Cloud Forest Bond

  • IASbaba
  • January 10, 2023
  • 0
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In News:  According to a new report, Cloud Forest Assets Financing is a Valuable Nature-Based Solution released by Earth Security – a global nature-based asset management advisory firm.

  • The report is aimed at three stakeholders – national governments, non-profits and communities.

About cloud forests:



  • Cloud Forests are montane rainforests
  • They refer to the vegetation of tropical mountainous regions where there is heavy rainfall and persistent condensation resulting from the cooling of the moisture being pushed upwards by the mountains.
  • They are usually characterized by a persistent, frequent and seasonal low-lying layer of mist and cloud cover usually at the canopy level.
  • Cloud forests are rare since the exceptional conditions that create these forests are only found in tropical areas with tall mountains.
  • Due to their unique characteristics, cloud forests are usually found along the sides of the mountains at elevations of between 3000 and 10000 feet but as low as 1650 feet in the Tropics between coordinates 23°N and 23°S.
  • Only 1% of the global woodlands are considered as cloud forests following a decline from 11% in the 1970s due to interferences by human activities and global warming.
  • Just 25 countries hold 90 per cent of the world’s cloud forests
  • These twenty-five countries are Indonesia, Tanzania, Democratic Republic of Congo, Colombia, Peru, Venezuela, Mexico, Papua New Guinea, Brazil, Ethiopia, Ecuador, Cameroon, Bolivia, China, Laos, Kenya, Malaysia, Angola, Uganda, Madagascar, Philippines, Gabon, Vietnam, Republic of Congo and Myanmar.


  • Their hydrological function is of existential value to millions of people living downstream.
  • They capture moisture from the air, providing fresh and clean water to people and industries below.
  • These 25 countries have around 979 hydropower dams and around half of them use water from the cloud forest.
  • The total value of hydroelectricity that currently depends on cloud-affected forests across these 25 countries is estimated to be $118 billion over 10 years. This will increase to $246 billion when new hydropower plants that are being developed become operational.

Cloud forest bonds:

  • Cloud Forest Bond will incentivise governments to protect their cloud forests — forests that are on top tropical mountains, largely shrouded in mist.
  • Cloud forest bonds will provide governments with financial actors like philanthropy, public finance and private investment to capture the economic value of the ecosystem services of the cloud forests.
  • Such a tool will encourage carbon storage and provide funding to set up sovereign-level carbon finance schemes as well as payments for ecosystem services
  • The report proposes to mobilise financing for cloud forest protection through payments schemes under which hydropower projects and other industrial water users benefiting from cloud forests pay for this service.
  • While these investments must conform to rigorous social and environmental impact safeguards, ensuring the protection of these forests upstream should be included as a risk management priority for investors, project developers and policy-makers.
  • The Cloud Forest Bonds will allow the developing countries to improve their debt position and fund the creation of new, long-term income streams from services provided by nature.
  • These bonds can be in the form of new bond issuances, debt-swaps and results-based financing instruments, which are matched to the circumstances of each of the twenty-five countries.
  • Forest protection is highest where land ownership rights of indigenous peoples and local communities are fully recognised and exercised – by providing a fair share of the benefits from forest carbon and water revenues
  • A Cloud Forest 25 (CF25) Investment Initiative to establish a collective of all 25 countries that have high cloud forest to accelerate the international application of market templates and aggregate the blended finance and data needed to achieve solutions at scale.

Source: DTE


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