Elements of FIP Investment Criteria and Financing Modalities

Transcription

1 FIP/SC.2/4Rev1 January 21, 2010 Meeting of the FIP Sub-Committee Washington, D.C. February 3 and 4, 2010 Criteria and Financing 1

2 FOREST INVESTMENT PROGRAM Elements of FIP Investment February 2 and 3,

3 FIP INVESTMENT CRITERIA Multi-stakeholder with balanced Annex II of the FIP Design Document defines Denmark criteria that provide 26 guidance on Demonstrate what constitutes scale and as to al France change in the context 297of the FIP. Section Multilateral on Investment Development Criteria Banks will provide more detail on ways to assess whether leverage a public proposed and private investment sector strategy, program and projects will initiate and/or Complementarity facilitate steps with towards partners al change in the context of REDD+. Proposed investment strategy, program and Sweden projects need to fit 86 overall FIP Objective and related expected outcomes 3 Results-framework for FIP will provide basis for reporting; Projects and program will report in minimum United States set of indicators 2,000 consistent with FIP results-framework

4 Structure for March 2010 paper: Multi-stakeholder with balanced - Investment criteria with indicators on how to assess proposals for FIP interventions Demonstrate scale and France Will also provide guidance to countries for the development of FIP investment Multilateral strategy, Development programs Banks and projects 4 Request for FIP-SC Guidance on: Need for additional investment criteria Weight of assessment criteria Validity of assessment indicators

5 1. Climate change mitigation potential Multi-stakeholder with balanced leverage afforested/reforested public and private sector How based to on assess comparative proposal: advantage 5 Achievement or projected potential achievement Canada of significant GHG 92 savings from (i) avoided deforestation and forest degradation and/or (ii) GHG sequestered, based on a clearly-articulated reference level (baseline) to assess gross emissions reductions (savings) France 297 Forest area conserved, restored, sustainably managed, protected, or Expected tons of CO2eq. emissions avoided (% change compared to national baseline) Expected tons of CO2eq. sequestered (% change compared to national baseline) Expected hectares of forest area under certified management regime (% change compared to national baseline)

6 Multi-stakeholder with balanced How to assess proposal: 2. Addressing drivers of deforestation and degradation Assessment identifies direct and underlying Canada causes and drivers of 92 deforestation and forest degradation; Gaps, challenges and strategic opportunities to reverse deforestation and degradation are identified and measures to France address them are prioritized, 297 incorporating lessons learned from past efforts; Measures generate positive incentives and Japan reverse problematic incentives 1,200 across sectors and lead to lasting change. FIP investments directly respond to national REDD Spain + (or equivalent) needs 117assessment, REDD + strategies and other climate mitigation strategies Sweden that include LULUCF/AFOLU 86 priorities FIP investments describe proposed incentive mechanisms, United Kingdom including the link 1,319 to performance-based payment schemes Incentive 6 mechanisms are or will be integrated in national sector frameworks (e.g. policy, institutions, and budget considerations)

7 3. Multi-stakeholder Forest-related with balanced provisions How based to on assess comparative proposals: advantage 7 Relevant challenges and needs are systematically assessed and addressed in a practical manner; France 297 Governance criteria and indicators defined Germany and baseline established; 804 Conflict resolution measures in place, locally and nationally. Proposed FIP investment directly respond to national needs assessment, REDD + Strategies and other climate mitigation strategies that include LULUCF priorities Proposed priorities for funding in IS are linked to coherent results-management framework which presents results chain that can be monitored, reported and verified.

8 4. Country s ownership, preparedness and Pledges ability to date to undertake REDD initiatives Multi-stakeholder with balanced How based to on assess comparative proposals: advantage REDD strategy or other appropriate national strategy for the forestry sector aimed at sustainable and holistic national Denmark approach, including diverse 26 stakeholders, is approved or under development; France 297 Expression of high-level political commitment; Functioning institutional framework and cross-sectoral coordination mechanisms in place to deliver on REDD and Japanto integrate the role 1,200 of forests into national sustainable development strategies. Proposed FIP investment supports the national REDD + preparedness plan (or equivalent) and responds to its priorities Expression of commitment by Government to effectively United Kingdom address deforestation 1,319 and forest degradation National 8 institutional framework and cross-sectoral coordination mechanism in place for addressing climate change mitigation and REDD + in particular

