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January 2008

Matching Supply and Demand: Private Sector Engagement in Payments for Ecosystem Services By Sissel Waage, Ph.D. & Alice Ruhweza with Primary Research and Text Contributions By Ivo Mulder, Kerry ten Kate, Sara Sherr, Ph.D., Jackie Prince Roberts,

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January 2008

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  1. Matching Supply and Demand: Private Sector Engagement in Payments for Ecosystem Services By Sissel Waage, Ph.D. & Alice Ruhweza with Primary Research and Text Contributions By Ivo Mulder, Kerry ten Kate, Sara Sherr, Ph.D., Jackie Prince Roberts, Amanda Hawn, Katherine Hamilton, Ricardo Bayon, Nathaniel Carroll January 2008

  2. Introduction & Overview • Background • Current ‘State of Play’ • Motivations for Private Sector Engagement • Barriers to Private Sector Engagement • Opportunities for Engagement • Conclusions

  3. Background: the Private Sector & Ecosystem Services • One of main challenges to PES schemes is finding potential buyers • Although not always recognized, the private sector depends on ecosystem services, for raw material inputs, production processes, and climate stability. • Advocates of environmental markets assert that the private sector has incentives to pay for ecosystem services—ranging from regulatory compliance to direct, supply chain-related business benefits through to positive community relations. • But…..large-scale private sector engagement with markets for ecosystem services is likely to only emerge from one (or several) of three shifts—related to: • Regulation • Clear financial returns / business case • Stakeholder demand / expectations (especially shareholders, investors, or customers)

  4. Understanding the Incentives The private sector’s role as both buyerandseller of ecosystem services is key to enticing businesses into markets and payments for ecosystem services These dual (buyer / seller) roles of the private sector are important—as managers in companies have incentives to: Protect the bottom-line Build the brand / company’s positive reputation Produce ‘top-line’ growth of new revenues through new products, services, etc.

  5. Current “State of Play” • Carbon Market interest from the private sector interest is rapidly growing due to: • Scientific consensus • Business implications of climate change—particularly highlighted among insurers and increasingly investors. • Regulations and likelihood of further regulatory action • Stakeholders, including shareholders, demanding climate change-focused action • Water-Markets & Interest in PWS (Payments for Water Services)from the private sector is likely to increase within the next 5 years given: • Water-related implications of climate change in many regions • Scientific and regulatory agency concerns about nutrient loading in waterways • Businesses’ concerns about access to water, particularly multinational firms operating in developing countries that rely on maintaining local goodwill for ‘license to operate’ • Biodiversity-Related Markets & PES-type Transactionsare likely to see more ad hoc growth, as some businesses are recognizing the importance of these issues, particularly in terms of: • maintaining ‘license to operate’ • Stakeholders, including shareholders, demanding action

  6. Motivations (I) Source: Mulder, Ivo. 2005. Private Sector Engagement in PES. Washington, D.C.: Forest Trends, Internal Report Prepared for the GEF Grant Application Process.

  7. Motivations (II) Source: Mulder, Ivo. 2005. Private Sector Engagement in PES. Washington, D.C.: Forest Trends, Internal Report Prepared for the GEF Grant Application Process.

  8. Barriers to Private Sector Engagement Source: Mulder, Ivo. 2005. Private Sector Engagement in PES. Washington, D.C.: Forest Trends, Internal Report Prepared for the GEF Grant Application Process.

  9. Opportunities • Continue documenting and highlighting the business benefits associated corporate engagement in markets and payments for ecosystem services, both in terms of: • Positive press / brand / reputation • Financial business benefits / business case elements • Use the media coverage on the carbon market to highlight water and biodiversity markets / PES deals • Particularly focus on voluntary carbon markets and potential co-benefits as well as additional engagement in water and biodiversity markets / payments • Draw on financial service institutions’ interest in managing their own environmental risks to: • Seek formal incentives / policies that encourage corporate engagement in markets and payments for ecosystem services • Particularly focus on pension fund managers and banks investment screens

  10. Conclusions • Private Sector engagement in markets and payments for ecosystem services is emerging • For many businesses, significant questions remain about why they should begin paying for something that they neither have funded to date, nor which they expected any entity other than the government to fund • Further questions emerge about quantifiable returns, particularly given the elevated risk level of engaging in what are effectively emerging markets • Relative newness of these markets and payments translates into a lack of experience within companies to put together these deals, which in turn leads to higher transaction costs.

  11. End of Slide Show Thank You!

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