Drawing on its experience in utilizing debt, equity and risk mitigation products in the past, the GEF has launched a launched a $110 million pilot program in GEF-6 to demonstrate and validate the application of non-grant financial instruments to combat global environmental degradation.
The GEF offers attractive financial terms for both public and private sector recipients as follows:
Financial terms for private sector:
- Flexible concessional interest rate;
- Minimum level of concessionality to avoid displacing other finance;
- First-loss position if justified;
- Maximum maturity of 20 years;
- Flexible exit date for equity investments.
Financial terms for public sector (LDCs/SIDS and Other Recipient Countries):
- Grace period of 10 years;
- Interest rate of 0.25% or 0.75%;
- Maximum maturity of 40 or 20 years;
- Principal repaid in equal annual payments after grace period.
The resources can be used for projects that deliver global environmental benefits in one or several of GEF’s areas of work, including biodiversity, climate change, international waters, land degradation and chemicals and waste management. The funding size is flexible and expected to range up to approximately $15 million per project.
Proposals are especially encouraged if they: (i) demonstrate innovative private and public sector application of financial mechanisms, business models, partnerships and approaches for achieving the objectives of the GEF-6 strategies that may be broadly adopted and can be scaled up; (ii) entail high levels of co-financing and focus on areas other than climate change.
The GEF invites private and public sector recipients to propose projects through eligible GEF Partner Agencies in two phases:
PHASE I: Three innovatives projects were selected in Phase I of GEF-6.
PHASE II: Proposals for Phase II were submitted in the Fall 2015 for Council decision in November 2015.
Further details on the $110 million Non-Grant Pilot can be found in GEF Council document GEF/C.47/06/Rev.01, GEF-6 Non-Grant Instrument Pilot and Updated Policy for Non-Grant Instruments;
Eligible GEF Partner Agencies can submit project proposals on behalf of private and public sector recipients to the GEF. Here is the list of all 14 GEF Partner Agencies;
Applications for the $110 million Non-Grant Pilot follow the procedures described in the GEF Council document GEF/C.42/Inf.08, Operational Modalities for Public Private Partnership Programs;
For further information, please contact an eligible GEF Partner Agency or the GEF Secretariat:
- David Rodgers, Sr. Climate Change Specialist: drodgers@TheGEF.org
- Dustin Schinn, Operations Analyst: dschinn@TheGEF.org
GEF-6 Non-Grant Instrument Portfolio
The GEF has approved a total of ten non-grant projects, using $91.2 million in GEF funding and attracting $1,689 million in co-financing through January 2017. This includes eight full-size projects and two medium-size projects. The full-size projects covered a full range of modalities, including four equity investments, one private sector loan, one risk guarantee, one reimbursable grant. The medium-size projects use debt-aggregation and blended finance. Short summaries of each GEF-6 non-grant investment are provided below.
This Impact Investment in Support of the Implementation of the Nagoya Protocol on Access and Benefit Sharing (IADB) will support efforts in Latin America and the Caribbean to develop Small and Medium Enterprises (SMS) that are actively implementing the Nagoya Protocol. It will focus on 20 SMEs that are taking part in the production and valorization of genetic resources by means of research and development or that are part of value chains linking users and producers of these genetic resources. The investment will facilitate improved capacities for the valorization of genetic resources or commercialization of value-added products, effectively linking users and producers of these genetic resources. The project will bring on board the experience of the Union for Ethical Biotrade (UEBT). Under the non-grant pilot, GEF will invest $10 million and will receive an estimated risk-adjusted equity return of 13 percent-15 percent along with its principal. Reflows to the GEF trust fund will be confirmed at CEO endorsement; estimated to after the project is completed and fully returned within ten years. The project yields estimated benefits of 100,000 ha under improved management of landscapes and seascapes; 800,000 hectares under sustainable land management; and 2 freshwater basins with water-food-ecosystems security and conjunctive management of surface and groundwater.
