Acting on Ecosystem Service Opportunities
Amortization: Amortization is the write-off of an asset over its expected period of use, which shifts the asset from the balance sheet to the income statement. It essentially reflects the consumption of an intangible asset over its useful life. Amortization is most commonly used for the gradual write-down of the cost of those intangible assets that have a specific useful life. Examples of intangible assets are patents, copyrights, taxi licenses, and trademarks.
Asset: economic resources.
Asset class: A group of securities, investments or financial instruments that have similar characteristics, behave similarly in the marketplace and are subject to the same laws and regulations.
Auctions: Mechanism for exchange of goods and services by offering bids, receiving bids and then selling the item to the highest bidder.
Bankable: A project, proposal or investment that institutional lenders would be willing to finance due to it having sufficient collateral, future cash flow, and a high probability of success.
Baseline: A clearly defined starting point, position or situation from where a comparison is made. In the context of conservation, this often refers to a baseline level of habitat, ecosystem or biodiversity degradation/ destruction which is to be addressed.
Beneficiary pays principle: The inverse of the polluter pays principle. Those who benefit pay for maintenance of environmental quality. This has particular application when developed countries are paying for global environmental benefits supplied by low-income developing countries (e.g. protection of rain forests which absorb greenhouse gasses).
Benefits transfer approach: Economic valuation approach in which estimates obtained (by whatever method) in one context are used to estimate values in a different context.
Benefit-sharing: Sharing of whatever accrues from the utilisation of biological resources, community knowledge, technologies, innovations, or practices. It also means all forms of compensation for the use of genetic resources, whether monetary or non-monetary.
Bequest value: The importance individuals attach to a resource that can be passed on to future generations.
Biodiversity (a contraction of biological diversity): The variability among living organisms, including terrestrial, marine, and other aquatic ecosystems. Biodiversity includes diversity within species, between species, and between ecosystems.
Biodiversity banking: Market-based scheme that provides an assessment process for biodiversity offsetting scheme as well as an opportunity for rural landowners to generate income by managing land for conservation.
Biodiversity loss: Biodiversity loss is usually observed as one or all of: (1) reduced area occupied by populations, species and community types, (2) loss of populations and the genetic diversity they contribute to the whole species and (3) reduced abundance (of populations and species) or condition (of communities and ecosystems). The likelihood of any biodiversity component persisting (the persistence probability) in the long term declines with lower abundance and genetic diversity and reduced habitat area.
Biodiversity offset: Actions designed to compensate for adverse biodiversity impacts arising from project development after appropriate prevention and mitigation measures have been taken.
Blended finance: The complementary and strategic use of public or private funds, including concessional tools, to mobilise additional capital flows (public and/or private) to emerging and frontier markets.
Business model: A conceptual structure which specifies the purpose and goals of a business and the ongoing plans to fulfil these.
Capacity building: The systematic and purposeful development and strengthening of human and institutional resources, capabilities and competencies to facilitate better fulfilment of a specific role(s) within an organisational structure.
Capital markets: The part of the financial system in which money is channelled into productive investment via equity, debt and other medium to long-term instruments.
Carbon Offsets: A method of allowing companies and individuals to compensate for their own carbon emissions through contributing to reduced emissions of carbon dioxide of greenhouse gases elsewhere. This usually involves payment for carbon credits each representing one ton of carbon equivalent.
Cash flow analysis: An analysis of a company’s cash inflows and outflows during a certain period.
Certification: A procedure by which a third party gives written assurance that a product, process or service is in conformity with certain standards (Box 9.1).
Civil society: A public space between the state, the market and society which can be understood as the aggregate of citizens and non-governmental organisations linked by common interests and collective activity.
Co-management: The management of a specific resource (such as a forest or pasture) by a well-defined group of resource users with the authority to regulate its use by members and outsiders.
Common pool resources: A valued natural or human-made resource or facility in which one person’s use subtracts from another’s use and where it is often necessary but difficult to exclude potential users from the resource.
Conservation easement: permanent restriction placed on a property to protect some of its associated resources like water quality. The easement is either voluntarily donated or sold by the landowner and constitutes a legally binding agreement.
Conservation easements: A restriction placed on a piece of property to protect its associated resources. The easement is either voluntarily donated or sold by the landowner and constitutes a legally binding agreement that limits certain types of uses or prevents development from taking place on the land in perpetuity while the land remains in private hands.
Conservation finance: A mechanism through which a financial investment into an ecosystem is made – directly or indirectly through an intermediary – that aims to conserve the values of the ecosystem for the long term.
