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Water Funds Brochure

A brief overview of the work the Natural Capital Project is doing on water funds in Latin America (Download pdf)

RIOS Brochure

A short summary of our upcoming Resource Investment Optimization System (RIOS) software tool for water funds design (Download pdf)

Latin America

© TNC-Northern Andes and Southern Central America Region Map

Extending across the northern Andes Mountains, including much of Colombia, Ecuador, and Venezuela, and the northern tip of Peru, as well as Panama, Costa Rica, and the southern tip of Nicaragua, the Northern Andes and Southern Central America (NASCA) region is home to over 20% of the world's biodiversity. Defined by similar ecology, the region encompasses moist and dry tropical forests, high altitude grasslands (páramo), urban metropolises, rivers, rural landscapes, and a vast array of flora and fauna.

Unfortunately, due to restricted budgets and limited resources, the official national protected areas in the region, which include much of the forests and páramo, are not well enforced and protected. In addition, biodiversity and environmental services data is limited and/or not accessible for government decision-making and use. Nature Conservancy staff and partners in the NASCA region are using InVEST to map ecosystem services to generate information that can guide and inform decision-making.

Using Return on Investment for Conservation Action: Targeting Water Fund Investments

© TNC-Northern Tropical Andes (Bridget Besaw and Diego Ochoa)

Water fund projects have proliferated in NASCA thanks to TNC leadership and innovation. Water funds essentially use a sustainable finance mechanism for watershed conservation. Water users make voluntary financial contributions into a fund that is invested, providing a long term revenue source for conservation of the watershed. Contributors are motivated by the fact that watershed conservation will provide water purification and regulation services at lower cost than other forms of treatment and flow regulation such as through built infrastructure.

In order to value water services from the watershed, identify priority sites for investment in the watersheds to secure those services, and set up monitoring programs (identification of priority sites for monitoring) for these water funds, feasibility and design studies were developed and run with technical support from NASCA Science and Centro Internacional de Agricultura Tropical (CIAT).

InVEST, SWAT (Soil and Water Assessment Tool), and FIESTA (Fog Interception for the Enhancement of Stream flow in Tropical Areas) models were run using data from the watershed in the East Cauca Valley in Colombia, the site of a recent water fund project (see publication list). Model results will help determine critical areas in the watershed for immediate water fund investments. In addition, comparison of model results will help inform the use of InVEST for water fund projects throughout the region.

Over time, TNC staff hope to use InVEST to build scenarios to determine the impacts from climate change on the water resources critical for the water fund projects.

Water Fund Investments in Latin America

The Natural Capital Project is working with the Latin America Water Funds Platform (a partnership among The Nature Conservancy, the Inter-American Development Bank, GEF and FEMSA) to develop a science-based software tool that will standardize water fund investment design. Water is one of the scarcest resources on the planet, and pressures on it will only grow as the human population expands and climate changes. Latin America is making a major effort to address this issue through development of a new conservation financing mechanism known as water funds. The goal of these funds is to improve the management of watersheds, the green infrastructure that supplies, regulates, and cleans water.

Water funds are a finance mechanism for watershed conservation and provision of clean, ample water. Beneficiaries of a watershed make financial contributions to a fund that is used to promote conservation activities including protection, restoration, and best management practices in crop and pasture lands. Water funds work when these activities supply water, and provide purification and regulation services at lower costs than other forms of treatment and flow regulation such as dams and water treatment plants.

In 2011 the Latin American Water Funds Partnership committed to developing 32 new water funds in Latin America over 5 years, pledging $27 million to restore over 7 million acres of watersheds (see map above). The Natural Capital project is working with this partnership to develop water funds that represent the interests of multiple stakeholders and maximize the water-related benefits of improved land management. Our work builds on the experiences of existing water funds to develop a standardized and flexible approach to water fund design and investment. Our approach values the environmental returns on watershed investments through hydrological models while accounting for preferences and requirements of stakeholders. Our work in the Cauca Valley has improved the return on investment in their water fund, as watershed conservation efforts are now able to choose the conservation activities and areas for investment to yield the greatest improvements to water quality.

RIOS: Resource Investment Optimization System

RIOS is a water funds development tool co-designed with users to improve returns from conservation investments based on a combination of biophysical, social and economic data. The tool has been tested in several emerging water funds across Latin America and has proven useful for managers and flexible enough to apply in different environmental, social, and legal contexts. RIOS is free and designed for companies, consultants, government agencies or non-government organizations to use in the development of water fund investments. It provides decision makers with the best locations on a landscape to spend funds to maximize the ecological return on investment, within the bounds of what is socially and politically feasible. Additionally, RIOS quantifies returns for some of the most desired water benefits including erosion control, water purification, and flood mitigation. Our goal for RIOS is to provide a standardized approach to water fund design and investment prioritization in contexts throughout the world.

