The infrastructure we forget to build

This is article 6 in the Environmental Infrastructure series. Here is article 5.

A water utility in Peru might once have regarded its responsibilities as beginning at a treatment plant and ending at a customer’s tap. The forests, wetlands and watersheds supplying that water were important, of course, but managing them was generally considered someone else’s responsibility.

Peru has been changing that relationship. Through arrangements known as MERESE, short for Mecanismos de Retribución por Servicios Ecosistémicos, water utilities can set aside money collected through customer tariffs to support the conservation and restoration of ecosystems that provide essential water services. The mechanisms help connect those who benefit from healthy watersheds with the people and organisations responsible for maintaining them.

By early 2025, 49 utilities had incorporated these arrangements into their tariffs. Peru’s water regulator, SUNASS, has encouraged utilities to look beyond their conventional facilities and recognise the watersheds supplying their water as part of the system required to deliver reliable service.

This is an important change in how infrastructure is understood. Protecting a watershed requires ecological knowledge, relationships with upstream communities, land-use agreements and cooperation among institutions that may have little connection to conventional water operations. The utility’s responsibilities extend into a landscape it does not necessarily own or control.

Yet creating a mechanism to pay for these activities has proved easier than establishing the arrangements needed to carry them out.

Peru’s experience illustrates a problem that I think deserves more attention as environmental investment expands. We have become increasingly comfortable describing forests, wetlands, rivers and coastal ecosystems as infrastructure because of the services they provide. We have also developed more sophisticated ways to finance their protection and restoration. Yet recognising these ecosystems as infrastructure does not necessarily mean we have built the institutional capabilities needed to keep their services functioning.

The infrastructure beyond the asset

When we think about infrastructure, physical assets tend to dominate the discussion. A water treatment plant has equipment, operating procedures, maintenance schedules and an organisation responsible for keeping it working. A port has navigation systems, regulatory authorities, operators and established arrangements for managing risks and disruptions.

Environmental infrastructure is often more complicated.

A healthy watershed may depend on decisions taken by hundreds of landholders, public agencies and communities. A restored mangrove forest may provide coastal protection, but its continued performance can depend on land rights, ecological monitoring, local livelihoods and the ability to respond when conditions change. A marine conservation area requires more than a boundary on a map; it needs governance, monitoring, enforcement and relationships with those who depend on its resources.

These arrangements are familiar to practitioners, but they are not always treated as integral components of the infrastructure being financed.

An environmental asset can be restored without the surrounding system being able to maintain the service it is expected to provide. Funding may be available for construction or restoration while the organisations responsible for operating, coordinating and adapting the system remain under-resourced.

The challenge is to identify which capabilities are essential to delivering the environmental service and ensure they are developed alongside the assets themselves.

When the funding exists but the system is incomplete

Peru’s experience makes this distinction unusually visible.

In November 2024, SUNASS reported that water utilities had accumulated approximately 164 million soles through MERESE arrangements over the preceding decade, but had spent only about 30 million soles. By January 2025, 37 utilities had begun deploying their funds, although implementation remained uneven.

The underlying need was clear, and a dedicated financing source had been established. Nevertheless, substantial resources had not yet translated into conservation and restoration activities.

Practical factors explain why this happens. Watershed programmes may require agreements with landholders, ecological assessments, procurement procedures and coordination across administrative boundaries. Utilities accustomed to managing engineered water systems may not have the staff, experience or relationships needed to implement these activities.

The problem is particularly interesting because it cannot be solved simply by collecting more money. The utilities had acquired responsibilities that extended beyond their traditional operations, without necessarily having the corresponding implementation capabilities.

Peru has continued to adjust its approach. Regulatory developments in 2026 provided additional pathways for utilities to transfer ecosystem-service funds to authorised institutions better positioned to implement conservation activities. Transfers are required under specified conditions, including where substantial funds remain unused and spending falls below established thresholds.

Whether these changes substantially improve delivery will need to be assessed. But the direction is revealing. Attention has shifted from establishing a financing mechanism to strengthening the arrangements for using the money.

Peru’s experience suggests that expanding an institution’s environmental responsibilities must be matched by an equally deliberate effort to build its capabilities or establish partnerships with organisations that already have them.

The watershed may already be recognised as essential infrastructure. The institutional arrangements supporting it are still being built.

What Seychelles tells us about the institutions behind investment

Seychelles offers a different experience and another perspective.

The country’s pioneering debt-for-nature conversion in 2016 and sovereign blue bond in 2018 drew international attention by showing how innovative finance could support marine conservation and sustainable fisheries. The arrangements helped establish dedicated funding channels and brought together government, development institutions and conservation partners.

Among the institutions involved was the Seychelles Conservation and Climate Adaptation Trust, or SeyCCAT, which has supported conservation and research through grant-making. A separate Blue Investment Fund, administered through the Development Bank of Seychelles, was intended to provide loans for sustainable fisheries and related businesses.

The distinction between these two channels is important.

An independent evaluation in 2024 documented substantial grant-making through SeyCCAT. An IMF assessment that year, however, reported that the Blue Investment Fund had not yet disbursed loans to private-sector projects.

The obstacles included demanding environmental and social management requirements, administrative complexity, constraints on project preparation and difficulties associated with the infrastructure and approvals needed for eligible investments.

Environmental safeguards are essential, particularly when investments affect vulnerable ecosystems and communities. The difficulty is that meeting those requirements can demand capabilities that smaller businesses and implementing organisations have not yet developed.

Seychelles therefore illustrates a different institutional challenge from Peru. The financing arrangements were established, but some intended users lacked the capacity to meet the requirements attached to them. The issue was not simply whether capital existed, but whether the institutions and enterprises expected to deploy it could operate within the financing system.

