Conservation Finance Guide

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					Conservation Finance Guide




                             Environmental Funds

                                       Table of Contents



1    WHAT IS AN ENVIRONMENTAL FUND?                                                                                3

     1.1 Overview                                                                                                  3

     1.2 Key Actors and Motivations                                                                                4
          1.2.1 Donors                                                                                             4
          1.2.2 Catalyst NGOs                                                                                      4
          1.2.3 Host government agencies                                                                           5

     1.3 Types of Environmental Funds                                                                              5

     1.4 Advantages And Disadvantages of EFs                                                                       7

     1.5 Factors Contributing to the Success of an EF                                                              7
          1.5.1 Factors contributing to successful establishment of an EF                                          7
          1.5.2 Factors contributing to the successful operation of EFs                                            9

     1.6 Steps for Establishing an EF                                                                            10

2    FEASIBILITY ASSESSMENT PHASE                                                                                13

     2.1 Overview of Feasibility Assessment                                                                      13

     2.2 Generic Terms of Reference (TOR) for Feasibility Assessment                                             13
          2.2.1 Overview of TOR                                                                                  13
          2.2.2 Terms of reference                                                                               13

     2.3 Worksheet Tools for Carrying Out Feasibility Assessment                                                 16

3    IMPLEMENTATION PHASE                                                                                        19

     3.1 Designing and Establishing an EF                                                               19
          3.1.1 Goals and objectives                                                                    19
          3.1.2 Legal framework                                                                         20
          3.1.3 The EF’s founding legal document (either called a constitution, charter, deed, or articles
          of incorporation)                                                                             20
          3.1.4 Governance structure                                                                    21
          3.1.5 Financial structure                                                                     22
          3.1.6 Sources of funding                                                                      23
          3.1.7 Legal domicile and location of trust assets                                             23
          3.1.8 Criteria for grant-making                                                               24

     3.2 Worksheet for Summarizing Design Stage Data                                                             24

4    RESOURCES                                                                                                   26

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4.1 Bibliographic References                                           26

4.2 Web Sites                                                          27




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1     WHAT IS AN ENVIRONMENTAL FUND?


1.1     Overview

Environmental funds (EFs) have been set up in many              Glossary of Terms
developing countries over the past decade as a way of
providing funding for environmental protection. This chapter
                                                                Articles of Incorporation (or of
focuses on EFs that finance biodiversity conservation – also
                                                                Association): legal document which
called "conservation trust funds" – not the wider universe of
                                                                sets forth the purposes for which a
EFs that include so-called "brown" funds.
                                                                nonprofit entity is established; its
Most EFs that finance conservation take the form of a legally   governance structure; rights and
independent institution (i.e. set up outside of government)     obligations of its directors, sources
and is managed by an independent board of directors.            from which it can accept money,
Many EFs have a permanent endowment that has been               activities and objectives for which it can
capitalized by grants from the national government and          spend money; ways in which it can
international donor agencies. EFs may also manage sinking       invest money; and the conditions for
funds created through debt-for-nature swaps or revolving        dissolution.
funds financed through specially designated “user fees” or
                                                                By-laws: Detailed rules and
taxes that are ‘earmarked’ for conservation.
                                                                regulations which address issues that
The main purpose of setting up an EF is to provide long-        are not covered in the basic legal
term stable funding for national parks and other protected      document (Charter, Articles of
areas (PAs), or small grants to non-profit / non-               Incorporation, or Deed).
governmental organizations (NGOs) and community groups
                                                                Debt-for-nature swap (or
for projects aimed at conserving biodiversity and using
                                                                conversion): cancellation of debt
natural resources more sustainably. EFs are often
                                                                repayment obligations (i.e. the principal
developed out of a process of long-term business planning
                                                                and/or the interest on a hard-currency
for protected areas (see business planning for protected
                                                                loan) in exchange for the debtor’s
areas chapter).
                                                                agreement to allocate local currency for
However, EFs are more than just financial mechanisms.           programs to conserve the environment.
They can also serve as:
                                                                Endowment: fund that invests its
 a valuable forum where diverse stakeholders – such as         capital and uses only the income from
   national and local government agencies, NGOs, the            those investments to finance its
   private sector, and international donors – come              activities.
   together on a regular basis to discuss and sometimes
   resolve important conservation issues                        Foundation: legal equivalent of what is
   key agents in the development of national conservation      known as a trust in European “civil law”
   strategies and policies                                      countries.
 the source of technical experts who can work with public      Revolving fund: provides for regular
   and private agencies to develop agile and effective          receipt of new resources – such as
   management approaches, and                                   special taxes – that can replenish or
 capacity builders and nurturers of emerging NGOs that         augment the original capital of the fund.
   are becoming involved in biodiversity conservation.
                                                                Sinking fund: disburses its entire
The main attraction of EFs for international donors is their    principal and investment income over a
ability to reliably manage and allocate donor funds over a      fairly long fixed period, e.g. 10 years.
long period of time. EFs are typically formed through broad
consultative processes, and are governed by a mixed             Trust fund: legal structure by which
public/private board of directors composed of                   money or other property is held,
representatives of different stakeholder groups. EFs are        invested, and spent by a board of
designed to have credible and transparent operational           trustees or directors exclusively for a
procedures, accountability, and sound financial                 specific charitable purpose, as defined
management practices. EFs therefore may be able to              in a charter or deed.
attract new donor funding in cases where donors might