Contingent valuation method: Economic valuation technique based on a survey of how much respondents would be willing to pay for specified benefits.
Convertible debt: A type of debt security that can be converted into equity at a later date, usually into a predetermined number of shares of the investee company at a specified time in the security’s life.
Corporate social responsibility (CSR): A company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this citizenship (1) through their waste and pollution reduction processes, (2) by contributing educational and social programs, and (3) by earning adequate returns on the employed resources.
Cost-benefit analysis: A technique designed to determine the feasibility of a project or plan by quantifying its costs and benefits.
Cost-effectiveness: referring to the least cost option that meets a particular goal.
Crowdfunding: The practice of funding a project or business venture by raising relatively small amounts of money from a large number of people, typically via the Internet.
Currency/ Foreign exchange risk: The risk of an investment’s value changing due to changes in currency exchange rates when a financial transaction is denominated in a currency other than that of the base currency of the company. Also known as currency risk.
Debt: Funds borrowed from a lender which the borrower promises to repay in accordance with the terms of a contract. The borrower usually has to repay the initial funds borrowed, as well as interest, namely, a regular payment of a sum calculated as a percentage of the funds borrowed (the interest rate).
Depreciation: The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation.
Derivatives: A security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.
Development Finance Institution (DFI): A financial institution which provides credit, concessional debt, equity funding and risk guarantee instruments to private sector investments in emerging markets and developing countries. DFIs tend to be backed by states with developed economies and aim to provide additionality to catalyse investment and private sector development in the target markets.
Direct use value (of ecosystems): The benefits derived from the services provided by an ecosystem that are used directly by an economic agent. These include consumptive uses (e.g. harvesting goods) and non-consumptive uses (e.g. enjoyment of scenic beauty; Chapter 2.2 under TEV).
Discount rate: A rate used to determine the present value of future benefits (Box 3.8).
Driver (direct or indirect): Any natural or human-induced factor that directly or indirectly causes a change in an ecosystem.
Due diligence: The process of carrying out an investigation or appraisal of a project or business by a prospective investor to establish its commercial viability and understand its potential risks. In the context of a conservation project, this often involves conducting a due diligence of environmental and social issues that may pose risks to a project finance transaction.
Eco-label: A sign or logo that is intended to indicate an environmentally preferable product, service or company, based on defined standards or criteria.
Ecological stability or Ecosystem health: A description of the dynamic properties of an ecosystem. An ecosystem is considered stable or healthy if it returns to its original state after a disturbance, exhibits low temporal variability, or does not change dramatically in the face of a disturbance.
Economic incentives (disincentives): a material reward (or punishment) in return for acting in a particular way which is beneficial (or harmful) to a set goal.
Economic valuation: The process of estimating a value for a particular good or service in a certain context in monetary terms (Chapter 3.2).
Ecoregion: A large unit of land or water containing a geographically distinct assemblage of species, natural communities, and environmental conditions. The boundaries of an ecoregion are not fixed and sharp, but rather encompass an area within which important ecological and evolutionary processes most strongly interact”.
Ecosystem: A dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit.
Ecosystem function: A subset of the interactions between ecosystem structure and processes that underpin the capacity of an ecosystem to provide goods and services.
Ecosystem services: Ecosystem services are the benefits people obtain from ecosystems as direct and indirect contributions to human well-being. These include provisioning services such as food and water; regulating services such as flood and disease control; cultural services such as spiritual, recreational, and cultural benefits; and supporting services, such as nutrient cycling, that maintain the conditions for life on Earth.
Ecotourism: Travel undertaken to visit natural sites or regions without harming them.
Environmental and Social Governance (ESG): A set of non-financial indicators or standards for a business that investors or lenders use to evaluate corporate behaviour, screen investments and determine the sustainability, impact and investability of a business.
Environmental and social management system (ESMS): A set of policies, procedures and internal capacity put in place by a business to identify, assess and manage the exposure to environmental and social risk in a project or investment.
Environmental impact assessment (EIA): Systematic listing and quantification, where possible, of the impacts of a policy or project on the environment.
Environmental tax: A tax whose tax base is a physical unit (or a proxy of it) that has a proven specific negative impact on the environment. Four subsets of environmental taxes are distinguished: energy taxes, transport taxes, pollution taxes and resources taxes. Taxes should not be confounded neither with payments of rent nor with purchase of an environmental protection service.
Equity (Political or Social): Fairness in the distribution of rights and of access to resources, services, or power.
