Introducing the Natural Capital Financing Facility

Interactive Webinar

Tuesday 15 September 2015

11.00 – 12.30 CET

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Introducing the speakers

• Anne Theo Seinen, European Commission

• Maddalena Dali, European Commission

• Katarina Malmnäs, European Investment Bank

• Moderator:Matt Rayment, ICF International

What is the NCFF and why was it set up?

Maddalena Dali, European Commission

LIFE: why financial instruments?

Make optimal use of scarce public funds, "crowd in" private finance

Address market gaps and barriers:

demonstrate the business case for ‘higher-risk’ projects

invest in projects that may not be considered commercially viable today but have the potential to be so in the future

facilitate market uptake of climate and environment friendly actions and greening of financial intermediaries

Complement traditional action grants

NCFF objectivesAddress market gaps and barriers for revenue-generating or cost-saving projects promoting the conservation of natural capital to meet biodiversity/adaptation objectives

Test different financing options; identify most suitable approaches

Three more specific objectives:

Establish a pipeline of replicable, bankable Operations, serving as a 'proof of concept'

Demonstrate to private investors the attractiveness of natural capital projects; develop a sustainable flow of private capital and achieve scale

Leverage funding from private investors for this pipeline through the use of EU Funds

NCFF set up (I)NCFF launched 16 February 2015

EIB executes the Facility

€ 100-125 million Investment facility during 2015-2017

9- 12 operations, typically between €5 and €15 million:

Direct loans to individual, large projects

Indirect loans through financial intermediaries aimed at smaller projects

Indirect investment aimed at smaller projects via equity funds

Target term: 10 yr with possibility of grace period of 3yr

Maximum NCFF contribution to total project costs: 75%

Maximum NCFF participation per private equity fund : 33%

NCFF set up (II)

EU contribution to the EIB of € 60 million:

€ 50 million for guaranteeing investments

€ 10 million for the Support Facility.

Budget comes from the LIFE programme, which is the EU’s funding instrument for the environment and climate action.

Aim at balanced geographic and thematic spread:

Total support in any MS maximised at 20% of EU guarantee

Support for direct operations in any MS maximised at 15%

Support for intermediated operations in any MS maximised at 15%

Support for individual categories maximised at 35%

NCFF Support Facility

€ 10 million Support Facility

financed from the LIFE Programme

For contracting experts (under a Framework Contract), the EIB will publish a call

for tender in the Official Journal of the European Union

for Operations expected to be supported by the NCFF

maximum contribution per (potential) operation: € 1 million

support consists in external advice and consultancy services

contracted by the EIB through a framework contract

Which projects can be financed by the NCFF?

Katarina Malmnäs, European Investment Bank

NCFF will finance 4 types of projects:

1. Payments for ecosystem

services

2. Green infrastructure

projects

3. Pro-biodiversity

and pro-adaptation

businesses

4. Projects involving

biodiversity offsets

Address barriers to mainstream commercial financing, e.g. because they are innovative, uncertain, test and demonstrate financing models

Payments for ecosystem services

Typical challenge: develop payment mechanisms for what is usually seen as a public good

Example: WWF project Lombok Island, Indonesia

Green infrastructure projects

Definition: Strategic investment in high quality natural and semi-natural areas designed and managed to deliver a wide range of ecosystem services

Example: Urban regeneration of housing estate Augustenborg, Malmö, Sweden

Pro-biodiversity and pro-adaptation businesses

Businesses providing goods and services that contribute to conservation of ecosystems and their services, including through conservation management, sustainable forestry/ agriculture/ aquaculture or ecotourism.

Possible examples:

→ ecotourism businesses

→ Extracting biomass or aggregates as part of responsible conservation and site management

Projects involving biodiversity offsets Conservation activities providing measurable benefits designed to compensate for unavoidable damage to biodiversity arising from development or other activities, ensuring ‘no net loss’ of biodiversity

Example: Mitigation bank – wetlands and streams in USA

Possible concerns: fear of 'perverse effects': they should not indirectly

encourage damage to nature!