9 5. Leveraging additional financial resources, Australia including from private 129 sector Multi-stakeholder with balanced Both public and private finance institutions involved in development and Multilateral appropriate. Development Banks How to assess proposal: 9 implementation of IS and related projects and programs; Ratio of private to FIP funds actually invested Francereflects substantial 297 leverage, (target at least 4:1), in circumstances where private sector investment is Anticipated number of public and private sector institutions involved in implementation of IS (by IS, programs and projects) Anticipated ratio of FIP funding to leveraged co-financing (by IS, programs and projects and by source) Ratio of private to public funds (by IS, programs and projects)

10 6. Multi-stakeholder Integrating sustainable with balanced development (livelihoods, biodiversity, ecosystems, economic viability) monitor leverage the public delivery and of, private inter alia, sector the following (as appropriate): 10 Economic, social and environmental impacts France are transparently and inclusively 297 assessed and addressed; Proposals set out how FIP investment will catalyze, support and measure and Demonstrable improvement in social and economic well-being of forest dependent communities, including poverty Spain reduction, equitable benefit 117 sharing, and acknowledgement of the rights and role Sweden of indigenous peoples 86 and local communities; Protection and enhancement of biodiversity; Strengthened resilience of ecosystems, United with Kingdom associated ecosystem 1,319 services; Economic viability.

11 How to assess proposals: Multi-stakeholder with balanced 11 France 297 IS addresses priorities of the national forest and Denmark REDD + agenda in a 26 comprehensive way and integrates co-benefits in proposed FIP investments. For projects and programs, results framework with results-chain in place, including indicators for GHG emission reductions and carbon Japan sequestration, economic, 1,200 social and environmental impacts and proposed methodology to measure those indicators.

12 7. Inclusiveness of processes and participation Pledges to of date all important stakeholders, including indigenous peoples Australia and local communities 129 Multi-stakeholder with balanced How based to on assess comparative proposals: advantage 12 Demonstrated continuous consultation and participation of a wide range of government and non-government stakeholders, including indigenous peoples and local communities, in the development France and implementation of 297 strategies, programs and projects; Consistency with guidelines for consultation Japanin Annex III of the 1,200 FIP design document. Stakeholder involvement plan as integral part of the IS. Projects and programs are consistent with stakeholder involvement plan. In the IS, proposal for linking Dedicated Grant Mechanism for Indigenous Peoples and Local Communities to Forest Investment Strategy. Consistency with guidelines for consultation in Annex III of the FIP Design Document.

13 8. Capacity building measures for local and national institutions Multi-stakeholder identified, including with balanced indigenous peoples and local communities How to assess proposals: Local and national institutional and financial capacity needs assessed, prioritized and addressed in a lasting way, France leading to structural change; 297 Capacity of indigenous peoples and local Germany communities to participate 804 in design, implementation and monitoring is Japan assessed and priority measures 1,200 for capacity strengthening are identified. IS builds on comprehensive capacity needs assessment Spain for effectively 117 addressing REDD + at the country and local levels. IS identifies capacity development needs in the context of sustainable long-term investments in REDD+. Dedicated Grant Mechanism for Indigenous Peoples and Local Communities targets specific 13 capacity development needs and provides opportunities to pilot activities.

14 9. Multi-stakeholder Coordinating with with other balanced REDD efforts FIP investments take account of other ongoing or planned national or local REDD+ efforts and include an analysis of France comparative advantages 297 of each REDD+ program within the country and identified complementarities; Cooperation and coordination mechanisms in place and operating effectively at the national level. How to assess proposals: IS builds on existing or planned national and local REDD + initiatives (e.g. FCPF, UN-REDD or others) and identifies complementarities. At the national level, institutional coordination mechanism in place or in preparation for stakeholder groups working on REDD+ issues. Evidence 14 of consultative planning meetings held during the development of the IS