Equity (Finance): A security or stock representing an ownership interest. In the case of a private company, this is called private equity. On a business's balance sheet, equity, or shareholders equity, is the amount of funds contributed by the owners of the business plus the retained earnings or minus the losses of the business.
Existence value: The value that individuals place on knowing that a resource exists, even if they never use that resource (also sometimes known as conservation value or passive use value).
Externality: A consequence of an action that affects someone other than the agent undertaking that action and for which the agent is neither compensated nor penalized through the markets. Externalities can be positive or negative.
Financial vehicle: Also known as an investment vehicle, a financial vehicle is a security or product used by investors with the intention of gaining positive returns. Investment vehicles can be low risk, such as certificates of deposit (CDs) or bonds, or can carry a greater degree of risk such as with stocks, options and futures. Other types of investment vehicles include annuities; collectibles, such as art or coins; mutual funds; and exchange-traded funds (ETFs).
Forest Carbon Partnership Facility (FCPF): A global partnership of governments, businesses, civil society, and Indigenous Peoples focused on reducing emissions from deforestation and forest degradation, forest carbon stock conservation, the sustainable management of forests, and the enhancement of forest carbon stocks in developing countries (activities commonly referred to as REDD+).
Franchise model: A type of business model in which a party purchases the licensing rights to have access to the proprietary knowledge, processes and trademarks of an established business, in order to sell a product or provide a service under the business’s name.
Funding rounds: When a business raises money from one or more investor. The type of funding rounds depends on the development stage of the business that is raising capital and the type of shares that are being sold in the round.
Governance (of ecosystems): The process of regulating human behavior in accordance with shared ecosystem objectives. The term includes both governmental and nongovernmental mechanisms.
Government land concessions: A grant of rights to, control over, or reallocation of public rights from the government to another actor for a fixed period of time and for the conduct of specific activities in that area. This may have either positive or negative implications from a conservation standpoint dependent on the context.
Grant: Non-repayable funds disbursed, often by a government or other donor organization, for a specified purpose to an eligible recipient.
Green bond: A fixed income financial instrument, which, is created for the purpose of raising investment for new and existing projects with environmental benefits.
Guarantees: An agreement from a third party lending institution or insurer which ensures that losses will be recovered in the event that the borrower defaults.
High Carbon Stock (HCS) Forest: A forest area which holds large stores of carbon and biodiversity, is critical for indigenous and local peoples who depend on it for their livelihoods, and is distinguished for protection from degraded lands which has low carbon and biodiversity values and may be developed.
High Conservation Value (HCV) Area: An area of biological, ecological, social or cultural value of outstanding significance or critical importance.
Horizontal growth strategy: A competitive strategy that involves growing a business by expanding business activities that are at the same level of the value chain in similar or different industries. For example, the acquisition and integration of a related business.
Human well-being: A context- and situation-dependent state, comprising basic material for a good life, freedom and choice, health and bodily well-being, good social relations, security, peace of mind, and spiritual experience.
IFC Performance Standards: An international benchmark for identifying and managing environmental and social risk that has been adopted by many organizations as a key component of their environmental and social risk management.
Impact investors: Investors that make investments “into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors’ strategic goals”.
Indicator: Information based on measured data used to represent a particular attribute, characteristic, or property of a system.
Indirect use value: The benefits derived from the goods and services provided by an ecosystem that are used indirectly by an economic agent. For example, drinking water that has been purified as it passed through the ecosystem (Chapter 2.2 under TEV).
Institutional investors: Organisations, including endowment funds, banks, pensions, insurance companies, real estate investment funds, mutual funds, hedge funds, and investment advisors, which invest on behalf of their members. Institutional investors pool money to purchase securities and other investment assets and trade them in large enough quantities to qualify for preferential treatment and lower commissions.
Institutions: The rules that guide how people within societies live, work, and interact with each other. Formal institutions are written or codified rules, such as the constitution, the judiciary laws, the organized market, and property rights. Informal institutions are rules governed by social and behavioral norms of the society, family, or community.
Intrinsic value: The value of someone or something in and for itself, irrespective of its utility for someone else (Chapter 2.2 under TEV).
Investment model: A conceptual structure which specifies elements and considerations relating to the financial structuring of a business in order to attract investment.
Joint Ventures: A business arrangement undertaken by two or more parties who retain their distinct identities but generally share ownership, risks and returns and governance.
Key Performance Indicators: A measureable value that is used to evaluate how effectively an organisation or particular activity is performing.