The Equity Fund for the Small Projects Independent Power Producer Procurement Program managed by the Development bank of South Africa (DBSA) will promote renewable energy supply in South Africa by small and independent power producers. Similar to AREF, GEF funds are invested with the expectation of below-market return. DBSA will also create a securitization platform to help resell initial investments after the projects have begun power production. These two interventions help reduce capital costs for small-scale producers and attract private sector capital. The proposed investments will result in installation of close to 100MW of renewable energy, reducing approximately 260,000 tons CO2e per year, resulting in an estimated 5 million tons CO2e over an assumed average project lifetime of 20 years.
The Moringa Agro-forestry Fund for Africa, managed by the AfDB, will promote sustainable land management in production landscapes in Burkina Faso, Cote d’Ivoire, Kenya, Mali, Tanzania, Zambia, and Congo DR. The Fund will invest in 5-6 scalable, replicable agroforestry projects that combine plantation forestry with agricultural elements to capture most of the value chain. The GEF has taken a junior equity position in the fund with an expected return of 6 percent. GEF’s position helps lower risks for private sector investors who may be reluctant to consider land management projects on purely commercial terms due to for example long payback periods, lack no track record and uncertainty over product prices. The project also targets 79,000 hectares to maintain significant biodiversity and associated ecosystems goods and services, and more than 200,000 hectares of production systems under sustainable land and forest management. The project is expected to yield GHG emissions benefits of 9.5 million tons CO2e.
The Risk Mitigation Instrument for Land Restoration project, managed by the Inter-American Development Bank (IADB) combines a GEF investment of $15 million with $120 million in co-financing to deploy innovative risk mitigation instruments to support public and private sector investment to restore degraded lands in Latin America. The private sector is increasingly seeking investments in the restoration of degraded lands as a means of bringing low productivity land into production. Such investments however, have longer payback periods and represent various types of high financial risk making them difficult to finance. GEF funds will be used to provide guarantees and subordinated loans, helping catalyze additional public and private sector investments by reducing perceived risk. The project will support land restoration and integrated natural resources management activities such as sustainable management for increased eco-system services; landscape regeneration; intercropping; shade-grown systems; high-value forest products; and silvo-pastoral systems yielding benefits on at least 45,000 hectares. The enhancements to carbon stock in these investments are estimated to yield emissions reductions of 4.5 million tCO2e.
The green logistics program managed by the european bank for reconstruction and development (ebrd) will improve efficiency and productivity of freight transport in the black sea region by enhancing access to finance. GEF funding will provide subordinated loans at a concessional rate and security for investments made by the ebrd that promote energy efficiency and lower ghg emissions in the logistics sector. The availability of junior funding from the gef will allow the ebrd to invest its own funds in projects that otherwise would be priced excessively, thus leveraging the ebrd’s capacity to deliver energy efficiency solutions in the logistics sector in the region and to help clients to introduce energy efficient practices. With the GEF funding, co-financing investments should be well over $155 million during the project period. Subsequent follow-on investments are expected to rise to $250 million after the project is completed. Estimated greenhouse gas emissions reductions are 9.1 million tco2e.
The AfDB/GEF project, Investing in Renewable Energy Project Preparation under the Sustainable Energy Fund for Africa (SEFA), will support the first of its kind reimbursable grant project preparation facility for renewable energy projects in Africa. Funding provided by the project preparation facility will be reimbursed as project developers received financing for successful projects. This allows the facility to remain sustainable over time and continue to fund additional project preparation investments. If this approach proves viable, it would lead to an expansion of bankable projects which would attract equity and debt financing, leading to faster development of low-carbon energy in Africa. Co-financing will come from the AfDB ($35 million), private sector project developers and debt investors in the eventual projects ($920 million). The project is estimated to provide reimbursable grants for at least 10 renewable energy projects, resulting in estimated emissions reductions of 3.5 million tCO2e. Under the non-grant pilot, the GEF reimbursable grant will earn an estimated 2-5% on each project. The grants can be recycled back into the project preparation facility until the seventh year of the 10 year project. Reflows of recovered principal and interest to the GEF will commence after seven years and will be fully returned after 12 years. Additional reflow details will be defined by CEO endorsement stage.