RIOS's first public release is scheduled for Spring of 2013 but it is available on our website now as a prototype in development.

Understanding and Mapping Environmental Services

Making environmental services information useful and tractable in policy-making and identifying priority areas for conservation requires an understanding of which services are important, where service flows originate, and where people use them. The national planning agencies and environmental authorities in the region have been very interested in a conservation approach that integrates benefits for people and their well-being with biodiversity conservation.

Using InVEST, TNC staff in NASCA have been able to provide a visual depiction of the spatial distribution and overlap of a variety of services to the environmental ministries. TNC offices in Ecuador and Colombia are publishing national maps of several environmental service flows. With these types of national-level environmental services maps, TNC is better equiped to inform government about a variety of policies such as siting and licensing for infrastructure projects by national agencies, avoiding, mitigating, and offsetting environmental impacts, and where and how to invest limited conservation funds.

Climate Adaptation in Colombia: designing an adaptive compensation and rewards program for environmental services

In the Putumayo region of Colombia, cloud and rainforests are threatened by the advance of large-scale infrastructure projects and the agricultural frontier, which are likely to be exacerbated by the impacts of climate change. WWF scientists and Fundación Natura are studying the impacts of these threats on the supply of environmental services in the region. We are identifying new strategies to maintain nature's benefits over the long term, including converting traditional livestock production to silvopastoral systems and designing financial incentives for conservation. We are working with regional environmental planning agencies to test the benefits of these strategies to maintain or enhance environmental service supply

Environmental Service Maps Informing Policy Decisions

© TNC - Oil and gas industry generates impacts on biodiversity (Diego Ochoa)

In Colombia, TNC and partners (including the Humboldt Institute, Conservation International, and WWF) have a 3-year agreement with the Ministry of the Environment to provide them with a tool to help the National Government make decisions about where to site infrastructure projects (gas, coal, mining, roads, transportation, harbors, etc). The primary goal: help inform the process of how to avoid, minimize, and compensate biodiversity impacts from concessions projects. The biodiversity data layers are based on ecoregional maps developed by TNC but a more fine-scale version of these maps using modified, more spatially explicit data layers are being developed for regional-scale planning. The goal is to overlay environmental service maps from InVEST with the biodiversity maps so government can have information on biodiversity and services.

In Ecuador, a similar process is underway to inform the main national planning agency: Secretaria Nacional de Planificacion y Desarrollo (SENPLADES). Here software has been developed with models that provide dynamic biodiversity maps. The data layers will allow the software to calculate the effect of theoretical infrastructure projects on biodiversity. Users draw a polygon, line, or point as a proxy for an infrastructure project. The software generates biodiversity impact maps based on these inputs. InVEST maps provide an environmental services layer giving a snapshot of the effects of the projects on service flows.

In The News

Confronting the biodiversity crisis

Nature Reports Climate Change, May 5, 2010 (DOI)

“Nine watersheds tumble into Cauca Valley, a region in the southwest of Colombia sandwiched between two of the Colombia Andean mountain chains. For centuries, its richness has attracted humans, who exploited the valley's resources first for agriculture and stockbreeding, and later for hydroelectric power generation. Today, sugar cane production dominates the valley's industry.

“'There are many stresses from water use. The sugar cane sector is thirsty, but the people who live there also need it for daily activities and for drinking water,' says Alejandro Calvache, a water fund specialist at The Nature Conservancy, based in Cartagena, Columbia. TNC, in collaboration with the sugar cane growers' association, the regional environmental authority and several grassroots organizations, is building a water fund that will oversee a massive program of reforestation, water protection, soil improvements, education and training. By investing in the region's ecosystem services, the project, which is called 'Agua Por La Vida y la Sostenibilidad' — meaning 'Water for Life and sustainability' — aims to lessen climate change impacts and threats to biodiversity.

“Water funds exist globally to conserve watersheds, but this is one of the first to include climate change modelling to help direct investments. The International Center for Tropical Agriculture, a research institute in Columbia, is modelling scenarios to determine the effects of climate change on local water resources. These scenarios are then fed into a computer-based decision-making tool called InVEST, which has been developed by the Natural Capital Project, a partnership between TNC, Stanford University and the World Wildlife Fund. InVEST identifies the areas where climate change is unlikely to threaten activities the water fund has been invested in — such as promoting the reforestation of a hillside or teaching eco-friendly cattle-ranching practices — and their returns. 'Traditionally, conservation has pulled on people's heart-strings,' says Heather Tallis, lead scientist at Natural Capital. 'We try to appeal to people's lifeblood, like drinking water.'”