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Conserving Bhutan's Natural Heritage through a Trust Fund

Ecological Extremes and Rich Biodiversity | A Special Commitment to the Environment | Enhancing Conversation | Establishing a Viable Trust Fund | Beyond the Benchmarks | The Lessons of the BTFEC |

The royal government of Bhutan is following a "middle path" of development that attempts to raise the living standards of the population without jeopardizing the nation's unique and fragile natural heritage. For the last seven years, the keystone of its effort has been the Bhutan Trust Fund for Environmental Conservation (BTFEC), which is underwritten with capital from the government of Bhutan, the Global Environment Fund (GEF), the World Wildlife Fund (WWF), and donor nations.1 Through the BTFEC, the government of Bhutan is working to keep 60 percent of the nation's land mass under forest cover and is reserving 26 percent of its territory as protected areas. In achieving these ambitious goals, Bhutan is demonstrating for other countries how trust funds can be used to advance conservation.

Ecological Extremes and Rich Biodiversity

Photo: Ted Smith
Bhutan's environmental trust fund is helping protect such rich natural habitats as the Jigme Dorji Wildlife National Park.

Nestled in the eastern part of the Himalayan range, the kingdom of Bhutan manifests great ecological and biological diversity. Flanked by India to the south and the Tibet region of China to the north, this country of only 47,000 square kilometers possesses terrain that ranges from tropical and subtropical forests in the southern lowlands to sparse alpine meadows in the north. Climatic conditions vary as well: valleys in the inner mountains receive less than 800 millimeters of precipitation annually, while the lowlands receive as much as 5,500 millimeters. Bhutan is the last refuge for many species of plants and animals that have vanished elsewhere in the Himalayan region because of habitat destruction stemming mainly from rapidly expanding human populations.

With a population of about 710,000, sparsely settled Bhutan is one of only a few biologically diverse countries in the world that have an opportunity to maintain their biodiversity largely intact in the coming decades. Bhutan, however, is one of the least developed countries in the worldeven though its economy has made great strides over the last several decadesand, inevitably, there is pressure on natural resources. The challenge the country now faces is to conserve its unique ecological treasure for future generations while responsibly using these resources and their revenues to meet the economic and social needs of the population.

A Special Commitment to the Environment

Convinced that the natural endowment is a fundamental part of Bhutan's cultural heritage, the government strongly supports environmental protection. Lyonpo C. Dorji, Bhutan's minister for planning, states:

The relationship between the Bhutanese people and the environment has been forged over centuries within moral, cultural, and ecological boundaries. Respect for these boundaries was ensured historically through a set of formal and informal rules and norms. Traditional and local beliefs promoted the conservation of the environment, and key ecological areas were recognized as the abodes of the gods, goddesses, protective deities, and mountain, river, forest, and underworld spirits. Disturbance or pollution to these sites would result in death, disease, or famine. Buddhism and animism reinforced this traditional conservation ethic and promoted values such as respect for all forms of life and giving back to the earth what one has taken away. This traditional respect for the natural world ensured that Bhutan emerged into the twentieth century with an intact natural resource base.

This special regard for the environment explains Bhutan's commitment to conservation and its unwillingness to compromise the country's exceptional biodiversity. Bhutan's conservation-based policies do not permit large-scale commercial harvest of timber or other forest resources without scientific management plans and environmental impact assessments, and improper extraction of mineral resources is discouraged.

In the early 1990s, Bhutan faced serious financial, institutional, and human resource constraints in its efforts to conserve its unique environment. Envisaging a long-term, sustainable financial mechanism that would enable national self-reliance in supporting environmental conservation, the government created the BTFEC in 1991 in collaboration with the WWF and the United Nations Development Programme (UNDP). In May 1992, the GEF provided Bhutan a grant equivalent to US$10 million to establish its trust fund, making this the GEF's first operation in Bhutan and the first GEF-financed trust fund in the world. Since 1992, the WWF and the governments of Bhutan, Denmark, Finland, the Netherlands, Norway, and Switzerland have also contributed to BTFEC's capital endowment, which today stands at more than US$29 million. GEF support had two main objectives: to assist Bhutan in conserving its forests and rich biological diver- sity and to test the feasibility of trust funds as mechanisms for providing sustainable long-term support for biodiversity conservation.