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otherwise be concerned about giving their money to a government agency. Furthermore, the assets of an
EF are almost always managed and invested by outside financial institutions, either inside or outside of
the country – so as to provide income for the specific duration and specific purposes of that particular EF.
The creation of an EF requires a substantial investment of time and resources, and long-term
commitment to building a new institution. An EF may employ one or a combination of the revenue
generating strategies outlined in this Guide.
Environmental funds have four basic components:
 Capital assets, which are invested in order to generate income.
 Legal structures, which stipulate the objectives and procedures of the Fund, including capital asset
   investment procedures. In most cases, EFs are legally established as private legal entities, including
   trust funds, foundations and associations.
 A supervisory structure, which decides how to use the funds. The members of this board should
   represent the different interest groups, such as local communities, NGOs, government institutions,
   the private sector, academia, and donor agencies.
 A management structure, which is responsible for the management of the fund and implementation
   of grant-making programs. In EFs established to conserve protected areas (PAs) (parks funds), the
   EFs work closely with national nature conservation institutions or the administrations of PAs, which
   are formally independent of the EF.

1.2     Key Actors and Motivations

Most EFs involve three key actors: (i) donors; (ii) catalyst NGOs; (iii) host government agencies. These
actors and their motivations are summarized below.

1.2.1   Donors

Donors provide the funding that makes EFs possible. The Global Environment Facility (GEF) has been
the single largest supporter of EFs. Other bilateral and multilateral donors include: the US Agency for
International Development (USAID), United Nations Development Programme (UNDP), World Bank and
the European Union (EU). Donors are interested in leveraging their funds to have the greatest impact on
their conservation objectives. Normally, donors are involved in advising on establishment of the legal
framework and in approving the financial terms of EFs. They also monitor project performance as they
would for any donor-funded project. Donors also are attracted to EFs as a way to channel their support
through non-governmental actors, which can result in increased decentralization, accountability and
transparency in management of project funds, and provide other benefits such as strengthening the NGO
sector.
Donors must believe that the benefits of “locking up” a large contribution into a long-term fund that
generates only modest investment returns for conservation, outweigh the benefits of more rapid
disbursement of their funds. For this reason, many donors require that EFs raise matching funds.

1.2.2   Catalyst NGOs

For many EFs, conservation NGOs, both local and international, serve in a “catalyst" role, helping to carry
out feasibility and design stages, providing technical assistance for debt-for-nature swaps and EF
establishment, and helping the EF with fundraising and capacity-building. In some cases, catalyst NGOs
provide this assistance as an ”in-kind" contribution to the future EF, while in other cases catalyst NGOs
may receive a grant from an international donor agency to enable them to provide this assistance. Some
international NGOs have also provided limited capital contributions to EFs. Local NGOs may assist in
establishing an EF and later benefit from grants from the EF. It is important that rules regarding conflict
of interest for an EF are established so that NGO support is not perceived as primarily being motivated by
a desire to receive grant funding.




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1.2.3   Host government agencies

Developing country governments typically support EFs from an interest in generating increased
investment in conservation, which their current institutions cannot attract or manage because of legal or
operational limitations. Resource management agencies of the host government are motivated by the
opportunity both to attract outside funding for their operational costs and access funds from their own
governments previously out of their reach (e.g. proceeds from a debt-for-nature swap). Donors often
make the creation of an EF a pre-condition for implementing a debt-for-nature swap. In general, host
government agencies (e.g., for finance, PA management) seek significant roles in the governance of EFs
in order to direct the EF's grant-making towards national priority projects.


1.3     Types of Environmental Funds

In operation, there are no standard EFs. Their operational form depends on each fund’s overall
objectives, legal framework, role within the national nature conservation planning process, etc. Structure,
scope of activities, priorities, and procedures vary according to purpose, and the local situation.
In terms of financial structure, there are three types of funds that are managed by EFs, differentiated by
their investment volume and spending horizon. Endowment funds have permanent capital assets.
Sinking funds start with an amount of money that is spent over a pre-defined period of time. Revolving
funds receive new financial resources on a regular basis – e.g. proceeds of special taxes designated to
pay for conservation programs. An EF can manage one or more type of funds. See section 3.1.5 for
more information on endowment, sinking and revolving funds.
Most EFs are established as private funds that are independent of government, although government
representatives often sit on the governing boards as a minority.
“Parks” versus “grants” funds: Parks funds support one or more specific PAs within a national protected
areas system. Grants funds channel resources to target groups (typically NGOs and community-based
organizations) to carry out a broad range of conservation and sustainable development projects. Often
one of their main objectives is to strengthen the institutions of civil society (for example, NGOs and
community-based organizations) in order to enable such institutions to play a much more active and
constructive role in environmental policy debates and priority-setting.