15 10. Demonstration, learning and impact capacity Multi-stakeholder with balanced How to assess proposals: Plan aims to deliver innovation at scale and a programmatic approach that will lead to lasting improvements in the institutional and human capacity for and the actual practice of sustainable management and Denmark conservation of forests 26 Monitoring and evaluation strategies generate France evidence of impacts, 297 and draw lessons for viability/effectiveness of the model Plan includes strategy for lesson learning and Japan sharing within country 1,200 and outside, particularly provision for South-South learning Results framework with results-chain, including indicators and proposed methodology for supported projects and programs in place IS, projects and program identify how existing lessons learned have been integrated in design and how newly generated United lessons Kingdom will be captured 1,319 and disseminated Budget 15 for knowledge management in projects and programs

16 11. Safeguarding the integrity of natural forests Multi-stakeholder with balanced How Complementarity to assess proposals: with partners 16 Plan builds on or proposes assessment and mapping of forest cover, forest type and use patterns, including identification and mapping France of high conservation 297 value forests Consistency with paragraph 16(g) of the FIP design document IS, projects and programs build on existing national forest assessments and mapping exercises or identify assessment and mapping needs for improved decision making on investment priorities IS, projects and programs are conforming with United paragraph States 16(g) of the 2,000 FIP design document

17 Multi-stakeholder with balanced Measurable outcomes and results-based approach France 297 Participatory and independent approaches to monitoring and evaluation, including changes in deforestation and forest degradation, biodiversity, ecosystem, forest, and economic and social benefits. FIP activities should promote measurable outcomes Germany with regard to the 804 effectiveness of FIP investments on REDD+, improvement in Japan forest, livelihoods, 1,200 climate resilience, biodiversity and other forest benefits. How to assess proposals: Results framework with results-chain, including indicators and proposed methodology for supported projects and programs in place M&E arrangements described for projects and programs, incl. budget and institutional arrangements

18 Multi-stakeholder with balanced 18 France 297 Request for FIP-SC Guidance on: Need for additional investment criteria Weight of assessment criteria Validity of assessment indicators

19 ROLE OF PUBLIC AND PRIVATE SECTORS Public Multi-stakeholder Sector: with balanced managed Complementarity forests, including with partners carbon - Creating a conducive environment for implementing DenmarkREDD+ by removing 26 barriers related to the policy, regulatory and institutional environment (creating readiness ) France Incentives for moving from an unsustainable to a sustainable forest management regime (incentivizing sustainable forest-relevant Germany technologies and management 804 regimes; reducing risks for private sector) - Create market conditions for forest and forest-related products from sustainably - Support forest protection and forest landscape conservation Private Sector: - Support sound forest and agro-business and bio-energy Switzerland investments; 20 - Implement sustainable forest and forest-related United technology Kingdomat scale; 1,319 - Promoting sustainable market chain for wood and non-wood products; - Certification of wood and non-wood products; - Promoting eco-tourism in forest protected areas; 19 - Support to forest-relevant processing industries with low-carbon technologies

20 FIP Multi-stakeholder FINANCING with MODALITIES balanced FIP Finance Products include: leverage public Grants and private sector Concessional Loans and Equity Guarantees 20 France 297

21 Grants Multi-stakeholder with balanced Preparatory activities: Demonstrate Preparation scale and of FIP investment strategies, France where needed; 297 Preparation of FIP co-financed projects. Implementation leverage public and activities: private sector Complementarity Capacity with development partners activities and activities related to policy, based on comparative regulatory and advantage institutional frameworks in the context of mitigating risks and catalyze scaling up of investments (especially in IDA countries) and readiness; and Grant mechanisms for indigenous Switzerland peoples and local communities 20 in FIP pilots. 21

22 Grants Multi-stakeholder with balanced Grant financing could also be considered Denmarkfor project components 26 Demonstrate with very scale high and additional costs that France constitute a substantial 297 portion of the total costs or with significant Germany risks, and innovative 804financing Multilateral instruments Development to soften Banks commercial Japan and/or MDB lending terms 1,200 for leverage forest public projects and private or programs. sector based on This comparative would be advantage on a case-by-case basis and considered by the Trust Fund Committee on the basis of an assessment of the justification for grant financing (including the amount requested) and the availability of grant funding from other Switzerland sources, such as 20the GEF. 22

