Financing for Andean Forests: experiences and challenges

Submitted by Natalia Ruiz-Guevara | published 9th Sep 2021 | last updated 23rd Sep 2021

SDC Climate Change & Environment (CC&E) Network Annotation

The following article presents insights and learning from the SDC-funded Andean Forest Programme.

BANCO2 workshop in Antioquia. Crédit: Edwin Laverde for Andean Forest Program

BANCO2 workshop in Antioquia. Crédit: Edwin Laverde for Andean Forest Program.

Introduction

The protection, management and restoration of forests require planning, action and short-, medium- and long-term monitoring, setting challenges in terms of commitments and financing. In the last decades, financing for forests and landscapes in South America has been mainly focused on the Amazon, while the funds available for Andean forests have been reduced and applied mainly on a pilot basis. Financing for biodiversity and landscape protection is still mainly public, and this sector can contribute to promoting incentives and investment schemes to increase private financing (UNEP, 2021).

For more than 10 years, the Swiss Agency for Development and Cooperation (SDC) has been committed to supporting projects and actions for the sustainable development of mountain areas, where the Andean forests are primordial for the generation of essential ecosystem services.

The Andean Forest Program (PBA), implemented between 2014 and 2021 with financing from the SDC, has promoted financing mechanisms for Andean forests, with a special emphasis on its intervention sites in Antioquia (Colombia), Apurímac (Peru) and Pichincha (Ecuador). These experiences, which are presented below, have made it possible to identify challenges for the full and efficient financing of initiatives for the management, conservation and restoration of these ecosystems.

Compensation for carbon sequestration

In Colombia, the BanCO2 mechanism facilitates compensation and payment for environmental services to families, farmers, and communities in peri-urban and rural areas, who receive an economic incentive and technical support to carry out actions for forests conservation and restoration, sustainable production, and social appropriation. For this, BanCO2 collects public and private resources on a voluntary or compulsory basis (according to the country's regulations). The PBA, during its first phase, financed the biophysical, sociodemographic and economic characterization of 1000 candidate families to join the scheme called "Metropolitan BanCO2" in the Aburrá Valley (Antioquia), as well as market studies, which has facilitated the incorporation of more than 300 families to BanCO2. Currently, the scheme has the facilitation of Masbosques and resources of the Metropolitan Area of the Aburrá Valley, private companies and other public sources of territorial entities.

In Apurímac, Peru, the PBA provided support to the rural community of Kiuñalla (district of Huanipaca, province of Abancay), for the implementation of a private compensation mechanism for the environmental services of carbon capture with the Regenera platform, which requires a communal life plan. This platform collects funds from individuals and companies at the national and international level, and facilitates the delivery of economic incentives to communities and organizations that implement conservation, restoration and environmental management actions in natural landscapes. In the case of Kiuñalla, access to Regenera is allowing, since 2020, to give continuity to community management of restoration activities for the provision of hydric ecosystem services. Two more communities will join this scheme before the end of 2021.

In Ecuador, under the leadership of the Metropolitan Municipality of Quito, the PBA facilitated the design of a payment mechanism for environmental services called “Carbon Footprint”, articulating a commitment from the Quiport Corporation to mitigate the carbon footprint of the airport in Quito, with the creation of incentives for the planned and sustainable management of farms in the Northwest territory of Pichincha.

Compensation Mechanism for Ecosystem Services (MERESE)

The MERESE are schemes, tools, instruments and incentives to generate, channel, transfer and invest economic resources regulated by the Peruvian State, in which an agreement is established between “payers” and “receivers” for an ecosystem service, and they are regulated by the Peruvian State. At the Apurímac learning site, the PBA has supported the consolidation of a hydric MERESE in the Mariño river micro-basin, which supplies water to the city of Abancay and the surrounding communities. In addition, it provided technical advice on the implementation of an eco-hydrological monitoring system, associated with actions on Andean forests conservation and restoration, with the active participation of communities in the basin, which is part of the iMHEA Network. This type of hydric MERESE is implemented by the companies that provide sanitation services, although there are also experiences with agricultural users such as the Quiroz-Chira Water Fund.

Impact investments

According to the platform Impact Investments Peru, an impact investment is defined as a “flow of financial resources for organizations that produce goods or services, with the purpose of generating a social or environmental impact, with the expectation to obtain a financial return…”. The PBA, together with Aporta, NESST, Peru 2021 and CONFIEP, facilitated the development of the study "Report on the state of the impact investment sector in Peru: opportunities and challenges", with the aim of contributing to creating a favourable investment climate.