This CI/GEF project will improve the conservation of coral reef ecosystems by providing financial incentives to fishing communities in the Philippines and Indonesia to adopt sustainable fishing behaviors and rights-based management regimes. The project will focus on the business aspects of the industry, such as ensuring market access, improving assets/equipment as well as providing technical assistance. The Meloy Fund will be the first impact fund focused entirely on community small-scale fishers in the developing tropics and will have a long-lasting impact by financing unbanked enterprises to acquire those fixed assets that will enable financial growth, job creation and resilience to economic shocks. Estimated global environmental benefits are improved management of 1.2 million hectares of seascapes. Co-financing of $35 million comes from the technical assistance provided by executing partners; foundations; investment and impact funds; and other private sector investors. Under the non-grant pilot, investments will be targeted to small and medium enterprises with expected tenors of 5-7 years and will be expected to earn between 10-15% returns, yielding an estimated gross internal rate of return of approximately 10.5% over the 10 year life of the fund. Additional reflow details will be defined by CEO endorsement stage.
The International Energy Efficiency Facility (iEEF), managed by the World Bank, is an example of a targeted intervention aimed a bridging the gap between institutional investors seeking exposure to real asset classes and the idiosyncratic investment needs related to increasing efficiency and bringing down carbon emissions in cities around the world. The iEEF will help aggregate energy efficient investment projects in cities around the globe, focusing first on conversion of traditional urban street lighting technologies to more efficient lighting emitting diodes (LEDs). Without aggregation, many projects would be too small for consideration by investors. Aggregation also helps cities with lower credit ratings to participate in a package that spreads the risk. Cities stand to not only reduce greenhouse gas emission benefits, but realize budgetary savings. Once up and running, this facility could expand aggregation approaches to broader types of efficiency investments, such as building retrofits. Estimated emissions reductions are 1 million tCO2e.
The World Bank/GEF project, Third South West Indian Ocean Fisheries Governance and Shared Growth project (SWIOFish3), will commit non-grant resources in partnership with the Government of Seychelles to support the issuance of Blue Bonds to attract private sector investment. The Blue Bonds proceeds will strengthen efforts to improve management of fisheries and coastal conservation at regional and national levels and improve fish handling processes at targeted handling sites in the Seychelles. This approach is a unique blending of GEF non-grant resources into a recently approved project with the World Bank (PMIMS 9250), that accessed Seychelle’s BD STAR resources alongside with IW funds. Seychelles has pledged to protect 30% of its Exclusive Economic Zone by 2020 and initiated a Marine Spatial Planning exercise to serve as the foundation of its sustainable blue economy strategy. In parallel, Seychelles is also developing management plans for its near-shore fisheries, including the first fisheries management plan for the Mahé Plateau, with a view to progressively transition from an open access fishery to a more controlled fishery. However, the implementation of these two initiatives faces the risk of being underfunded. To supplement the financial flows needed, the Government of Seychelles will issue Blue Bonds (for an estimated total of $15 million) to finance this alternative scenario, in a landmark new kind of transaction that mobilizes capital markets to finance Seychelles' blue economy objectives. The GEF non-grant loan of $5 million will be used alongside an IBRD guarantee to lower the cost of the Blue Bonds. Co-financing of $32 million is expected.
The UNEP/GEF medium-sized project on Piloting Innovative Investments for Sustainable Landscapes is supporting the Tropical Forests and Agriculture Fund, announced at Davos in January 2017, through a strategic partnership with the Norwegian government, the Sustainable Trade Initiative (IDH), and UN Environment. This project showcase additional cases and best practices on enhanced engagement of the private sector and public sector through innovative finance models that deliver protection and production benefits. The new Fund also involves a number of tropical forest countries and is supported by major food companies and international environmental NGO's. It is intended to trigger private investments in deforestation free agriculture in countries that are working to reduce their deforestation and forest and peat degradation.