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Global Landscapes ForumLondon, 10 June 2015
Simone Quatrini (LDN Fund Coordinator)Siv Øystese (Advisor: Land, Private Finance and Investments)UNCCD Global Mechanism
1. WHY AN INVESTMENT FUND
12 million hectares of land are degraded every year by human activities. By rehabilitating this land:• we create a land degradation neutral economy• we achieve food security by 2050• we contribute to biodiversity conservation• we mitigate climate change by sequestering up to 20% of CO2 emissions by 2050
Bankable projects for transitioning to land degradation neutrality can deliver strong social and environmental benefits and long-lasting positive impacts alongside with market average or above-average financial returns.
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New York Declaration on Forests 350m ha by 2030Bonn Challenge 150m ha by 2020WRI/IUCN 20x20 initiative 20m ha in LAC by 2020Meta-Atlantica Pact 15m ha by 2050WBCSD Action 12m ha per year by 2020
2. SIZE: A LARGE SCALE ENDEAVOUR
$ 100-150 / ha average cost of land rehabilitation
± $ 1.2-2 bn/year financial needs for rehabilitation
2 billion hectares of degraded land worldwide are available for rehabilitation
18 Countries voluntary committed to LDN (> 30m ha): Algeria, Armenia, Belarus, Bhutan, Chad, Chile, Costa Rica, Ethiopia, Grenada, Indonesia, Italy, Korea, Myanmar, Namibia, Nicaragua, Panama, Senegal, Turkey+ China, East/Southern Africa, Central Asia, Mekong, Caribbean
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3. NO ‘LAND GRABBING’
The fund willThe fund will not
secure access to degraded land promote commitment to sustainable
use by all concerned stakeholders finance rehabilitation operations
× buy/sale land× execute land transactions× finance land-use operations
Via the provision of finance conditional to long-term land rehabilitation and sustainable use the LDN Fund will address:
Inefficient markets Weak regulations
A rigorous due diligence process will: Identify suitable land and investable projects Produce positive social and environmental impacts
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PLATFORM
12 Million hectares of degraded land upgraded to profitable assets, per year
Private investment fund Evergreen Leveraging private investors Enhanced by public funding In partnership with international and local operators
Developing & Developed Countries Large scale rehabilitation projects & medium scale via partner intermediaries Debt & Quasi-equity instruments All sustainable land-use sectors: sustainable agriculture, sustainable forest
management, conservation, renewable energy, infrastructure, eco-tourism, etc. Complemented by targeted technical assistance
• ANNUAL
LDN
FUND
STRATEGY
TARGETS Mobilised Rehabilitated Reached Reduced$ 2bn
$ 50bn• 20 YEARS12m ha
300m ha5-6 countriesWorldwide
1Gt20Gt
4. HOW IT WILL WORK
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Fin. Returns
Profits
Land Value
INVESTORS
BUSINESSES
LANDOWNERS
LAND (SUPPLY)- Public- Private
LAND (DEMAND)- Multinationals- SMEs
FINANCIAL CAPITAL- Institutional- Impact
REHABILITATION
LDN
5. DIRECT CHANNEL: LARGE DEALS
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CO-INVESTMENT
Financial Institutions
FUND of FUNDS
(marginally)
10-25% of Fund’s assets could be allocated for small and medium scale projects through:
Selection of partners funds/investors Entering into cooperation agreements Deal by deal basis Mainly debt financing
Financing existing/new funds Supporting innovative strategies Targeting regions/sectors not
accessible by a large fund
Building trust relationship with local land rehabilitation project promoters
Providing debt funding and capacity building services through local banks
Examples of potential partners:
6. INDIRECT CHANNEL: OPTIONS
6Companies are mentioned for illustrative purposes only. This should not be considered as a firm commitment to partner with the LDN Fund
7. BUSINESS MODEL (INDICATIVE)
Current Land Use
Type
Land Ownership
Land Degradation
Severity
Opportunity Costs
Intended Land Use after Rehabilitation
Market Value Generated
from Rehabilitation
LDN FUND
Channel
LDN FUND Investee
LDN FUND Instrument
LDN FUND % Portfolio (indicative)
Private Low MediumSustainable
soft commodity production
Medium Direct Agri- business Loan 25-30%
Public Medium LowRenewable
Energy + Livestock
High Direct Energy company
Loan / Equity 25-30%
Public Low Low SFM + Conservation High Direct Forestry
company Loan 10-15%
Public / Private High High Sustainable
Infrastructure Low Direct Construction company Loan 10-15%
Private Medium Medium Value chain development High Indirect Financial
intermediary Loan 5-10%
Public / Private High High Sustainable
Mining Low Direct Mining company Loan 5-10%
Communal Medium LowHolistic
Livestock Management
Medium Indirect Existing fund Equity 0-5%
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8. TYPICAL INVESTMENT
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Cash flows from leasing out upgraded landLDN Fund investments
Opportunity costs to access degraded lands
Debt finance for rehabilitation activities
• Under-performing land assets can be upgraded via debt financing.
