Participants of the international workshop in Berlin ⎮ Visual: © Claudia Jordan/GIZ

Compensating ecosystem services is increasingly discussed as a way to align agricultural production with climate and biodiversity goals. While the concept of Payment for Ecosystem Services has been debated for decades, practical questions remain unresolved: who benefits from compensation schemes, how they are financed, and whether smallholder farmers are meaningfully involved in their design and governance.

Against this backdrop, the CompensACTION Secretariat, together with the think tank Clim-Eat, convened a networking dialogue titled “Smarter finance for smallholders, nature and climate” on 14 January 2026 in Berlin, ahead of the Global Forum for Food and Agriculture (GFFA). Practitioners, funders, farmer representatives, policymakers, and private sector actors exchanged experiences and perspectives on what more equitable and effective financing for ecosystem services could look like in practice.

Public priorities, limited budgets, and the role of finance

As GFFA 2026 focused on the interlinkages between water, food systems, and climate change, Ina von Frantzius, Head of Unit in BMZ’s Division 122 on Agriculture and Rural Development, emphasised that these connections are central to current BMZ priorities. Referring to the BMZ reform plan Shaping the future together globally, she highlighted partnerships and financing as key levers for transformation — particularly in a context of constrained public budgets and increasing climate impacts. At the same time, she reaffirmed that the fight against hunger and poverty remains at the core of BMZ’s engagement.

Rethinking Payment for Ecosystem Services

“Payment for Ecosystem Services is not a new concept — it has been discussed since the 1980s,” noted Danush Dinesh, founder of Clim-Eat. “What is needed is a critical reflection on how the agenda of Payment for Ecosystem Services has evolved and where it has failed.”

In this context, the CompensACTION initiative was discussed as an opportunity to test new approaches and rethink how farmers are rewarded for ecosystem stewardship.

Launched by BMZ in 2022 under the German G7 Presidency, the initiative “CompensACTION for food security and a healthy planet” aims to scale innovative financing mechanisms that reward smallholder farmers for climate action and ecosystem services. BMZ provides funding to implementing partners including GIZ, the International Fund for Agricultural Development (IFAD), and Kreditanstalt für Wiederaufbau (KfW). In providing the secretariat, GIZ works closely with partners such as Clim-Eat, which contributes analytical inputs, dialogue formats, and knowledge exchange.

Why smallholder farmers need to be at the centre

Discussions repeatedly returned to one core insight: compensation mechanisms only work if smallholder farmers are not treated as passive beneficiaries, but as central actors. CompensACTION seeks to support technological innovation, develop cost-efficient and robust monitoring systems, mobilise public and private finance, and contribute to policy reforms — all while supporting smallholders to implement climate-smart practices that enhance resilience to climate risks. Beyond environmental benefits, such approaches can also contribute to diversified income streams, improved access to credit, and long-term incentives for investing in resilient food systems.

To translate global commitments into practical solutions, BMZ has committed €50 million to the CompensACTION initiative.

Participants agreed that public finance remained an essential anchor for compensation mechanisms. While private finance could play a complementary role, public funding was critical for financing public goods, de-risking investments, and enabling scale.

“Since payment for ecosystem services serves a public interest, it cannot be left solely to the private sector,” concluded Katja Vuori, CEO of AgriCord. Representing an alliance of farmer organisations active in around 60 countries, she underlined the importance of meaningful participation. “Farmers must be in the kitchen when the meal is being prepared — not invited to the table once the menu has already been cooked by others.”

This perspective reinforced calls to move beyond one-off consultations towards co-design, shared ownership, and a stronger role for farmer organisations in governance and steering structures. Participants also stressed that farming systems and local contexts varied widely, and that no one-size-fits-all solution existed.

Learning, monitoring, and scaling responsibly

Monitoring, reporting and verification systems were recognised as both essential and challenging. Participants cautioned that overly complex or costly systems risked turning farmers and their organisations into unpaid data collectors, potentially undermining trust and participation.

Rather than focusing solely on success stories, experts emphasised the importance of treating pilot projects as learning instruments. Transformation, they noted, was a long-term process that requires time, iteration, coordination among donors, and openness to learning from failure — as well as sensitivity to cultural dimensions such as diets and consumption patterns.

Within the CompensACTION initiative, GIZ plans to implement pilot activities in India and Kenya. In India, the focus will be on incentives for multiple ecosystem services in horticultural production. In Kenya, GIZ will advise on public incentive mechanisms for sustainable soil management and private-sector-driven payment models for climate-smart agriculture.

Authors

Claudia Jordan and Julia Bosshard

Contacts

• CompensACTION Sekretariat (compensaction@giz.de)
• Arne Brandschwede (arne.brandschwede@giz.de)
• Maike Möllers (maike.moellers@giz.de)
• Julia Bosshard (julia.bosshard@giz.de)
• Elisa Romanato (elisa.romanato@giz.de)