Biodiversity plays a key role in processes that support all life forms on the earth. Sri Lanka is considered as a biodiversity hotspot in the world due to its rich and unique biodiversity, including a high number of endemic species, and significant threats to its natural ecosystems. However, due to ill-planned development and a number of other anthropogenic activities, Sri Lanka is losing its biodiversity at an alarming rate. The government of Sri Lanka has identified the importance of sustainable management of the country’s biodiversity and has taken several important steps to mitigate the threats on biodiversity. However, due to the existing limited fiscal space available for public financing there remains a significant financing gap that must be addressed, underscoring the need for innovative financing mechanisms to complement traditional public funding. Therefore, the Government of Sri Lanka is willing to promote Payment for Ecosystem Services (PES) as a financial instrument that can be used to mobilize private and other non-traditional financing for biodiversity management. Further, as an adaptation of PES into different contexts ‘PES-like’ instruments also have been developed. ‘PES-like’ instruments are market-based approaches that incentivize the sustainable management of natural resources and ecosystem services, similar to traditional Payments for Ecosystem Services (PES). This instrument differs from traditional PES as they might not always involve direct payments or clearly defined contractual agreements, but they achieve similar goals through alternative mechanisms.

The overall objective of the assignment is to develop a case study that analyses the advantages and disadvantages of promoting PES or ‘PES-like’ instruments, factors affecting the success or failures of a PES or ‘PES-like’ instruments, policies and institutional opportunities and challenges for promoting PES or ‘PES-like’ instruments and potential areas into which PES or ‘PES-like’ instruments could be introduced in Sri Lanka based on the regional experiences. The findings of this consultancy would feed into development of PES policy framework for the country.