• Land restoration companies can bid for rehabilitation projects enabled by the LDN Fund.
• Upgraded land assets can be secured for long-term sustainable use against leasing fees, commitment to LDN, social and environmental standards and impact reporting.
• Stranded land assets can be made available for rehabilitation and sustainable use.
• Companies invest in the Fund to pursue/achieve LDN targets.
• Productive land assets are available for continued sustainable use by the same or new land operators, under renewed commitment to LDN.
9. OPTIONS FOR BUSINESS ENGAGEMENT
High risk
• Forestry (forestry, papers, metals, etc.)• Construction and materials • Food and beverage• Industrial goods and services
(transportation, packaging, etc)• Leiure and travel (airlines, hotels,
restaurants, etc)• Personal and household goods (consumer
electronics, tobacco, clothing, etc)• Utilities (water, electricity)
Medium risk• Chemicals• Health care (e.g. equipment and services)• Insurance• Oil and gas• Real estate• Retail
Source: ELD, 2013
10. LAND MATERIALITY RISK
RISKS BARRIERS
LDN Market risks PipelineViability Track record
Innovation Risk/Return imbalance
Size/Concentration Scalability/Replicability
Operational risks FinancialTransaction costs Unsuitable instruments
Liquidity Investors’ short horizon
Currency Volatile local currencies
Political risks RegulatoryPolicy change Uncertainty
Access & Exit Lack of policy support
Communication Unlevelled playing field
12. SPECIFIC FEATURES
Source: adapted from ‘Green Finance and Investment’, OECD series, January 2015
RISK MITIGANTS TRANSACTION ENABLERS
Risk management PlatformInsurances/Guarantees Multiple channels
Portfolio diversification Blended capital
Co-investment Warehousing/Pooling
Credit enhancement Other incentivesIn-house expertise Direct channel, TA facility
Tailored notes issuance High capital & return protection
Hedging, First loss Portfolio hedge
UNCCD oversight LDN commitmentsEnabling conditions Investment-grade policies
Public stakes Land tenure policies
Disclosure Strategies and roadmaps
Through a successfully tested layered fund structure
Private Institutional Investors investing in well protected Notes with adapted liquidity and return Private Impact investors participate as senior shareholders DFIs and donor agencies support private investors by providing credit enhancements through
junior equity or guarantees to the LDN Fund All investors pooled to invest collectively in upgraded land through rehabilitation
13. BLENDED CAPITAL STRUCTURE
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With an efficient independent governance structure
LDN Fund = private entity managed by private Fund Manager targeting private investors High reputation Fund Manager advised by specialised rehabilitation finance firms Alternatively, Fund Manager established as a private equity firm Board of Directors (BD) representing interest of shareholders Decisions on investment proposal approved by expert Investment Committee (IC) UNCCD Global Mechanism (GM) leveraging commitments to LDN and ensuring ethical standards
Board of Directors
Investment Committee
InternationalPrivateFund
Manager
Investment Advisor Sector 1
Investment Advisor Sector 2
Investment Advisor Sector 3
14. PRIVATE GOVERNANCE STRUCTURE
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Country Project Developer / Incubator Project Size (m. ha)
sustainable livestock intensification Althelia Climate Fund 0.5
certified teak plantation + intercropping Across Forest + Nica-Forestal 0.8
reforestation of degraded tropical forest President + Min. Environment 0.8
restoration of the Oasis ecosystem Ministry of Water, Energy, Environment 1.0
dryland restoration with rural communities Niger river basin authority 1.0
solar energy (PV) project Green Silk Road Fund – Elion Foundation 1.3
sustainable economic land concessions (ELCs) Conservation International + MAFF 2.0
renewable energy in economic dev zones Jordan Investment Commission 2.0
land banking to support land consolidation Ministry of Agriculture 3.0
holistic livestock management in Patagonia Aurora Impact – Savory Institute 6.0
Total Land 18.6
Brazil
Nicaragua
Costa Rica
Morocco
Niger
China
Cambodia
Jordan
Turkey
Argentina
15. PROJECTS OF INTEREST (SAMPLE)
June – Sep 2015 : identification of
anchor investors and setting up of a co-promoters committee
June – August 2015 : selection of fund manager and identification of specialised investment advisors
July 2015 : press release at the Finance for Development conference (Addis Ababa, Ethiopia)
June – Oct 2015: preparation of investment cases for initial pipeline
October 2015 : business commitments to LDN announced at UNCCD COP12 (Ankara, Turkey)
December 2015 : official launch at UNFCCC COP21 (Paris, France)
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16. NEXT STEPS
CONTACT
Mr Simone QuatriniLDN Fund CoordinatorPrivate Sector Finance & Investments in LandThe Global Mechanism of the UNCCDUN Campus, LE-1414, Bonn, Germany P: +49 228 815 2860M: +49 173 278 6901E: [email protected]