Context: must follow the mitigation hierarchy: avoidance, minimisation,

rehabilitation/restoration, offset/compensation

Conclusions

NCFF can fund a wide range of natural capital projects through the 4 categories (overlap between the different categories possible)

Research demonstrates that there is much interest in the NCFF and a strong potential pipeline

However a significant challenge is to develop potentially “bankable” projects capable of repaying an investment

Questions and Answers

To your keyboards!

Eligibility and selection criteria

Anne Theo Seinen, European Commission

NCFF eligibility criteria (I)Projects must:

Promote one or both of the following objectives:

conservation, restoration, management and enhancement of ecosystems, including

through ecosystem-based solutions

application of ecosystem-based approaches that enable businesses and communities

to address identified risks associated with current and projected impacts of climate

change, including through urban, rural, and coastal green infrastructure projects.

Demonstrate financial and economic benefits, including the ability to generate revenues or save costs, with overall benefits exceeding costs

Contribute to the objectives of the EU LIFE programme for nature and biodiversity, and/or climate adaptation

Meet the standard criteria set by the EIB for its investments

NCFF eligibility criteria (II)

The recipients of the NCFF must be legal entities registered in the EU

Promoters might be:

public bodies –national public authorities (central, regional or local), or various bodies under their control,

private commercial organisations, and

private non-commercial organisations (including NGOs);

Quality of the Counterparts: Capacity, Experience, Allocated resources

Operating structure: Governance, Co-investors, Transparency, Reporting

Business Context: Clear regulatory environment, Existence of market for project’s bankability, Sound and efficient business model

Objectives of the LIFE Regulation

• Projects to respond as good as possible both to

• Nature/biodiversity and climate adaptation

• objectives

• Aim is to have high quality projects. Many

• Criteria and aspects, but altogether the scope

• for projects remains very broad

Art. 11 of the LIFE Regulation

• Specific objectives for Nature and Biodiversity refer to:

EU Biodiversity Strategy to 2020

Habitats and Birds Directives,

including the Natura 2000 network

LIFE Nature and Biodiversity (I)

• Checks:

are the targeted species and habitats listed in the annex I to the Birds Directive or annex I or II to the Habitats Directive? (Exceptions for Annex IV species are possible)

other species/habitats relevant under biodiversity considerations?

LIFE Nature and Biodiversity (II)

how does the project contribute to "halting the loss of biodiversity and the degradation of ecosystem services in the EU by 2020 and restoring them in so far as feasible, while stepping up the EU contribution to averting global biodiversity loss"?

• Six targets:1. Fully implement EU nature legislation

2. Better protect and restore ecosystems and their services, and greater use of green infrastructure

3. More sustainable agriculture and forestry

4. Better management of EU fish stocks and more sustainable fisheries

5. Tighter controls on Invasive Alien Species

6. A greater EU contribution to averting global biodiversity loss

LIFE Nature and Biodiversity (III)

share of concrete conservation actions, i.e. actions that directly improve/slow/halt/reverse the decline of the conservation status / ecological condition of the species, habitats, ecosystems or ecosystem services targeted.

LIFE Climate Change Adaptation (I)

Adaptation means:

anticipating the adverse effects of climate change

taking appropriate action to prevent or minimise the damage these adverse effects can cause,

taking advantage of opportunities that may arise.

LIFE Climate Change Adaptation (II)

• Art. 15 of the LIFE Regulation:

- development and implementation of Union policy on climate change adaptation, (…) developing, testing and demonstrating policy or management approaches, best practices and solutions for climate change adaptation, including, where appropriate, ecosystem-based approaches;

- improve the knowledge base, integrated approaches

- development and demonstration of innovative climate change adaptation technologies, systems, methods and instruments that are suitable for being replicated, transferred or mainstreamed

•

LIFE Climate Change Adaptation (III)

• Contribute to a more climate-resilient Europe: • enhance preparedness and capacity to respond to the impacts of climate change at

local, regional, national and EU levels

• develop a coherent approach

• improve coordination

• Priority to projects that address key cross-sectoral,

• trans-regional and/or cross-border issues.

