Many companies are taking steps to lower their impact on the environment, but what if a greater number could be convinced that investing in restoration was worth their while?

For environmentalists it is a compelling idea, and a new initiative by The Nature Conservancy (TNC) and Conservation International (CI), incubated by the Global Innovation Lab for Climate Finance, proposes to do just that. The organizations are working to encourage hydropower operators to pay for measurable ecosystem benefits provided by cloud forests within their plants’ catchments in locations around Latin America.

The project proposes an innovative “pay for success” financing technique.

Restoration processes require relatively high upfront costs, followed by a cheaper maintenance phase. Preliminary research done by CI shows that the return on investment (ROI) for reforestation – which is a “really costly thing” – says Justus Raepple, deal lead at Naturevest, TNC’s impact investment division, is high enough to be paid for simply through the downstream benefits to hydro operators.

Because is likely to take a few years for the benefits of restoration to trickle down to dam operators, the team is looking for first-stage funding from commercial lenders, donors and impact investors to kick-start restoration processes. Dam operators in the catchments under restoration will then make commitments that when they gain positive returns in terms of increased energy security and availability, they’ll pay back the initial investment.

“There aren’t many connections in nature like this, where the benefits are so profound to the beneficiaries that the restoration actions pay for themselves,” Raepple said, adding that cloud forests are “one of the most valuable ecosystems in the world.”

As Romas Garbaliauskas, senior legal advisor at CI explains, this method of financing is pretty common in the “grey” (human-built) infrastructure world – it’s the same model used to build toll roads, for example, and hydro facilities themselves.

But to his knowledge, this is the first time it’s been used for conservation purposes in the developing world.

“We see this as a big win-win,” Garbaliauskas added.

Cloud forests harbor unique biodiversity, and are key to climate change mitigation and resilience. As well as sequestering carbon, they also serve to mitigate the impacts of a warmer, more chaotic climate, by reducing the likelihood of extreme events such as flooding, droughts and landslides.

Around 65 percent of original cloud forest in Latin America has already disappeared due to urbanization, agriculture and mining. The Cloud Forest Blue Energy Mechanism aims to restore 60 million hectares of these forests, which would sequester around 2.4 gigatonnes of carbon dioxide, and create a “green infrastructure” opportunity worth around $30-$40 billion.

Hydropower fulfills a considerable chunk of Latin America’s energy needs, including over 75 percent of Brazil’s electricity and more than 70 percent of Colombia’s. But generation is compromised by variable water flows and sedimentation issues, and this is where forest restoration can play an important role.

Climatic events such as drought can significantly impact water flow, and forests help mitigate this by acting like a sponge, retaining water and releasing it slowly and steadily. Cloud forests are unique in that they also create additional water: trees capture fog, convert it into water and condense it, adding up to 15 percent additional water to a watershed.

Sedimentation levels are also impacted by forest health. Standing forests keep soil in place, and as deforestation happens, water starts washing sediment downstream towards hydropower dams, so companies either have to stop it going into the turbines or deal with the damage it causes to the turbines as it passes through.

Ultimately, these sedimentation maintenance issues can make a dam uneconomic after several years. “So restoring forests helps with with their sedimentation management, which also prolongs the life of the hydropower, so it avoids having to build more dams, or finding the energy in less environmentally-friendly ways,” explains Garbaliauskas.

The collaborators estimate that around 200 dams around Latin America could potentially benefit from restoring cloud forests. But their vision doesn’t stop there. “This is bigger than just cloud forests and hydros,” says Garbaliauskas. “It’s about restoring all kinds of forest ecosystems, and in doing so, producing healthy green infrastructure that provides these services which have financial benefits.”

It’s notoriously difficult to prove the full monetary value of green infrastructure, he says. Carbon-sequestration is challenging to quantify in terms of concrete benefits to companies, since it’s a global issue, and things like pollination are also exceedingly complex. In this context, water management offers a useful opportunity to quantify some of the more localised benefits of investing in green infrastructure.

So, the project could be seen as a vanguard for placing monetary value on green infrastructure in general, says Cassandra Kane, CI’s communications manager. “And for making society aware of the role that nature plays in the important goods and services that we need on a daily basis,” Garbaliauskas said.

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