Payments for Environmental Services in German Financial Cooperation
Most of the land in developing and developed countries is privately owned. When private
landowners make decisions on land use, other stakeholders are affected. How can we design and
fund financial mechanisms that encourage landowners to manage their resources in a manner that
benefits society? This article reflects on the experiences of KfW in supporting such mechanisms in
Latin America, a continent that has been particularly active in developing innovative approaches to
conservation. It identifies three major challenges – the institutional requirements of setting up such mechanisms, the sustainability of impacts on the farm level, and the potential to expand
environmental impacts by improving cost effectiveness.