4% extent expansion, condition trajectory improving from 0.23 to 0.64) with widespread community benefits (80% of households improved, three new income streams) and a viable economic model. The rating reflects the project's integrated mangrove-livelihood approach rather than its carbon performance alone. Under a carbon-only rating framework, the project's below-reference fisheries and tourism outcomes would not be captured, and its exceptional community impact would be invisible.

7.2 Worked Example B: Peatland Rewetting --- Indonesia, Central Kalimantan

Project description: A peatland rewetting and fire prevention project covering 18,000 hectares in the former Mega Rice Project area of Central Kalimantan, Indonesia. Drainage canals installed in the 1990s have caused severe peat degradation and recurrent fire. The project involves canal blocking to raise water table levels, community-based fire prevention patrols, and paludiculture (cultivation of wet-adapted crops on rewetted peat) as an alternative livelihood. Sponsored by an Indonesian conservation foundation with technical support from the former Peatland and Mangrove Restoration Agency (BRGM). Operational for four years at the time of assessment.

Environmental Domain

Environmental Domain Score: (2 + 3 + 3) / 3 = 2.67

Social Domain

Social Domain Score: (4 + 3 + 3) / 3 = 3.33

Economic Domain

Economic Domain Score: (3 + 4 + 5) / 3 = 4.00

Composite Score: (2.67 x 0.50) + (3.33 x 0.25) + (4.00 x 0.25) = 1.335 + 0.833 + 1.000 = 3.17

Rating: NbS-BBB (composite score 3.17 falls within the NbS-BBB band of 3.17--3.33)

Rationale: This project sits at the investment-grade threshold. Its Environmental Domain score is held down by the absence of extent expansion and the still-degraded condition of much of the peat area, but its high financial additionality and meaningful social outcomes bring it above the NbS-BBB minimum. The project's trajectory is critical: if continued rewetting raises water tables across a larger area and paludiculture generates consistent revenue, the next reassessment could see an upgrade to NbS-BBB+ or NbS-A-. Conversely, if fire events damage the project area or paludiculture fails, a downgrade to NbS-BB would trigger removal from the ring-fenced deposit pool.

7.3 Worked Example C: Agroforestry --- Philippines, Bukidnon Province, Mindanao

Project description: An agroforestry project covering 1,800 hectares in upland municipalities of Bukidnon province, Mindanao, where smallholder farmers have integrated timber and fruit tree species (mahogany, narra, cacao, coffee) into previously monoculture maize and sugarcane plots. The project operates under a Community-Based Forest Management Agreement (CBFMA) with the Department of Environment and Natural Resources (DENR) and generates revenue from diversified agricultural products, emerging carbon credits, and watershed protection payments from the downstream National Power Corporation hydroelectric facility. Sponsored by a registered People's Organisation (cooperative) with 850 member households. Operational for six years at the time of assessment.

Environmental Domain

Environmental Domain Score: (4 + 4 + 3) / 3 = 3.67

Social Domain

Social Domain Score: (4 + 4 + 5) / 3 = 4.33

Economic Domain

Economic Domain Score: (5 + 4 + 3) / 3 = 4.00

Composite Score: (3.67 x 0.50) + (4.33 x 0.25) + (4.00 x 0.25) = 1.835 + 1.083 + 1.000 = 3.92

Rating: NbS-A (composite score 3.92 falls within the NbS-A band of 3.67--3.83; note: 3.92 is in the NbS-A+ range of 3.84--3.99)

Corrected Rating: NbS-A+ (composite score 3.92 falls within the upper third of the NbS-A band)

Rationale: This project achieves a Strong+ rating through the integration of community livelihoods with ecosystem recovery. Its Environmental Domain score (3.67) is lower than the mangrove project because agroforestry systems inherently deliver lower ecosystem services as a percentage of reference natural forest. However, the methodology appropriately weights this against the exceptional social outcomes (four income streams, cooperative governance, FPIC with Indigenous communities) and the robust economic model (stress-test-positive with four revenue sources). Under a carbon-only framework, this project's modest sequestration rate (4.2 tCO2e/ha/yr) would yield a mediocre rating, entirely missing the livelihood transformation and biodiversity gains that make it a strong NbS investment.

8. Rating Process

8.1 Who Conducts the Rating

The NbS rating may be conducted by:

1. Accredited independent rating agency. An independent entity accredited under the methodology's quality assurance framework to conduct NbS ratings. Accreditation requires demonstrated competence in ecological assessment (at least two staff members with postgraduate qualifications in ecology, environmental science, or equivalent), financial analysis (at least one staff member with qualification or demonstrated experience in project finance or environmental economics), and social impact assessment (at least one staff member with qualification or experience in community development, social safeguards, or Indigenous rights). The agency must demonstrate independence from the project sponsor (no financial interest, no consulting relationship, no shared board members).

