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Sri Lanka is implementing a Payment for Ecosystem Services (PES) mechanism to financially reward communities for ecosystem protection and management. This approach, successful in other countries like Indonesia, aims to align economic incentives with sustainable land and water management.

Central to this initiative is the GCF Knuckles Project, led by the Ministry of Agriculture with support from CIFOR-ICRAF. The project focuses on developing a watershed-based PES framework for the Knuckles landscape, connecting upstream communities to downstream beneficiaries such as small hydropower companies reliant on water flows from the Knuckles Mountain Range. This initiative aims to protect ecosystem services, increase rural incomes, and integrate environmental sustainability into national development planning.