Landscape: “A socio-ecological system that consists of natural and/or human-modified ecosystems, and which is influenced by distinct ecological, historical, economic and socio-cultural processes and activities”.
Landscape approach: The landscape approach, as it relates to conservation, agriculture and other land uses, seeks to address the increasingly complex and widespread environmental, social and political challenges that transcend traditional management boundaries.
Limited Liability Company (LLC): A legal corporate structure in which members or of the company cannot be held liable for the business’s debts or liabilities.
Liquidation: An event that usually occurs when a company is insolvent, meaning that it cannot pay its obligations as and when they are due. The company’s operations are brought to an end and its assets are divided amongst creditors and shareholders, according to the priority of their claims.
Logical framework/log-frame: A methodology for identifying, planning and monitoring and evaluating projects.
Market analysis: the process of determining factors, conditions, and characteristics of a market.
Market failure: situation in which markets fail to allocate the resources efficiently and effectively due to incomplete information, existence of a dominant firm or externalities.
Market-based instrument: Mechanisms that create a market for ecosystem services in order to improving the efficiency in the way the service is used. The term is used for mechanisms that create new markets, but also for responses such as taxes, subsidies, or regulations that affect existing markets.
Microfinance: Financial services, including loans, savings and insurance, provided to unemployed or low-income individuals or to small businesses who lack access to traditional banking services.
Natural capital: An economic metaphor for the limited stocks of physical and biological resources found on earth, which include geology, soil, air, water and all living things. Also referring to the capacity of ecosystems to provide ecosystem services.
No-net-loss regulations: A “No net loss” policy can be defined as a principle by which counties, agencies, and governments strive to balance unavoidable habitat, environmental and resource losses with replacement of those items on a project-by-project basis so that further reductions to resources may be prevented.
Non-use or passive use: Benefits which do not arise from direct or indirect use (Chapter 2.2 under TEV).
Non-use value: A value ascribed to goods and services that are not associated with actual use but rather with the knowledge of knowing that a good or service exists or could be used in the future. Examples of non-use values include option or future use value and existence value.
Opportunity costs: foregone benefits of not using land/ecosystems in a different way.
Ownership equity: The owner’s investment in the business minus the owner’s withdrawals from the business plus the net income since the business began. Mathematically, the amount of owner’s equity is the amount of assets minus the amount of liabilities.
Payments for Ecosystem Services (PES): Programs or payment schemes that incentivize sustainable use or conservation of ecosystems by requiring beneficiaries to pay a fee for that ecosystem’s goods and services.
Pigouvian tax: A Pigouvian tax is a tax levied on an agent causing an environmental externality (environmental damage) as an incentive to avert or mitigate such damage.
Polluter pays principle: The principle that costs and responsibilities associated with pollution should be borne by the polluter as much as possible. This is accomplished through a variety of penalties and inducements.
Potential use or Option value: The use(s) to which ecosystem services may be put in the future.
Preferential loans: Loans that are extended on terms substantially more generous than market loans. This is achieved either through interest rates below those available on the market or by grace periods, or a combination of these. Also known as concessional loans.
Project finance: The financing of long-term projects based upon a non-recourse or limited recourse financial structure, in which project debt and equity used to finance the project are paid back from the cash flow generated by the project.
Property right: The right to specific uses, perhaps including exchange in a market, of ecosystems and their services.
Protected Area: An area of land and/or sea especially dedicated to the protection and maintenance of biological diversity, and of natural and associated cultural resources, and managed through legal or other effective means. A protected area can be under either public or private ownership.
Public goods: A good or service in which the benefit received by any one party does not diminish the availability of the benefits to others, and where access to the good cannot be restricted.
Public-private partnership: A contractual arrangement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public.
Quota: A fixed limit on the amount of something that someone is allowed to have or is expected to do.
REDD+: Reducing Emissions from Deforestation and Forest Degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries. First negotiated under the United Nations Framework Convention on Climate Change (UNFCCC) in 2005, with the objective of mitigating climate change through reducing net emissions of greenhouse gases through enhanced forest management in developing countries.
Refinancing capital: The process through which a company reorganizes its debt obligations by replacing or restructuring existing debts, usually following an early-stage, capital-intensive portion of a project and after which the project is considered less risky and can hence be financed at a lower interest rate.
Rent seeking: The opportunity to capture monopoly rents provides firms with an incentive to use scarce resources to secure the right to become a monopolist. Such activity is referred to as rent-seeking. Rent-seeking is normally associated with expenditures designed to persuade governments to impose regulations which create monopolies. Examples are entry restrictions and import controls. However, rent-seeking may also refer to expenditures to create private monopolies.