The following Table illustrates some main differences between these two types of funds and is based on
information from the GEF’s 1999 evaluation of conservation trust funds as well as other sources:




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                      ‘Parks’ funds                                           ‘Grants’ funds
                                       Role within a national strategy
   Often established as integral elements of a             Generally not integral elements of
    national PA strategy, a national biodiversity               national PA strategies, but mostly focus
    strategy, or a national environmental action                on one or more elements of a national
    program.                                                    biodiversity strategy.
   Primary role within that strategy is assuring that at
    least some sustainable recurrent cost financing will
    be available to manage national parks and protected
    areas being targeted under the fund.
                                               Governance
   Government plays a key role: it usually owns the            Government officials, usually high-
    land where the parks operate, and the national parks         ranking, are often represented on the
    director and other government officials serve on the         board, but typically less dominant than for
    EF board. However, the government is typically               “parks” funds
    expected not to be in the majority.
                                    Program scope and management
   Programs generally focused on a limited universe        Program management is more complex.
    of PAs, but most anticipate to eventually support the    Focus tends not to be specifically
    key components or broader segments of a national         determined during the design phase for the
    park system.                                             fund, but is left to the board of directors.
   Focus tends to be specifically determined during the  Generally supports broad range of activi-
    design phase, and generally limited to activities        ties outside conventional PA management,
    targeting formally gazetted parks.                       such as awareness raising, applied
   Some funds also provide grants to entities working       research, community resource
    in PA buffer zones, but normally only within the         management, etc.
    context of a park management strategy.                  With maturity, most “grants” funds tend to
   Fund allocation process is relatively simple, no         sharpen their focus (e.g. marine conser-
    competitive-grants process.                              vation, specific geographic regions, etc.)
   Activities funded usually support elements of a multi-  Funds allocation characterized by com-
    year park management plan.                               petitive grants solicitation (often annual).
   Program level monitoring and evaluation are             Generally more freedom to finance
    relatively easy to the degree that all grantees are      innovative and catalytic projects.
    carrying out similar functions and work in              Broad program-level monitoring and
    circumscribed geographic areas.                          evaluation more difficult quantitatively
                                                             (more grants) & qualitatively (biodiversity
                                                             objectives and civil society strengthening).
                                              Financial issues
   Biodiversity focus makes it easier to satisfy funding       Meeting GEF’s global benefits criterion is
    criteria for global environmental benefits (e.g. by          more difficult (must be specifically deter-
    GEF)                                                         mined for areas or activities of each grant)
   Priority is given to establishing a permanent               A sinking fund (or revolving / replenish-
    endowment although other types of funds may also             ment fund) is sometimes more cost-
    be established.                                              effective because catalytic and start-up
   Governments have tended to be more active in                 projects normally do not require long-term
    providing revenues and raising capital                       recurrent-cost financing.
There are many examples of private “grants” funds supporting particular components of a national PA
system in Bolivia, Ecuador, Peru, and Mexico. Examples of private “parks” funds include: Santa Marta in
Colombia and Mgahinga-Bwindi in Uganda. Examples of private “grants” funds with broad mandates (i.e.
national sustainable development funds) include EFs in the Philippines, Mexico and others (e.g. several
established in Latin America through the US Enterprise for the Americas Initiative (EAI). Public national
environmental funds include EFs in Brazil, Colombia and El Salvador.
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1.4       Advantages And Disadvantages of EFs
                            Advantages                                            Disadvantages
      Long-term financing of operating & follow-on costs of      Cannot generate significant amounts of
      PAs.                                                         funding in a short timeframe – which may
     Provide high absorptive capacity, i.e. the ability to        be required if biodiversity resources face
      absorb and distribute large sums of money over an            major, urgent threats.
      extended period of time.                                    Endowment funds tie up large amounts of
     As a long-term source of finance, EFs facilitate the         money, which only generate relatively
      planning process of PA management.                           modest income, a part of which is spent on
     Broad participation of government and non-                   administrative costs.
      governmental representatives in the governing bodies        Minimum size for an EF to be cost effective
      contributes to a transparent decision-making process         is typically US$5 million, which can often be
      and improves the acceptance of nature conservation           difficult to raise, particularly from more than
      measures in society (local ownership). Through the           one donor (in an effort to achieve
      support of NGOs, community-based organizations               diversification).
      and the commercial sector, EFs also make an                 Possibility exists that the funds will be
      important contribution towards the development of            utilized for political and other purposes
      civil society.                                               outside EF objectives and restrictions, and
     Provide sustained funding, mitigating risks of               that endowment will be “invaded”. (Proper
      unexpected stoppage of funds due to political                legal safeguards help to minimize this
      changes, budget cuts, economic austerity programs,           possibility.)
      etc.                                                        Existence of an EF can prompt cutbacks in
     Since they are independent of government EFs can             conservation funds by host governments
      react more flexibly to new challenges.                       and donors.
     Can conduct long-term planning, because they are            Typical focus of grant-making for projects
      independent of changes of government and shifts in           can result in neglect of key legal and policy
      political priorities.                                        actions needed to conserve biodiversity.
     Provide small grant-making capacity by "retailing"
      large international grants to a wide range of smaller
      projects. More capable than large donor agencies of
      overseeing many small-scale projects, and adjusting
      requirements to fit local capacity and circumstances.
     Facilitate coordination between various actors
      (donors, government, and civil society).
     Can help build local capacity for managing financial
      resources. They are locally driven and locally
      managed, addressing the priorities of the region,
      country, province or community in which they are
      based.
     Leverage effect: Once established, funds can attract
      important additional funding from various sources.
     Enjoy privileges such as tax exemption that enable
      full application of available funds to designated
      beneficiaries.