2. Bank internal sustainability team. The bank's own sustainability or environmental risk assessment team may conduct NbS ratings using the published methodology, provided the team meets the competency requirements above and the rating is subject to internal quality review by a separate unit (e.g., risk management or compliance). Internal ratings are appropriate for preliminary assessments and portfolio monitoring but should be supplemented by independent external ratings for new project origination and for annual verification.

3. Government assessment body. National or sub-national government agencies with SEEA EA accounting capacity may conduct NbS ratings as part of their ecosystem accounting programmes, particularly where NbS projects contribute to national biodiversity targets or climate commitments.

8.2 Data Collection Requirements

8.3 Rating Committee Process

For independent rating agencies, the final rating is determined by a Rating Committee comprising:

• The lead assessor who conducted the field verification (presenting role, no vote).
• At least two senior analysts with experience in the relevant NbS typology and geographic region (voting members).
• A committee chair with authority to approve or modify the proposed rating (voting member).

The Rating Committee reviews the rating report, challenges the lead assessor's scoring and rationale, and votes on the final rating. A majority vote is required for the rating to be issued. Dissenting opinions are recorded in the committee minutes (confidential; available to the bank on request).

8.4 Appeal and Review Mechanisms

• Project sponsor appeal: The project sponsor may appeal the rating within 30 days of notification, providing additional evidence that the sponsor believes was not adequately considered. The appeal is reviewed by a panel of two senior analysts who did not participate in the original rating. The appeal panel may uphold, modify, or overturn the rating. Appeal decisions are final.

• Bank-initiated review: The financing bank may request a rating review at any time if it becomes aware of material information (positive or negative) that was not available at the time of the original assessment. The review follows the same process as an initial rating but focuses on the new information.

• Regulatory query: If a prudential regulator (APRA, MAS) queries the basis for a rating as part of supervisory examination, the full rating report and supporting data are made available to the regulator on a confidential basis.

8.5 Update Cycle

The two-year full assessment cycle balances the need for rigorous field verification with the cost of on-site assessment. Annual interim updates use satellite monitoring data and updated financial records to flag material changes that might trigger an event-driven review. This dual-cadence approach ensures that ratings remain current without imposing annual field verification costs on all projects.

References

[1] Appendix B of this report: NbS Rating Agency Comparative Analysis. See also Section 3 (Layer 2: NbS Ratings Gap Analysis).

[2] United Nations et al., System of Environmental-Economic Accounting --- Ecosystem Accounting (SEEA EA), White Cover Publication (New York: United Nations, 2021).

[3] Taskforce on Nature-related Financial Disclosures, Recommendations of the Taskforce on Nature-related Financial Disclosures (September 2023), Annex 4: The LEAP Approach.

[4] Standard & Poor's, "S&P Global Ratings Definitions," RatingsDirect, revised January 2024.

[5] ISSB, "ISSB Work Plan 2024--2026: Research Project on Biodiversity, Ecosystems and Ecosystem Services," IFRS Foundation, September 2023.

[6] IUCN, IUCN Global Standard for Nature-based Solutions: A User-Friendly Framework for the Verification, Design and Scaling Up of NbS, 1st edition (Gland: IUCN, 2020).

[7] Ecosystem Marketplace, State of the Voluntary Carbon Markets 2023 (Washington, D.C.: Forest Trends, 2023).

[8] Roe, S., Streck, C., Obersteiner, M., et al. (2019). "Contribution of the land sector to a 1.5C world." Nature Climate Change, 9, 817--828.

[9] Bayraktarov, E., Saunders, M.I., Abdullah, S., et al. (2016). "The cost and feasibility of marine coastal restoration." Ecological Applications, 26(4), 1055--1074. Narayan, S., Beck, M.W., Reguero, B.G., et al. (2016). "The effectiveness, costs and coastal protection benefits of natural and nature-based defences." PLOS ONE, 11(5), e0154735.

[10] IUCN, Peatland Rewetting and Conservation: A Global Review of Costs and Benefits (Gland: IUCN, 2021). Indonesia Peatland and Mangrove Restoration Agency (BRGM), Annual Report 2022 (Jakarta: BRGM, 2023).

[11] Nair, P.K.R., Kumar, B.M., Nair, V.D. (2009). "Agroforestry as a strategy for carbon sequestration." Journal of Plant Nutrition and Soil Science, 172(1), 10--23.

[12] Minasny, B., Malone, B.P., McBratney, A.B., et al. (2017). "Soil carbon 4 per mille." Geoderma, 292, 59--86.