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

10. BUSINESS COMMITMENTS

Companies are mentioned for illustrative purposes only

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: squatrini@unccd.int