Seychelles also illustrates the importance of governance. Dedicated conservation institutions can provide continuity, transparency and specialised expertise. At the same time, some researchers have questioned the financial benefits of these transactions and their implications for sovereign decision-making. These assessments are contested, and the experiences of different funding channels should not be conflated.

For our purposes, the wider question is how the arrangements created around an environmental investment affect the ability of local institutions to make decisions and carry out their responsibilities.

A financing agreement may establish who manages the funds and what activities qualify for support. But the effectiveness of the resulting infrastructure also depends on the capabilities, legitimacy and relationships of the institutions expected to operate within those arrangements.

A timely question for the Pacific

The same underlying challenge was evident at the Pacific Pre-COP31 climate meetings in Fiji and Tuvalu earlier this month.

Pacific leaders emphasised the need for climate finance that is more accessible and responsive to local priorities. The discussions also highlighted the Pacific Resilience Facility, an emerging regional mechanism intended to support locally led adaptation and resilience.

The facility is interesting because its ambition extends beyond financing individual projects. It seeks to establish a continuing regional mechanism that can support resilience priorities identified by the communities most directly affected.

Its eventual effectiveness will depend on more than the amount of capital committed. Governance, access requirements, local implementation capacity and the relationship between regional institutions and community decision-making will all influence what it can achieve.

The Pacific experience also brings questions of authority into sharper focus. Indigenous peoples and local communities often hold knowledge, responsibilities and established forms of stewardship essential to managing environmental systems. Recognising that contribution goes beyond inviting participation in a project designed elsewhere.

Consulting communities about an investment differs from recognising their role in deciding how environmental infrastructure should be managed.

Similar questions are emerging in the Coral Triangle, where six Southeast Asian and Pacific countries are developing regional conservation and outcomes-based financing arrangements. At meetings in the Solomon Islands earlier this year, the Coral Triangle Initiative advanced work on a regional conservation fund and identified potential applications for outcomes-based finance. The ambition is promising, particularly for marine ecosystems that cross national boundaries. But delivering and verifying results will depend on the capabilities of national and local institutions, which still hold much of the responsibility for conservation, fisheries management, and enforcement.

Unlike Peru and Seychelles, where established financing arrangements have revealed practical implementation challenges, these emerging regional initiatives offer opportunities to consider delivery capabilities while the financing arrangements themselves are still being developed. Their results remain to be seen, but their institutional design is already an important part of the work.

What should count as infrastructure?

These examples involve different ecosystems, countries and institutions, but they raise a common question about how we conceive environmental infrastructure.

Peru has established a mechanism to finance watershed protection and is adapting the institutional arrangements needed to implement it. Seychelles has demonstrated both the possibilities of innovative ocean finance and the difficulties that arise when local capabilities and financing requirements do not align. The Pacific is working to develop regional institutions that can support resilience and conservation priorities over time.

In each case, the institutions involved are more than administrative intermediaries between capital and environmental outcomes. Their capabilities and authority influence whether the intended services can be delivered.

This does not mean every organisation involved in conservation should be described as infrastructure. Nor does it mean institutional capacity is an entirely new consideration. Development practitioners have long understood the importance of capable public institutions, effective governance and local ownership.

The more useful distinction is between an institution that participates in an environmental project and an institutional capability essential to the continued delivery of an environmental service.

Consider a watershed protection programme. If reliable water supply depends on agreements with upstream landholders, ecological monitoring and an organisation capable of coordinating both, those functions deserve consideration alongside treatment facilities and pipelines. Their absence may compromise the service just as surely as a failure in the physical system.

This offers a practical way to think about institutional infrastructure. We can ask which capabilities are necessary for the service to function, who is responsible for providing them, and whether they can be maintained over time.

For a restored wetland, that might include ecological monitoring, land management agreements and the authority to respond when conditions change. For coastal resilience, it could involve coordination between planning authorities, infrastructure operators and communities responsible for preparedness and stewardship.

These capabilities have costs. They require people, systems, relationships and, in some cases, legal or regulatory authority. If they are essential to the service, their financing, ownership, accountability and continuity should be addressed as deliberately as those of the physical infrastructure.

For investors and development banks, this means assessing whether the organisations responsible for delivery can realistically meet the obligations attached to financing. For philanthropic funders, it may involve supporting the operating capabilities and relationships that allow environmental improvements to endure. Governments may need to consider whether existing institutional mandates are sufficient, or whether the delivery system itself requires attention.

The purpose is not to create another elaborate framework imposed on already stretched organisations. It is to identify practical gaps between the environmental service being promised and the system expected to provide it, while there is still an opportunity to address them.

Building the capacity to deliver

Environmental infrastructure is increasingly being recognised as essential to economic activity, public health and climate resilience. That recognition creates opportunities to bring environmental services into mainstream infrastructure planning and investment.

But recognising the value of an ecosystem does not establish the arrangements needed to maintain it. Financing its restoration does not necessarily equip the responsible institutions to manage it. And creating a new fund does not guarantee that communities, businesses or public agencies can use the resources available.

Peru and Seychelles illustrate different ways in which institutional capability can constrain environmental investment even when financing exists. The emerging regional initiatives in the Pacific and Coral Triangle offer opportunities to consider those capabilities as financing and delivery systems develop.

There is a practical implication for how we plan environmental infrastructure. If the continued delivery of an environmental service depends on specific institutional capabilities, we should identify and resource them from the outset, establish accountability for maintaining them, and consider how they will adapt as environmental conditions and community needs change.

A restored wetland, protected watershed or healthier coastal ecosystem may be the most visible result of an environmental investment. But its continued performance depends on a wider system of responsibilities and capabilities that may be less visible and no less important.

Those capabilities deserve the same attention in infrastructure planning, financing and long-term maintenance as the environmental assets they support.

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