1.5       Factors Contributing to the Success of an EF

1.5.1     Factors contributing to successful establishment of an EF

Factors in bold type are essential. Some “critical mass” of the remaining factors should also be present;
absence of more than a few greatly increases risk (adapted from GEF, 1999).



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   Absence of major threats requiring urgent mobilization of large amounts of money (i.e. the
    conservation action required is long term and can be addressed with the annual financial flows a trust
    fund could produce).
   If it is a private fund, government support of the concept of a fund outside government
    control, that involves both the public and private sectors. The support should be active and broad-
    based, from senior political leaders to regional and local bodies, extending beyond
    environmental ministries and departments to include ministries of finance and planning.
   A reasonable financial contribution from government, if not directly to the fund, then to
    project activities.
   Strong co-ordination among host-country government agencies: planning and relevant sectors (e.g.
    forests, protected area management).
   For private funds, a legal framework that permits establishing an autonomous trust fund,
    foundation, or similar organization. Tax laws allowing such a fund to be tax exempt, and providing
    incentives for donations from private contributors. If not, willingness and likelihood of government to
    bring about and support such a framework.
   People with a common vision — from NGOs, government, the academic and private sectors,
    donor agencies, and communities — who can work together despite their different
    approaches to conservation. The support and involvement of business leaders is crucial to
    bring in private sector management skills, especially skills in financial management.
    A legal and financial system that can be relied on to protect the EF’s financial assets and
    legal independence.
   Functional supporting institutions (e.g. banking, auditing, and contracting) available in the
    host country.
   A participative process which involves a broad set of stakeholders during the design process, and
    willingness of stakeholders to use EF mechanisms.
   Availability of one or more mentors — e.g. an experienced donor agency or international NGO
    “twinning” with another, more experienced trust fund — to provide technical, fundraising and other
    support to the fund during the start-up and early implementation phases.
   Realistic prospects for attracting a sufficient level of capital for supporting a significant conservation
    program. In most cases this means having clear commitments from more than just one donor before
    starting the fund. The presence of possibilities to harness in-country resources (user fees, taxes and
    levies, donations, etc.) to ensure long-term financial sustainability is also an important factor
    contributing to success.
   An effective demand for the fund’s “product,” including a client community interested in carrying out
    biodiversity conservation activities on the scale envisioned, and sufficient to achieve significant
    impact.




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1.5.2   Factors contributing to the successful operation of EFs
   Clear and measurable goals and objectives.
   A governance structure with appropriate checks and balances, conflict of interest provisions, and
    succession procedures.
   Governing Board members who are willing to commit significant time and leadership, and engage in
    efforts to build support of the fund with various constituencies.
   A strong and clearly defined institutional role in implementing any national biodiversity strategy or
    national environmental action plan.
   A dedicated, technically competent staff, and in particular, a strong executive director.
   Harmonious and productive relationships between the governing board and the staff. The board
    should not try to micro-manage or become involved in day-to-day operations, but should limit itself to
    formulating general policy, providing oversight, and approving the budget. Conversely, the Executive
    Director and staff should not treat the board as merely a “rubber stamp,” but should allow the board to
    make all major decisions.
   Constructive use of outside training, mentoring, and technical assistance programs to build up the
    EF’s institutional capacity.
    Non-confrontational and non-competitive relationships with government environmental agencies, and
    government departments in charge of managing natural resources, such as forestry, fishing, mining,
    and energy.
   Financial/administrative discipline combined with program flexibility and transparency, and
    procedures that support this and are consistently applied.
   Mechanisms for continuing to involve a wide range of stakeholders in the fund’s programs and
    direction.
   Clear vision and leadership to avoid program fragmentation and loss of focus.
   Competitively selected asset managers for investment of the fund’s assets; a diversified portfolio of
    investments; frequent and regular reporting by the asset managers to the board of the financial
    performance of the fund’s investments; and oversight by a governing board that compares actual
    performance to targets.
   If the EF is a GEF project, having a supportive, nurturing task manager who is able to bring in the
    outside resources and expertise that are needed.
   Support by broader context. EFs are most effective when there are supportive government
    environmental policies, and there are other successful conservation programs in the country.
   Stable economic and political conditions.
   A core of potential grant recipients able to effectively use grant funds.