• Encourage:• projects with demonstration and transferability potential

• ecosystem-based approaches to adaptation

• innovative adaptation technologies

LIFE Climate Change Adaptation (IV)

• Promote adaptation in vulnerable areas:

• cross-border management of floods

• trans-boundary coastal management, with emphasis on densely populated deltas and coastal cities

• mainstreaming adaptation into urban land use planning, building layouts and natural resources management

• mountain and island areas, with emphasis on sustainable and resilient agriculture, forestry and tourism

• sustainable management of water

• combating desertification and forest fires in drought-prone areas

Other aspects (I) no double funding, but NCFF could be complementary to other instruments

• E.g. synergies with integrated projects under the LIFE Programme

concept of 'ecosystems' concerns in the first place wild flora and fauna, but goes beyond, and domesticated or cultivated species/varieties and artificial landscapes may play a role.

• Not: apiculture for pollination agricultural/horticultural crops

• Rather: protection of (habitats of) wild pollinators

• green infrastructure

Other aspects (II)

incentive effect: (part of) projects that have already started are not eligible, as the NCFF support would not be necessary for realising the relevant (part of the) project

multi-purpose delivery mechanism, integration in other policies, synergies

Demonstration effect, replicability, transferability (I)

projects need to have elements/aspects that have demonstration value and can be replicated elsewhere

"strategy including tasks to multiply the impact of the projects' solutions and mobilise a wider uptake, reaching a critical mass during the project and/or in a short and medium term perspective after the end of the project"

• Current NCFF is a pilot. Need 'proof of concept' (including the financial set-up).

• NCFF is not to be used for concepts that have already been proven – there should be something new/innovative. What makes the proposed project different from similar existing projects?

• How big is the scope for replication? How many times/places/etc?

Demonstration effect, replicability, transferability (II)

• Check: monitoring, assessment and evaluation measures

• Check: communication, experience-sharing, networking and

dissemination activities

Leverage effect, own financing, employment creation the higher the contribution by the project owner the better

the higher the contribution by financial intermediaries, the better

the more jobs created, the better

Furthermore

long-term sustainability

Low carbon footprint

green procurement

reporting, indicators

visibility of support from the LIFE Programme

Questions and Answers

To your keyboards!

Eligibility criteria for the NCFF Support Facility

Katarina Malmnäs, European Investment Bank

NCFF Support Facility can be used for the following objectives:

- Ascertaining the feasibility of potential NCFF operations;

- Developing the capacity of the final recipient;

- Guaranteeing the correct reporting and monitoring of the impacts on biodiversity, ecosystems and climate change adaptation.

When and for what purposes to use the NCFF Support Facility varies per project.

Application and selection procedure

Katarina Malmnäs, European Investment Bank

No special formalities – promoters can express interest at any time by contacting the EIB at NCF_Instrument@eib.org and submit information to allow EIB assessing whether the project adheres to NCFF objectives, eligibility criteria and alignment with various allocation constraints. Then:

If positively screened, EIB requests the Commission to confirm eligibility;

If positive, a full appraisal is launched including extensive questionnaires and site visits;

If positive, the project is submitted for approval by the EIB Management Committee and Board;

If approved, negotiation of contract.

If agreed, signature of contract

Recent developments and expressions of interest

Katarina Malmnäs, European Investment Bank

EIB and EC are fine-tuning the criteria.

From 20 expressions of interest, four projects have been identified for further due diligence.

Three of the four projects have passed the initial eligibility screening with the EU Commission, which means that the detailed EIB appraisal process can now be launched.

Several categories (GI, PES, PBB) are covered and more than half have Climate Adaptation (CA) components.

There are interests from 1 private equity and 1 financial intermediary, the rest being for direct loans to project or public body or company/vehicle.

Countries covered: ES, FI, IE, NL

Questions and Answers

To your keyboards!

Thank you

More info on:

http://www.eib.org/products/blending/ncff/index.htm

http://ec.europa.eu/environment/life/funding/financial_instruments

/ncff.htm

Submit your expression of interest to the EIB via:

NCF_Instrument@eib.org

Answer the online feedback form which will be circulated shortly.