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Webinar "Natural capital markets for watershed services - Actors, Mechanisms, and Impacts" - Event review

On Wednesday, February 16th 2014, the third webinar of the project „Natural Capital Markets“ took place. During the webinar, Joost Bakker (Natural Capital Markets) together with Nathaniel Carrol and Genevieve Bennet (both Ecosystem Marketplace) focused on the use of market (based) instruments to conserve watershed services. In addition, the role of different actors such as the private sector and local communities were discussed.

During the first presentation, Joost Bakker set the scene by introducing payments for ecosystem services (PES). Downstream companies (breweries, households etc.) use water which makes them users of the ecosystem services. Upstream land owners can now be paid for water treatments to guarantee the high quality of the water supply. That makes companies situated upstream the “suppliers” of ecosystem services. However, most schemes do not exactly fit into this scheme and show variations of this principle.

There are already several good examples for PES in watershed services, like Vittel in France where farmers are compensated for and educated to use alternative agricultural practices. Many other schemes do not fit the narrow definition of PES but can nonetheless raise private sector money for the protection of biodiversity, such as the financial support for organic farming in watershed of Munich municipal water company (SWM in Germany), or Bionade’s CSR measures in Germany, where trees are planted in watersheds.

Bakker concluded that on the one hand, companies increasingly experiment with market based instruments to protect watershed services and legislation is drafted and improved. On the other hand, the critique against offsetting (and economic approach of nature) is increasing. In addition, there is hardly any incentive to offset impacts without legal framework and most opportunities for PES programmes, as described above, are still limited for the private sector. Therefore, different innovative financing mechanisms should not be looked at in isolation but rather as complementing mechanisms. In addition, the experiences gained with existing payment schemes should be used to improve others.

Therefore, Ecosystem Marketplace (EM) offers news, data, and analytics on markets and payments for ecosystem services, such as water quality, carbon sequestration, and biodiversity. In providing free reliable market information, EM hopes not only to facilitate transactions (thereby lowering transaction costs), but also to catalyze new thinking, spur the development of new markets and the infrastructure that supports them, and achieve effective and equitable nature conservation. EM further offers ongoing journalistic coverage, monthly news briefings, annual market reports, and other market intelligence, all free of charge.

The EM’s “State of Watershed Payments” reports data on scale, volume, mechanisms, and impacts of investments are collected via a biannual survey, expert interviews, extensive desk research, and ongoing market tracking. With partners in US West, China, Ecuador, and Italy more than 400 programs were investigated in 44 countries, aiding in data collection. The EM’s report of 2012 pointed out, that over US$8 billion were spent on watershed payments in 2011 within a number of 205 active programs, most of them being located in North America and China.

Business is involved in a quarter of watershed protection projects tracked, but responsible for <1% of total funding. Between 1981 and 2011 about US$94–102 million were invested by the private sector. The private finance has driven majority of projects in the EU, Africa, and Southeast Asia, with beverage, manufacturing, and utilities being leading sectors. The report also showed that most payment schemes were partnerships and that if business is involved, it is more likely to monitor the project’s progress and to include anti-poverty goals.

Thereby, the 2012 report shows that the main drivers of business investments in 2011 were regulatory and financial/operational risks, followed by reputational risks, whereby the investment values were concentrated in North America and Europe.

EM expects some big shifts within the watershed investment mechanisms for business. Growth in water funds, P3s (public-private partnerships), and community partnerships are assumed. Interest in a “beyond the fence” approach to water in the private sector seems to have grown pretty considerably in the last year or two.

Some of the barriers EM finds to natural infrastructure investments for the private sector are:
1. “Business as usual”

Partnerships can play an important role in getting projects off the ground

2. Companies are re-inventing the wheel every time.

Lack of information and guidance about effective project models
Low level of sharing of tools and experience

3. ROI is still not well understood.

Measurement and attribution of outcomes is complex
Need for widely-available and accessible economic tools

4. Public sector/governance signals are largely missing.

Accounting standards and disclosure frameworks
Regulatory drivers encouraging natural infrastructure

5. Awareness of investment opportunities is low.

Beyond cost abatement/risk management:
Revenue opportunities: For example in venture capital (such as landscape restoration); P3s for green infrastructure; private nutrient mitigation banking; licensing “natural infrastructure” technology…
Service provision: Market platforms, standards, consulting

The next webinar will take place 29 April 2014.

More information under www.naturalcapitalmarkets.org/webinar

Minutes: GNF