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1.6      Steps for Establishing an EF

Establishment of an EF generally entails three phases of development:

     feasibility phase
     design phase
     implementation phase


The following steps are typically required to establish an EF:


Feasibility phase


Step 1: Meetings between interested stakeholders – including donors, NGOs and government – to
        determine level of interest in establishing an EF
         NGOs or donors often play a lead role in introducing the concept
         Presentation of general concept including examples of how EFs have been established and
            operate in other countries


Step 2: Conduct an independent feasibility assessment (see the sample Terms of Reference in Section.
        2.2 below) to evaluate such factors as:
        Level of interest in supporting the establishment of an EF
        In-country support (both financial and political)
        Local legal and investment conditions
        Options for legally structuring the EF as a trust, foundation or other legal entity


If stakeholder interest exists and the creation of an EF seems feasible:

Design phase


Step 3: Organize a Steering Committee
         Recruit cross-section of individuals covering diversity of stakeholder groups (e.g.
           government, NGO, communities, private sector, etc.) including both people with the expertise
           and time to work on the detailed design of the EF, and politically well-connected individuals
           who can secure the necessary high-level agreements and meetings
         In order to ensure high-level political support for the creation of an EF, the government (e.g.
           environment minister) often appoints Steering Committee members based on nominations
           from stakeholders


Step 4: Define general vision – who and what the trust fund will support, and why
         Steering Committee defines the general vision for the EF based on a broadly participatory
            consultative process engaging a range of stakeholder groups


Step 5: Secure financial support for the Design Phase

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           Secure sufficient funds (usually from US$100,000-200,000 not counting the time of people on
            the Steering Committee). Expenses generally include consultants’ fees (including
            coordinator), legal fees, meeting expenses, and international travel for fundraising and other
            purposes


Step 6: Steering Committee develops a more specific vision and strategy
         Through a participatory process that includes potential donors, address the following issues:
             Role of the EF in the national context in relation to national plans and strategies,
                government, private sector, etc.
             Legal structure of the EF
             Governance (structure and composition of the EF’s governing body)
             Focus of grant-making program – purpose, objectives, eligible beneficiaries and criteria
                for selecting them.
             Financial projections:
                      How much money will be needed each year to fund conservation activities and
                         cover operating expenses?
                      What percentage will be generated by an endowment, and what percentage by a
                         long-term sinking or revolving fund?
                      How will the fund's assets be invested?
Step 7: Prepare EF Profile based on results of Step 6.
         Draft fund profile outlining the above issues
         Hold consultations with donors and present the EF Profile to them. This may involve
           meetings with donor agency officials based in the host country, as well as officials in the
           donor country itself


If there is a reasonable expectation that the EF will be able to secure sufficient funds to
operate:

Step 8: Prepare articles of incorporation or statutes and by-laws for the EF
         Contract legal consultant to prepare drafts
         Steering Committee reviews drafts and approves legal documentation
         Present draft documents to potential donors, government and other stakeholders for their
           input


Step 9: Prepare draft Operational Manual and Investment Policy
         Contract consultants to prepare draft of Operational Manual outlining day-to-day operational
           procedures for the EF
         Contract financial consultant to prepare draft Investment Policy
         Steering Committee reviews drafts and submits to potential donors for their input


Step 10: Prepare initial fundraising strategy and proposals
        Steering Committee submits fundraising proposals to donors
        Steering Committee negotiates terms of donor contributions


Step 11: Incorporate the fund and elect the governing board (which may include people who have
          served on the steering committee)
        Steering Committee elects first slate of board members (as set out in legal documents)


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          Submit legal documentation to appropriate government office for registration / incorporation
           of EF (including registration with the tax office as a tax-exempt charity)




Implementation phase


Step 12: Initiate start-up of EF
        Receive initial donor grants or other source of funding
        Governing Board adopts By-laws, Operational Manual, Investment Policy
        Governing Board recruits Executive Director
        Establish office and hire staff
Step 13: Establish technical committees to advise the board
        For example, a Finance Committee would advise and inform the board about the fund's
           economic health, potential investments, and support the management team on financial
           issues, including recruitment of an asset manager and financial auditor
        A Scientific or Technical Committee would advise on research, geographic, and other priority-
           setting, and determine guidelines for grant-making
Step 14: Train the board, managers, and administrative staff
        These groups will need training in board development, fund management, capacity building
           technical conservation issues, etc.
Step 15: Initiate grant solicitation process
        A Strategic Plan should identify the fund’s priorities
        The Operational Manual will need to cover grant-making procedures and provide
            standardized forms for grant applications
        Conduct outreach to local stakeholder groups to inform them about grant procedures
        Provide proposal development support for grant applicants
        Circulate first call for proposals
        Review grant applications and approve slate of first-year grants
Step 16: Develop a monitoring and evaluation plan
        Regular monitoring and evaluation are essential to ensure that the fund meets its goals and
          continues to be responsive to changing needs




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2     FEASIBILITY ASSESSMENT PHASE


2.1     Overview of Feasibility Assessment

Typically, an NGO or donor agency will commission an EF expert to conduct an in-depth feasibility study
of EF opportunities. Such studies often take roughly one to three months to complete, and can cost in the
US$15,000-$30,000 range. More rapid and less expensive feasibility assessments can be conducted
using the tools provided below, the resources listed in this section, and limited technical assistance as
needed. Below is a generic terms of reference for a feasibility study, along with two worksheet tools (EF1
and EF 2) for summarizing data collected during the feasibility assessment and analyzing financial
projections.

2.2     Generic Terms of Reference (TOR) for Feasibility Assessment

2.2.1   Overview of TOR

[INSERT BACKGROUND SECTION REGARDING CONDITIONS LEADING TO STUDY]. To explore
these opportunities [INSERT NAME OF CONTRACTING ENTITY] is commissioning a feasibility study.
The consultant(s) will work with [INSERT RELEVANT PARTIES] to conduct a feasibility study of a
national-level Environmental Fund for financing conservation, including protected areas management, in
[INSERT NAME OF COUNTRY].