The BTFEC has been legally incorporated in Bhutan by royal charter, with its institutional mission, goals, and trustee roles clearly defined. Its goals include:

  • The development of a national system of ecologically representative protected areas that would systematically involve local communities and promote livelihoods consistent with biodiversity conservation and the sustainable use of natural resources
  • Implementation of integrated conservation and development projects around protected areas
    The promotion of biodiversity conservation and sustainable use of natural resources outside designated protected areas
    Protection from natural threats, and restoration of the environment
  • Investment in forestry- and agriculture-related biodiversity conservation and sustainable use programs
  • The incorporation of environmental awareness and education into the country's instructional system, and the reinforcement of conservation ethics and knowledge in local communities through informal education on conservation policies and legislation.

Enhancing Conservation

The GEF grant established specific benchmarks to measure progress in meeting Bhutan's conservation objectives. These benchmarks laid an important foundation for a long-term biodiversity conservation program and served as conditions for the release of the second tranche of GEF funds in 1996. The benchmark activities, which cost US$1.76 million and which were financed by the BTFEC, the WWF, the government of Bhutan, and bilateral donors, were achieved in three yearsless than the five years anticipated at grant approval. This was an extraordinary achievement for an experimental operation and a country with limited implementation capacity.

Bhutan has established a legally recognized, comprehensive system of protected areas covering 26 percent of the country's total area, incorporating a wide range of representative ecosystems and preserving important biodiversity. This system comprises four national parks, four wildlife sanctuaries, and one nature reserve.

The Nature Conservation Section of the Forestry Services Division was upgraded through the additional staff and training needed for conservation activities on the ground. The division's information management has been strengthened. Environmental and other data are being incorporated into forest management plans, thereby ensuring that critical wildlife habitats in production forests will not be disturbed.

The curricula at the Bhutan Forest Institute and at the Natural Resources Training Institute were expanded to include environmental conservation. This enhanced training has heightened forest guards' and agricultural extension workers' awareness of conservation issues.
Four protected areas have been established: Royal Manas National Park, Jigme Dorji Wildlife National Park, Black Mountain National Park, and Bomdelling/Khulongchhu Wildlife Sanctuary.

Jigme Dorji and Royal Manas National Parks have completed biophysical and socioeconomic baseline surveys and have functioning plans to prioritize investments and manage park activities. The detailed management plan for the Royal Manas National ParkBhutan's first scientific plan for a protected areais serving, in particular, as a model for other protected areas.

Establishing a Viable Trust Fund

When the GEF grant was approved, the institutional design of the BTFEC was not yet fully developed. Many details needed to be worked out during implementation to shore up the operational management of the fund. The BTFEC's financial management was strengthened by:

  • Contracting with a professional international asset manager and custodian to ensure high income
  • Hiring a full-time financial officer to keep operational, programmatic, and consolidated accounts
  • Enhancing reporting on financial transactions and technical uses of BTFEC funds
  • Improving BTFEC governance arrangements.

In its first few years, the trust fund earned limited income, and its ability to finance the benchmark activities cited above was curtailed. In response, the government mobilized funding from WWF and other sources to finance a major portion of these activities and relied on the BTFEC to fill funding gaps. Under new financial management, and with a favorable international equities market,

BTFEC's investment income has increased substantially in recent years, setting the stage for financing of a larger share of needed conservation activities. With continued prudent financial management, the BTFEC is expected to finance environmental conservation for many years to come. While the flow of earnings from invested capital will vary from year to year, depending on the volatility of the international capital market and the performance of BTFEC's asset managers, the trust fund's guidelines for preserving its capital should minimize any adverse impact on the fund's asset value and income potential over the long term.

During the first three years following approval of the GEF grant, BTFEC authorities focused on meeting the conservation benchmarks; in the fourth year they strengthened BTFEC's capital management. With these benchmarks attained and sound capital management now firmly in place, BTFEC authorities have developed a strategic plan to optimize the use of available income from the fund. Finalized in March 1998, this plan articulates the vision, objectives, and multiyear operational framework for the BTFEC and provides a standard format for funding proposals, monitoring, and developing capacity in proposal design.

Over the next five years, the plan allocates 50 percent of BTFEC's total income for training governmental and nongovernmental staff in biodiversity and for increased staffing in priority protected areas.

The remaining 50 percent would finance approved conservation activities, to be carried out by government agencies working in conservation fields, local nongovernmental organizations (NGOs), local communities, and individual citizens. Such activities will:

  • Strengthen overall biodiversity conservation within and outside protected areas.
  • Develop an information management system to integrate conservation and development planning through conservation research, biodiversity inventories, socioeconomic studies, and monitoring of biodiversity change over time.
  • Promote awareness of conservation policies and issues through formal and informal education.

