Nature plays an important role in maintaining the flow and purity of water. Human activities often degrade the quality and/or quantity of water flowing to downstream users, but maintaining natural ecosystems, and sound conservation management by those living upstream in watersheds can help provide a clean, reliable supply of water for downstream water users. Water funds are a way for downstream water users to preserve their water supply by paying to restore and conserve natural ecosystems. They also enable upstream and downstream communities to work together for mutual benefit, preserving or restoring nature's ability to improve water quality and reliable flow, while providing economic opportunities for upstream communities. This case introduces the concept of ecosystem services (the role that natural ecosystems play in sustaining and fulfilling human life) and "payment for ecosystem services (PES)," in which stakeholders pay in order to preserve or restore the ability of nature to provide these services. It describes water funds and other PES arrangements, together with some of the challenges that water funds face. Several examples are provided of water funds and other PES programs.