The study will evaluate key issues and conditions influencing the feasibility of an EF in [INSERT NAME
OF COUNTRY]. In-country work will include an analysis of local support for an EF, [INSERT NAME OF
COUNTRY’s] legal environment for setting up EFs, and the potential to attract funding for an EF and
other issues.

The study should also identify the individuals or institutions within the government who could serve as key
proponents. Out-of-country work could include meetings with potential donor agencies, analyses of
financial issues (e.g. funding needs, EF revenue projections) and other analytical work.

2.2.2   Terms of reference

OBJECTIVES:
The overall objective of the consultancy is to explore the feasibility of a national-level EF in [INSERT
NAME OF COUNTRY], and to recommend a follow-up strategy for implementation, including
recommendations regarding design options (e.g. entities that could receive proceeds, conservation
strategies for programming of fund proceeds, etc.).
TASKS:
1. Review relevant plans, programs, and studies
    Review National Environmental Action Plan (NEAP), National Biodiversity Strategy and Action Plan
     (NBSAPs), conservation finance plans / studies, and any other plans, programs and studies of
     particular relevance to an EF.
    In particular, assess national conservation funding strategies, sources and needs.
    Assess potential contributions of an EF toward achieving major goals in existing national plans and
     programs.
2. Stakeholder input
    Organize one-on-one interviews, workshops and group discussions with diverse stakeholder
     groups in host country (government agencies, NGOs, local and indigenous communities,
     commercial private sector, academia, etc.) to solicit their views on general support for an EF and
     specific establishment and design issues, such as:

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           Overall purpose of EF and role in the national context (e.g. relation to national plans and
             strategies)
         Focus of grant-making program – purpose, objectives, eligibility issues, types of projects to
             be funded, potential recipients, etc.
         Financial issues – Current conservation funding levels, total additional annual funding
             needed, breakdown of endowment, sinking, revolving funds recommended, offshore
             investments of assets, etc.
         Legal structure issues
         Governance issues (e.g. structure and composition of governing body), and
         Other relevant issues
     Assess current and probable levels of commitment by various stakeholders to participate actively
      and transparently in the EF development process, including provision of time, expertise, potential
      projects, etc.
     Conduct assessment of host government support:
         Provide a preliminary indication of the government’s interest in EFs and capacity to
             participate
         Identify government officials who could serve as “champions” or would be important
             supporters in advocating / approving an EF
         Summarize government concerns and conditions
         Conduct research through interviews with relevant government officials (Ministry of Finance,
             Ministry of Environment, National PA Agencies, PA Managers, etc.)
3. Donor support
    Conduct assessment of potential support by external donors (bilateral, multilateral, private
     foundations, individuals, etc.), including likelihood of financial contributions to EF, as well as views
     on overall EF purpose and specific design issues. (Research will be conducted through interviews
     with select donors.)
    Examine the potential for short- and long-term national contributions to EF (e.g., allocations of
     annual government appropriations, tourism-based taxes, etc.). (Research will be conducted
     through interviews with select government officials and others).
4. EF design and follow-up strategy for implementation
    On the basis of the research conducted above, analyze and recommend key design options for an
     EF, and recommend specific next steps for a follow-up implementation strategy if an EF is
     determined feasible.
    If the creation of an EF seems feasible, prepare detailed Terms of Reference for EF design and
     early start-up phases. This should include a description and timetable for activities, performance
     benchmarks, types and qualifications of specialists needed, required time-frames, and estimated
     budget.


Deliverables:
1. Feasibility report and ToR. A preliminary report capturing all of the task points outlined above will be
   submitted to a “Review Team” for comments and discussion prior to the finalization of the report for
   submission to the contractor. A final report will be submitted in written and electronic form.
2. Contact list. A list of key contacts will be attached to the final report.
3. Briefings. Concluding briefings will be provided in [INSERT LIST CITIES] to summarize preliminary
   results for contractor and other interested stakeholders.


Staffing and timetable:
The project will be implemented during the period [FILL IN]. A preliminary report will be due on [FILL IN]
and a final report will be due on [FILL IN]. The level of effort will require a total of [FILL IN] consultant

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days. [IF A TEAM OF CONSULTANTS:] The consulting team will consist of: [FILL IN NAMES,
BREAKDOWN OF DAYS AND ROLES]




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2.3     Worksheet Tools for Carrying Out Feasibility Assessment

Two worksheets (EF1 and EF22) have been developed to assist the feasibility stage. Instructions for how
to use these tools, with links to the worksheets are provided below. These worksheets are intended as
generic tools to help summarize and analyze relevant information gathered during the feasibility stage.
They will need to be customized to some degree for every site.


Instructions for EF1: Analysis of key conditions for EF establishment
EF1 is designed to help analyze the key conditions needed to establish an EF, covering political,
economic, legal and other conditions.
 Review the general structure of the worksheet, including data input categories (columns and rows)
   provided as defaults; modify as needed.
 Column 1 lists a variety of conditions under four general headings mentioned above. Based on
   feasibility phase research, for each condition, assign a relative ranking score (1 – 5 scale, with 5
   being the optimal) in the appropriate column to the right.
In analyzing these conditions for success, the following key analysis questions should be considered:
 Are there some conditions that are particularly important in this local setting? What are their scores?
    How could these conditions be improved if necessary?
 Are there a sufficient number of medium (3) or higher scores, suggesting a good likelihood of
    success?
 Are there any “Very Low” scores that could present major obstacles to moving forward?




