Cloud Forest Assets
The Cloud Forest Assets programme focuses on a specific tropical forest ecosystem that provides a crucial service of water stability, offering the potential to be financed as green infrastructure. The programme works with stakeholders to design innovative financial mechanisms to enable governments, investors, companies and communities to monetise the hydrological function of forests, in addition to the carbon they store, and develop financial opportunities that reward nature protection.
Why cloud forests?
Cloud forests are mountain tropical forests, constantly shrouded in mist, which sit at the headwater of river basins. They are a formidable piece of global green infrastructure, capturing fog from the air, and increasing the availability and stability of water flowing downstream. Already important because of their unique biodiversity, cloud forests are valuable sources of water for cities, companies and water-intensive industries such as hydropower and agriculture.
Over 90% of cloud forests are found in just 25 tropical developing countries; many of which are amongst the poorest economies in the world. These 25 countries would benefit from creating proposed Cloud Forest Bonds, which align their sovereign finance to the protection of this natural asset, and fund the development of new income streams for nature protection and restoration, from water services in addition to carbon sequestration.
The findings in our landmark report ‘Cloud Forest Assets: Financing a Valuable Nature-based Solution’ are a call to action not just for the governments of these 25 countries but also for banks and investors, hydropower operators and other water-intensive industries that benefit from cloud forests, who will recognise the business value at risk from deforestation, and the role that cloud forests play as green infrastructure to build resilience to droughts and climate change.
Current hydroelectric capacity from dams dependent on water from cloud-affected forests in CF25 countries (MW)
Report recommendations
The report puts forward three key recommendations, providing a menu of design options to enable stakeholders to move forward with financing systems that reward nature protection:
- Shaping a Cloud Forest Bond to help governments achieve better finance terms in return for protecting valuable natural assets, underscoring the need to go beyond ‘debt-for-nature’ swaps and help countries receive payments that recognise nature’s services.
- Developing a Cloud Forest 25 (CF25) Investment Initiative that brings these countries together into a collective group to accelerate the speed and scale of this transformation, through templates, blended finance and data that underpins transactions.
- Delivering private sector leadership involving corporates that develop green finance products to invest in nature-based resilience; improved risk management frameworks for investment that recognise nature dependencies; and improved insurance underwriting methods to price nature-related risks.
What's next?
Unlocking innovative finance
The report completes phase one of a three-year project to catalyse new financing mechanisms and global collaboration to harness the value of cloud forests. A programme based on our findings and recommendations will begin in 2023, to both design a financial mechanism and identify investments that can enable governments, investors, companies and communities to realise the value of cloud forests as a nature-based solution."
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