23 FIP Multi-stakeholder Investment strategies with balanced in countries lacking Canada an adequate basis 92for preparation. Such grants can be used to finance: France 297 Strengthening consensus among key Germany national stakeholders 804and Multilateral engaging Development development Banks partners at the country level; leverage Enhancing public and capacity private of sector national institutions for robust policy reform Complementarity and priority with setting; partners based Ensuring on comparative that FIP advantage investments are based on sound analytical work linking forest sector investments to economic Spain growth and 117 povertyalleviation strategies; and Assessing the poverty and social impacts Switzerland of programs and 20projects. 23 Up-front Financing for Country-based Activities to Prepare: FIP project and programs: development of quality investments

24 Multi-stakeholder Grants for FIP investments: with balanced Demonstrate Capacity scale and development activities and activities related to policy, France 297 regulatory and institutional frameworks in the context of mitigating risks for future investments Germany(especially in IDA 804 Multilateral countries) Development and readiness; Banks Complementarity Project components with partners with very high Norway additional costs that 175 based on comparative constitute a advantage substantial portion of Spain the total costs or with 117 significant risks, and innovative Sweden financing instruments 86to soften commercial and/or MDB lending terms for forest projects or programs; and 24 Grant mechanisms for indigenous peoples and local communities in FIP pilots.

25 Multi-stakeholder with balanced 25 Request for FIP-SC Guidance on Grants: France 297 Activities eligible for grant support to pilots Preparation for Investment Strategy: $100,000 - $150,000 Preparation for FIP projects and programs: Spain Funding would 117 be within envelop requested for Investment Strategy MDB Fee: 2.5%

26 Concessional Loans and Equity Concessional Multi-stakeholder loans with and balanced equity will be used to: Demonstrate Catalyze scale and scaling up activities that France initiate al 297 change Multilateral Fill Development identified investment Banks gaps (amounts and structures) to leverage public address and the private underlying sector causes of deforestation and forest Complementarity degradation with partners Offset the additional costs associated Spain with initiating 117 al change in the forest Swedensector and those 86affecting forests by deploying technology Switzerland mitigate risks; Support programs and projects that United incentivize States engagement 2,000 with carbon markets.

27 Multi-stakeholder with balanced France 297 MDBs may provide FIP concessional financing support to countries through: (a) leverage lending public to national and private governments; sector (b) lending to national governments for on-lending Netherlands to sub-national 79 entities; (c) lending to sub-national entities; or (d) lending to the private sector 27

28 Multi-stakeholder with balanced Public Sector Support FIP Demonstrate offers three scale public and sector concessional France loan products for blending 297 with MDB loans on the basis of an analysis in each Germany project of its financial 804 internal rate Multilateral of return Development without FIP Banks Co-Financing: Complementarity Zero-Interest with partners Loans based on comparative Softer Concessional advantage Loans Harder Concessional Loans 28

29 Public Sector Support Multi-stakeholder with balanced years 29 France 297 Zero-interest loans, for projects that: Link FIP up-front investments with performance-based Denmark payments 26and/or links to the carbon market for a reflow of the FIP investment over a period of ## Are part of a country s REDD+ strategy or program Conserve existing reservoirs of forest carbon Softer concessional loans, for projects with Rates of return near or above normal market threshold, but below risk premium for project type, technology or Spain country. 117 Rates of return near or above normal market Swedenthreshold, but where 86 intensified forestry investment will have higher opportunity costs.

30 Public Sector Support Multi-stakeholder with balanced FIP Demonstrate Loans Maturity scale Grace and Softer Complementarity with partners Concessional Period Principal Principal France FY10-11 FY Repayments Repayments MDB Fee Service Year Years Germany a/ Charge 804 b/ Zero-interest Japan 0.10% 0.0% 1, % 4% Norway 0.10% 0.25% 175 ~75% Grant Element c/ a) The borrower will have two options for payment of MDB fees: (a) a fee of 0.1% of the undisbursed balance of the loan, in which case the fee payments will accrue semi-annually after loan signing, or (b) a fee equivalent to 0.25% of the total loan amount, payable in a single lump sum amount, which may be paid by the borrower out of its own resources or capitalized United from the loan States proceeds following the effectiveness 2,000 of the loan. The fees are to be retained by the MDB for its lending and supervision costs. See Annex C for a description of the MDBs expenses related to project development and implementation. b) The service charge is charged on the disbursed and outstanding loan balance. Principal and $6.3 service billion charge payments 30 accrue semi-annually to the CTF trust fund. c) Grant element is calculated using the IDA methodology (assumptions: 6.33% discount rate for harder loans; 6.43% discount rate for softer loans; semi-annual repayments; 8-year disbursement period)