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To open this Excel sheet for modification, click here and go to the first sheet




Instructions for EF2: An Environmental Fund Financial Planning Tool
Worksheet EF2 enables users to develop complex financial projections for an environmental fund over a
20-year period. Tables and graphs providing detailed principal and expenditure data will be generated by
entering basic financial assumptions about the sub-accounts that comprise an overall fund. The
worksheet allows users to enter data for eight different parameters on up to 20 sub-accounts. These
parameters, found in data input rows 8 – 15, are:
A. Type of fund
B. Initial principle deposited
C. Number of years to sink
D. Revolving contribution amount


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E. Number of yearly installments
F. Expected net return (%)
G. Amount to reinvest
H. Fund start year


Start by familiarizing yourself with the layout of the spreadsheet. The tool opens on spreadsheet EF2b,
which already provides sample data for 6 sub-funds. The preceding spreadsheet is left blank for entering
your own data, you can also overwrite the data in 2b once you are familiar with how the tool works.


Data Input
Data will be entered in rows 8 – 15 for up to 20 funds. You will see only six funding source columns when
you open the tool, but you can open and close funding sources 7 – 20 by using the right and left arrows
found at the top right of the screen. Row seven, "Name of funding source", enables users to designate the
name of their funding sources. For example, Source 1 in this case is named "Grants by public donor
agencies (ex. GEF)". This can easily changed by typing over the name.
Examine the sample data entered for Sources 1 – 6 to better understand the structure and functionality of
this tool.
For row 8, "Type of Fund", a drop down menu enables users to select one of three types of funds:
Endowment, Sinking or Revolving funds. "Endowment" is selected for Source one, and the initial
principal of the fund is set at US$ 1 million. Depending what type of fund you choose, certain cells
will be darkened and you won't be able to enter information that doesn't pertain to that type of
fund. In this case, the next three rows (number of years to sink, revolving contribution amount, and
number of yearly installments) are all darkened because these data input categories do not pertain to
endowment funds.
The next data entry for this endowment fund (in first column of source one) is the "expected net return".
This is set at 5% in this example. Moving down that column, a figure of 20% is entered for the category
"Amount to Reinvest". This means that 20% of the interest income from this endowment will not be spent
on the designated fund activities, but rather, re-invested. For example, in the first year of operation of this
fund, with a US$ 1 million endowment, and a return of 5%, this fund would generate US$ 50,000 in
interest. Twenty percent of this, $10,000, will be re-invested into the endowment and the remainder, US$
40,000 will be spent on environmental activities supported by the fund.
Please note that by clicking on the red triangles in the upper right corners of the column A you can get
further explanations of the data entry categories in rows 8 – 15.
For each source two data entry columns are available, in order to show side-by-side comparisons of two
scenarios. The white cells with black text on the left can be used for "scenario 1 -best estimates" for the
various parameters. The light green cells can be used for to develop "scenario 2" parameters which
enables the user to make side by side comarisons and ask "what –if" questions.
You can overwrite the data in the sources 1 – 6, and add new sources when you are comfortable with
how the spreadsheet functions.


Results
Results will be displayed as tabular data, or as charts below the data input columns. Clicking the
"Chart/Data" button in the middle of the screen will switch between these two different displays.
Charts show the principal and expenditure levels for scenario one over 20 years for the total fund and up
to 6 of its sub-accounts (sources 1 – 6). In addition a table at the bottom of the screen also shows the
total of all endowment funds under scenario one from year 1 – 20.



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The tabular data shows the expenditures possible by each fund every year. With the tabluar data
showing (not the charts), click on the "Principal data" button in the middle of the screen, the tables
will expand to show expenditures AND principal. Finally, notice that on the far right-hand side of the
screen, beyond the last visible fund "source" column, the data TOTAL columns are provided.


In analyzing this information, key questions to consider include:
 A standard (i.e., realistic) long-term return on investment rate used for EFs is 6%. At this rate, and
    subtracting annual costs of managing the fund (typically no more than 20% of total expenditures),
    how large of an endowment is needed to achieve annual grant-making targets?
 How might these results influence the asset management strategy (e.g., higher proportion of growth
    stocks in asset portfolio)?
 How much unpredictability and fluctuation in annual investment returns can the EF tolerate ?
    Investing a higher proportion of assets in stocks vs. bonds, or in growth stocks vs. stocks that pay a
    low but steady dividend, may lead to shortfalls in some years, even if it generates higher returns over
    a long period.
 Will the expected size of the endowment, revolving or sinking fund be able to generate enough
    investment income to carry out an effective conservation program? If not, what other sources of
    finance might be considered?

To open this Excel sheet for modification, click here and go to the second sheet (financial analyses). A
copy of EF2 with sample data already filled in can be found on the third worksheet. An image of this
worksheet (EF 2b) is shown below.