Based on this experience, the PBA is facilitating the identification of private investment opportunities to promote business models and value chains for forest and agricultural landscapes restoration in Peru and Ecuador. This process is carried out in partnership with the 20X20 Initiative (facilitated by the World Resource Institute), with the intention of strengthening the entrepreneurial ecosystem in both countries and linking forest landscape restoration with the conservation and recovery of biodiversity and ecosystem services, land-use change dynamics and poverty alleviation. As part of this work, the Land Accelerator Program has been implemented in a specialized version for each country, seeking to prepare identified enterprises (25 in Peru and 22 in Ecuador) in their growth and consolidation through a six-week mentorship.

Public funds

In Peru, the National Forest Conservation Program for Climate Change Mitigation (PNCB), attached to the Ministry of the Environment, mobilizes national and international funds to conserve forests as a contribution to mitigating climate change and to sustainable development. Within its actions, the PNCB maps the existing forest areas and their loss, promotes the development of sustainable productive systems based on forests (to generate income for local populations living in poverty), and strengthens capacities for forests conservation for regional and local governments, natives and local communities, among others. Until 2021, the PNCB actions have been exclusively focused on the Amazon.

In its second phase, the PBA influenced the process of updating the PNBC Intervention Strategy to 2030, intending to include the Andean forests within its scope of action. As a result of this process, the PNCB will consider, starting in 2025, the identification and evaluation of Andean forests. It is expected to focus on 121,751 hectares of peasant communities, 3,575 ha of private conservation and 5,612 ha of private properties. The PNCB provides economic incentives for forest conservation, so schemes such as REGENERA and MERESE can be the basis for complementing and expanding its intervention to Andean forest landscapes.

In addition, there are other public financing options for Andean forests in Peru. The experience of the restoration pilot in the Kiuñalla community has made it possible to develop a Public Investment Project in charge of the National Forest and Wildlife Service, which will be financed with public funds and will consolidate and expand the restoration in this pilot site, giving continuity to the results achieved with the PBA in this locality.

International cooperation

In the Pichincha site in Ecuador, the PBA has promoted actions such as the consolidation of governance models that create enabling conditions for the sustainable management of Andean forests. To ensure the continuity of these initiatives, different international cooperation funds have been managed, among which the project “Strengthening the biosphere reserves of Ecuador as a strategy for conservation and sustainable development” stands out, which will be financed by the Global Environment Facility for the consolidation of sustainability and governance in the Pichincha site under the Biosphere Reserve approach.

Challenges for the future: reflections from the Andean Forests Program

In November 2020, a workshop facilitated by the PBA was developed with the participation of national and international partners and specialists. The workshop had the objective of determining key elements to maintain the sustainable management of Andean forests in a context of changing climate and promoting the quality-of-life improvement of men and women who depend on them. Part of these reflections was related to financing aspects and are summarized below:

  • Financial mechanisms for ecosystem services compensation and incentives for restoration are viable in the Andean area. However, it is still necessary to bring investors closer to local spaces, based on the expansion of portfolios.
  • A necessary strategy to promote and scale financing mechanisms for Andean forests is to link them to forest-related processes on a global scale, such as the Initiative 20X20 in the framework of the Decade of Restoration.
  • The economic benefits of Andean forest management are not yet adequately visible, so there are market opportunities that are being lost. Therefore, the challenge remains of highlighting secondary economic chains born of sustainable forest management, compared to value chains already characterized and prioritized by the State and cooperation.
  • There is currently no clarity on the role of the State in promoting private investment for Andean forests.
  • Most funds, especially public funds, operate on annual cycles, generating an execution lag when the implementation of activities depends on unstable factors such as changes in political cycles or climate uncertainty.
  • Existing financing does not consider the maintenance and monitoring phases of long-term initiatives, such as restoration, limiting the sustainability of these initiatives over time and creating information gaps regarding forest management.
  • The costs of forest conservation, management and restoration are not fully identified, which undermines the opportunities for proper planning. A similar situation occurs with the estimation of the economic income and value generated by these actions, which limits the possibility of making a safe calculation of economic returns.
  • The experiences of compensation mechanisms for environmental services such as REGENERA and MERESE are still few and isolated. Its replication demands the identification and prioritization of more spaces and communities in Andean forests where it is feasible to apply them with high probabilities of success.