Resilience: The capacity of an ecosystem to respond to a perturbation or disturbance by resisting damage and recovering quickly.
Return on Investment (ROI): A performance measure of the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.
Revealed preference method: Non-market valuation methods that determine the value of an ecosystem good or service using data from other market transactions or proxy markets.
Reverse auction: Type of auction in which several sellers offer their items for bidding, and compete for the price which a buyer will accept. The buyer usually has the option to accept any bid or reject all. Bid-based construction or supply contracts are examples of reverse auction. Also called business to consumer auction.
Risk-return profile: Comparison of the anticipated risk of an investment with the expected return. Low levels of uncertainty or risk are usually associated with low potential returns, whereas high levels of uncertainty or risk are often associated with high potential returns.
Senior debt: Borrowed money that a company must repay first if it goes out of business. Each type of financing has a different priority level for repayment if the company liquidates, and senior debt is the first priority.
Services and benefits of ecosystems: see Ecosystem services.
Social capital: The networks of relationships among people who live and work in a particular society, enabling that society to function effectively.
Social enterprise: An organization that is directly involved in the sale of goods and services to a market, but that also has specific social objectives that serve as its primary purpose. It seeks to balance activities that provide financial benefit with social goals.
Special purpose vehicle/entity: The creation of a subsidiary which is a distinct legal entity to help keep liabilities, taxation and regulations related to the project separate from the core business, therefore isolating risk. This opens opportunities for leveraging finance.
Stakeholder: A person, group or organization that has a stake in or is affected by the outcome of a particular activity.
Standard: Documented agreements containing technical specifications to be used consistently as rules, guidelines or definitions, to ensure that materials, products, processes and services are fit for their purpose (Box 9.1).
Stated preference method: Non-market valuation methods that rely on input from individuals through surveys to determine the value of an ecosystem good or service. Contingent valuation and choice modelling are examples of a stated preference approach.
Strategic environmental assessment (SEA): Application of environmental assessment at the level of policies, plans and programmes.
Sub-commercial financial instruments: Securities in which the expected value is not realized.
Subsidy: Transfer of resources to an entity, which either reduces the operating costs or increases the revenues of such entity for the purpose of achieving some objective.
Substitutability: The degree to which elements can replace each other, e.g. human-made capital vs. natural capital (or vice versa).
Tenor: The length of time to maturity of a debt, contract or loan.
Term sheet: A nonbinding agreement that summarizes the basic elements of a financial transaction.
Total economic value (TEV): The value obtained from the various constituents of utilitarian value, including direct use value, indirect use value, option value, quasi-option value, and existence value.
Trade-offs: Management choices that intentionally or otherwise change the type, magnitude, and relative mix of services provided by ecosystems.
Tranches: Pieces, portions or slices of debt or structured financing. Each portion, or tranche, is one of several related securities offered at the same time but with different risks, rewards and maturities.
Transaction cost: The cost associated with exchange of goods or services: communication charges, legal fees, informational cost of finding the price, quality, and durability, transportation costs, etc. Transaction costs are a critical factor in deciding whether to produce or buy a product.
Transaction costs: The costs incurred in making an investment. These have an impact on the attractiveness of an investment, as the return expected on the investment has to outweigh the costs of making the investment.
Transboundary: An area that straddles international borders and may be managed cooperatively for conservation purposes.
Travel cost method: Economic valuation techniques that use observed costs to travel to a destination to derive demand functions for that destination.
UN-REDD: The United Nations collaborative programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries.
Use right: The right to use the land. A holder of a use right may not have the right to sell the property, etc.
Use value: The value that is derived from using or having the potential to use a resource. This is the net sum of direct use values, indirect use values and option values.
Valuation: The process of expressing a value for a particular good or service in a certain context (e.g., of decision-making) usually in terms of something that can be counted, often money, but also through methods and measures from other disciplines (sociology, ecology, and so on).
Venture capital: Financing that investors provide to small businesses that are believed to have long-term growth potential.
Vertical growth strategy: A competitive strategy that involves growing a business by expanding business activities into other levels of the value chain. For example, taking control of one or more stages in the production or distribution of a product.
Vulnerability: Exposure to contingencies and stress, and the difficulty in coping with them.
Zoning: As a technique of land use planning. Areas of land are divided by appropriate authorities into zones within which various uses are permitted.