31 Multi-stakeholder with balanced 31 Public Sector Support Comparison: Current IDA Terms (as of July 2008) Maturity Grace Period Principal Principal Service Repayments France Repayments Charge b/ 297 Year Germany Years IDA-only % Japan4.0% 0.75% 1,200 Blend % 4% Norway 0.75% 175 Hardened Term Hard Term Lending Partial Risk Guarantee % Spain N/A 0.75% % Switzerland 5% 0.75% 20 NA NA NA United NA States 0.75% 2,000

32 Private Multi-stakeholder Sector Support with balanced Demonstrate FIP offers scale concessional and loans and equity products to support private France 297 sector projects and programs. The terms and structures of each Multilateral financial Development product would Banks be determined on a case by case basis to leverage address public the and specific private barriers sector identified in each case. The barriers include: based on comparative High costs advantage of early entrants Perceived Risk Combined risk and cost barriers 32

33 Guarantees Multi-stakeholder with balanced viability Complementarity of the investment. with partners 33 France 297 Guarantee instruments are used to improve conditions Canada for investment in, 92 or lending to, projects by mitigating risks that lenders and Denmark investors would not be 26 willing or able to accept. For purposes of FIP support, a distinction is required between conventional risks for which adequate mitigation measures are already Japan available and incremental 1,200 risks that sponsors and lenders will not assume, despite the appearance of financial The additional risks of forestry projects can be quantified as the relative variance of a project s returns, as perceived by the main investors, Sweden for a given level 86of expected return: Technical and economic performance United riskskingdom 1,319 Commercial and financial risks Country or political risks; regulatory and institutional barriers

34 products: Multi-stakeholder with balanced 34 It is proposed that FIP resources may be deployed Australia for two categories of 129guarantee Loan guarantees covering the loss on account of debt service default for lenders up to an agreed portion of the actual loss, with a view France to extending maturities 297 of commercial loans for forestry projects so that they Germany are competitive with 804 alternative land uses, or to address specific incremental operating Japan or management 1,200 risks that could cause default. Contingent finance disbursed to the project upon underperformance of a forestry technology and where such risk is not commercially Spain insurable at reasonable 117 costs or has occurred beyond the period for which commercial Sweden insurance is available. 86 Depending upon the project and market needs, Switzerland the amount guaranteed 20could be up to 100%. Some sharing could be useful for providing the right incentives to guarantee holders.

35 Resource Multi-stakeholder approval: with balanced The FIP Sub-Committee will be requested Denmark to endorse a FIP resource 26 envelope Demonstrate for individual scale and projects or programs France in an Investment Plan 297 and to authorize the designated MDB to proceed with Germany development and 804 preparation of Multilateral individual Development investment operations Banks for FIP co-financing. Procedures, Complementarity including with safeguards: partners Individual based on comparative operations under advantage each country s FIP investment strategy will be processed through the MDBs working with Spain the country. Each operation 117 will follow the investment lending policies and Sweden procedures of the MDB, 86 including its fiduciary standards and environmental Switzerland social safeguards. 20Each MDB will apply its own appropriate procedures in United appraising, Kingdom approving, 1,319 supervising, monitoring and evaluating operations United States to be financed 2,000 from the FIP. 35 FINANCING PROCEDURES AND CONDITIONS

36 Multi-stakeholder with balanced 36 Request for FIP-SC Guidance on: France 297 Activities eligible for concessional loans and guarantees to pilots Zero-Interest loans: conditions? Harder concessional loans: What Switzerland activities would trigger 20 this type of loan?