Cloud Forest Bond

A new report by Earth Security, a global nature-based asset management advisory firm, has proposed the creation of a Cloud Forest Bond to incentivize governments to protect their cloud forests. Cloud forests, which are located on top of tropical mountains and largely shrouded in mist, are under threat and play a crucial role in providing fresh and clean water to millions of people living downstream.

  • The bond would provide financial support to governments in the form of philanthropy, public finance, and private investment to capture the economic value of the ecosystem services provided by cloud forests and encourage carbon storage.

Importance of Cloud Forests:

  • Cloud forests occupy a limited area but provide vital hydrological functions and are of great importance to the people and industries that rely on them for clean water. Just 25 countries hold 90% of the world’s cloud forests, which capture moisture from the air.
  • These countries include Indonesia, Tanzania, Democratic Republic of Congo, Colombia, Peru, Venezuela, Mexico, Papua New Guinea, Brazil, Ethiopia, Ecuador, Cameroon, Bolivia, China, Laos, Kenya, Malaysia, Angola, Uganda, Madagascar, Philippines, Gabon, Vietnam, Republic of Congo, and Myanmar.

The Value of Cloud Forests:

  • The total value of hydroelectricity that currently depends on cloud-affected forests across these 25 countries is estimated to be $118 billion over 10 years. This will increase to $246 billion when new hydropower plants that are being developed become operational.
  • The report proposes to mobilize financing for cloud forest protection through payment schemes in which hydropower projects and other industrial water users benefiting from cloud forests pay for this service. In addition, sovereign carbon finance could add an additional $209 billion across these countries over the next decade, according to the report.

The Cloud Forest Bond:

  • The Cloud Forest Bond would provide a way for these countries to improve their debt position and create new, long-term income streams from the services provided by nature.
  • The bonds could be in the form of new bond issuances, debt-swaps, or results-based financing instruments, which could be tailored to the circumstances of each country. The bond would also help to ensure the protection of cloud forests, which are not currently protected areas, but should be treated as vital infrastructure.

The Cloud Forest 25 (CF25) Investment Initiative:

  • The report also proposes the creation of a CF25 Investment Initiative, which would bring together all 25 countries with high levels of cloud forest coverage. This initiative would aim to accelerate the international application of market templates and aggregate the blended finance and data needed to achieve solutions at scale.

Importance of Recognizing Land Ownership Rights:

  • The report emphasizes the importance of fully recognizing and exercising the land ownership rights of indigenous peoples and local communities in order to effectively protect forests.
  • This approach should be the basis for financing natural assets and ensuring that these communities receive a fair share of the benefits from forest carbon and water revenues.

The Cloud Forest Bond offers a valuable solution for protecting cloud forests, which play a crucial role in providing clean water and storing carbon. The bond would provide financial support to governments in the form of philanthropy, public finance, and private investment and encourage carbon storage. The CF25 Investment Initiative offers the potential to accelerate the implementation of this solution and bring together all 25 countries with high levels of cloud forest coverage. It is crucial that the land ownership rights of indigenous peoples and local communities are fully recognized and exercised in order to effectively protect these valuable natural assets.

 

Written by IAS POINT

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