Ecosystem services―such as river flows for hydroelectric power generation, rainforest biodiversity for pharmaceutical companies, coral reefs for eco-tourism lodges, or mangroves and sea marshes for coastal aquaculture―are critical for many industries.

Payments for Ecosystem Services (PES) is based on the concept that naturally-occurring ecosystem services on privately-owned land can be preserved by using compensation rather than regulation. The idea behind PES is traceable to 1956, when the U.S. Department of Agriculture, largely seeking t o create a permanent fix to the type of land overuse that had contributed to the Dust Bowl of the 1930s, implemented an Acreage Reserve Program. This program offered payments to farmers who voluntarily agreed “not to harvest any crop from or graze” a portion of their land in order to allow it to grow soil-stabilizing vegetation. A modern iteration of the program still exists today.

PES contracts are now a development mechanism in hundreds of projects around the world. Many of these projects have created substantial improvements in human welfare and environmental service provision. Most projects rely on funding from international aid organizations and foundations, but these organizations’ timeframes are often too short to ensure sustainable land management practices continue indefinitely.

The importance of private sector involvement in PES strategies is, therefore, increasingly apparent. The private sector has the revenue streams necessary to maintain PES programs and unlock other funding opportunities. And as climate change and resource depletion stress markets globally, private companies are realizing that securing ecosystem services such as coastal protection and clean water provision is essential to profitability.

Despite the need, there are few cases of successful private sector engagement in PES strategies. A handful of private actors, such as sugar cane growers in Colombia, pharmaceutical companies in Fiji, and shrimp farmers in Vietnam, have reduced business risk and protected profits with PES. For many businesses, though, barriers to entry in the PES space remain prohibitively high without the right kinds of technical support.

One large barrier is that companies are often unfamiliar with local NGOs, farmers’ collectives, and small businesses―essential community stakeholders in PES strategies. This is where Resonance can play a role, employing its proven methodologies and trainings for facilitating partnerships between private companies and a range of local stakeholders. Resonance can also help connect projects with start-up funding from development agencies and charitable foundations.

For example, Resonance is collaborating with a large agribusiness and its conservation NGO partner in Tanzania design and implement a scheme that mitigates their primary business risk through improved resource management in local communities. The PES program helps this large rice plantation, which is dependent on river flow for irrigation, preserve its water supply by paying upstream farmers to implement sustainable water management practices on their land. Because the company is interested in long-term profitability, these payments will be secured for 50 years or more.

For firms concerned about managing environmental risk and securing the welfare of individuals and communities throughout their supply chains, PES is an excellent strategy. PES has come a long way since 1956. In collaboration with the private sector, its greatest potential is just being harnessed.

by Peter Lugthart, Associate