Linking green bond yields to the species composition of forests for improving forest quality and sustainability

Abstract

Forests in India's Himalayan region are undergoing rapid degradation owing to various climatic and man-made stressors, such as invasive species spread and excessive lopping and harvesting of trees. Invasive plants, such as L. camara, pose significant threats to the rich biodiversity of the region due to their ability to replace native vegetation and spread rapidly under a warming climate. Additionally, chir pines (P. roxburghii) are replacing banj oak (Q. leucotrichophora) forests. Oak forests support rich biodiversity and are also preferred by the local communities for meeting their livelihood requirements. In this study, we ask whether green bonds could be utilized for financing the restoration of desirable forest species and enhancing their resilience to natural hazards such as fires. In particular, we explore the possibility of linking green bond yields to the species composition of forests for incentivizing the protection of oak forests. We develop an optimization model of community led restoration of oak and pine forests that are infested with L. camara. Restoring oak forests mitigates the risk of forest fires, improves forest water supply, and controls the spread of the invasive lantana. Findings indicate that such species composition based green bonds, when coupled with payments for ecosystem services programs, can indeed incentivize higher restoration efforts, resulting in an improvement in the biodiversity richness of the region.