Beyond the Benchmarks

The following are key benefits from the BTFEC so far:

  • The BTFEC is currently financing projects in conservation education, integrated conservation and development, and biodiversity inventory and information systems.
  • The BTFEC program has laid the foundation for an effective long-term conservation program in Bhutan by establishing the needed legal, institutional, and technical framework and by developing the requisite skills.
  • The baseline surveys and the establishment of a database for protected areas will enable monitoring and evaluation of change over time, as well as more informed decisionmaking for allocation of scarce human and financial resources.
  • The trust fund established important precedents for a governance structure involving government officials and NGOs and for establishing procedures to ensure transparency with BTFEC donors and beneficiaries.
  • The initial conservation activities incorporated community consultation and participation. Park management planning included workshops for consultation with nearby communities to ensure their commitment and involvement in conservation activities.
  • By drawing attention to the importance of Bhutan's biodiversity and to the government's commitment to biodiversity conservation, the trust fund precipitated an increase in donor financing for biodiversity programs separate from the BTFEC itself.
  • The experience with BTFEC's financial management, governance, and strategic plan has influenced the design of biodiversity trust funds for other countries (for example, Brazil, Mexico, Peru, Poland, and Uganda) and has opened up the prospect of trust funds for other sectors, such as health and cultural heritage, within Bhutan.
  • A strong, constructive partnership was forged among the government of Bhutan, the Bank, the UNDP, the WWF, and other donors not only to capitalize the BTFEC but also to make it work. In many ways, this partnership was an important precursor to the World Bank-WWF Alliance for Forest Conservation and Sustainable Use, launched in April 1998.2

The Lessons of the BTFEC

The experience of the BTFEC offers important lessons for other countries considering the establishment of trust funds to pay for environmental conservation or other initiatives:

  • Government commitment and sound management are vital. The government of Bhutan strongly supports conservation and has demonstrated solid ownership of the BTFEC, as exemplified by the high-level, cross-sectoral membership of the trust fund's board. Members of ministerial and deputy ministerial rank participate actively in BTFEC management. In addition, the board currently includes the WWF and the UNDP.
  • There must be a sound legal framework to formalize relationships between donors and recipients, make decisionmaking and implementation as transparent as possible, and make trust fund management accountable for its actions.
  • For the BTFEC, specific conservation benchmarks served as useful incentives, clear indicators of achievement, and mechanisms to mobilize donor support in addition to that provided for the trust fund. In retrospect, Bhutan's conservation effort could have benefited from BTFEC institutional development benchmarks to complement those for conservation.
  • Donors provided important financial support during the start-up phase of benchmark activities above that for capital endowment of the trust fund. During the initial period of trust fund establishment, it is essential to have reliable funding that does not depend on investment income from the trust fund.
  • Early donors brought unique and valuable skills to the process of designing and implementing the trust fund. All parties, including BTFEC's board, responded responsibly and flexibly to resolve design deficiencies that arose. The relationship among all agencies was evolutionary, but in the end, the trust fund benefited from the comparative strengths of each.
  • Establishing internationally respected asset management arrangements and addressing financial issues immediately and openly are essential. Dealing with financial issues should have primacy over program issues. Given the unique characteristics of trust funds, design and appraisal teams should include expertise in financial asset management, trust fund institutional development, and trust fund program operation.

Trust fund performance should be evaluated from a long-term perspective, recognizing that it is a financial vehicle designed to serve the needs of future generations. Performance criteria normally used in more traditional investment projects are not appropriate.

1. The Global Environment Facility (GEF) provides grants and concessional funds for activities that address four aspects of the global environment: biological diversity, climate change, international waters, and the ozone layer. The World Bank is an implementing agency for the GEF.
2. The World Bank-WWF Alliance for Forest Protection was launched in April 1998 to reduce significantly the loss and degradation of all forest types worldwide. Under this alliance, the Bank and the WWF will work together with governments, the private sector, and civil society to promote forest conservation and internationally recognized best practices in forest management. Specifically, the alliance will strive to assist countries to achieve the targets of an additional 50 million hectares of effectively protected priority forest areas and 200 million hectares of the world's production forests under independently certified sustainable management by the year 2005. The alliance will strive to achieve these targets in a broad range of forest types.

See additional information on this initiative

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