3     IMPLEMENTATION PHASE


3.1     Designing and Establishing an EF

3.1.1   Goals and objectives

If not already constituted, an EF Steering Committee, composed of a broad cross-section of stakeholders,
will need to be established to spearhead the Design Phase. A first step in the process of fund
establishment is defining its overall goal and objectives. One of the key lessons learned from past
experience is the importance of having the basic vision of the fund in place before making decisions on
key design elements. In deciding on the goals / objectives, a first step is to define the issues to be
addressed, and then the types of activities that a fund could support to address these issues.
One common objective of most EFs is to provide a stable source of financing to meet the recurrent (i.e.
ongoing) costs of operating and maintaining protected areas and/or to ensure the sustainable use of
natural resources through community support. However, other objectives have varied in breadth and
depth. EFs can be narrowly focused, such as the maintenance of a specific PA or the PA system as a
whole. For example, the Jamaica National Parks Trust Fund was established to fund two pilot national
parks and the establishment of a National Parks and Protected Areas System in Jamaica. One of the
principal goals of Suriname's EF is to record and secure indigenous knowledge of rainforest plants with
medicinal value. (See case study in Bioprospecting Chapter). When the objectives of an EF are narrow,
they are easier to understand and communicate, and leave less room for disagreement among governing
board members.
At the other end of the spectrum are funds that incorporate broad goals and objectives. For example,
the main objective of Peru's national EF (FONANPE) is to finance PA projects in Peru. Such all-


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encompassing goals can support national environmental agendas and allow experimentation with new
forms of partnerships between the public and private sectors.
Generally, EFs are more successful when they focus goals and objectives on a specific range of
activities selected for strategic impact and feasibility, and which can be carried out quickly to build a
track record. The scope of a fund can always be broadened later, if appropriate. Alternatively, if a fund
starts out with a fairly broad mission and objectives, a "pilot phase" can focus on one or more specific
areas before accepting proposals from other areas. There are several practical reasons for taking this
approach:
 A fund can only process so many proposals, and finance even fewer. It is better for a fund to narrow
    its focus, receive fewer proposals, and select as many high-quality proposals as can be funded, in
    order to establish a track record.
 A narrower focus will allow selection of fund staff and advisory committees with specific technical
    skills (e.g. conservation-friendly enterprises around PAs, ecotourism), avoiding the necessity of
    staffing for multiple disciplines.
 Fund-raising for an EF with a narrow focus will be more directed and able to achieve quicker results.
 A narrower focus will enable the fund's management and trustees to acquire expertise and
    competencies, which over time will translate into greater efficiency in the handling of its operations.
    Lessons and skills acquired could subsequently be applied to other areas.
Reaching agreement on the goals and objectives of an EF will normally entail a series of stakeholder
meetings convened by the EF Steering Committee to discuss the fund's focus. If consensus cannot be
reached, an outside facilitator may be hired to help build consensus and arrive at a set of goals and
objectives.



3.1.2   Legal framework

The basic legal framework of an EF is quite simple: the property (money, land, other assets) is managed
by one or a group of trustee(s) (who can also be called directors) for the purpose of achieving the
specified goals of the EF (see above). In this fiduciary role, the trustee(s) hold legal (custodial) title to the
property under a fiduciary duty to manage it for the benefit of the beneficiaries – identified in the papers of
incorporation – who hold the equitable title. This ‘splitting’ of title ensures that if a trustee is indebted
personally or through other enterprises, those creditors cannot make claim to the EF assets, and that, in
case of mismanagement of the assets, the beneficiaries can sue the trustee(s) to carry out the agreed
terms of the trust. EFs are typically established as a public or “charitable” trust. While the charitable
trust is the most suitable legal form in “common law” countries (i.e. with legal systems based on English
or American models), most modern law systems based on continental European “civil law” systems use
the locally most appropriate form of a foundation. In some countries in Latin America, EFs have taken
the form of a fideicomiso – an act or contract through which control over a right or asset is transferred to
a fiduciary agent (usually a bank) who is held responsible for compliance with the terms set out by the
original holder of the asset. More detailed treatment of the key legal issues is provided in Mitikin (1995:
pages 14-20).

3.1.3   The EF’s founding legal document (either called a constitution, charter, deed, or
        articles of incorporation)

Typically, EF proponents (e.g. the Steering Committee) will contract a lawyer to draft the legal
document(s) that formally establish the trust or foundation. This document defines the EF’s goals and
objectives, its governance structure, and the mechanisms by which grants will be awarded.
Such a document can have different names in different countries:
 constitution
 charter
 deed of trust
 articles of incorporation


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This document establishes the legal right of the governing board to initiate lawsuits on behalf of the EF to
support its objectives, and provide a legal basis for removing board members, and even dissolving the
trust if the goals and objectives are not carried out or if there are egregious violations.
While this basic legal document establishes the general principles for the EF’s operations, by-laws and
operational manuals provide instructions for conducting the day-to-day operations of the trust. These
documents must be formally approved by the governing board soon after the EF is legally established,
and they are often drafted before the board has its first meeting. In contrast to the fund’s basic legal
document (e.g. its charter or articles of incorporation), which is very difficult to change, by-laws and
operational manuals can be changed by the board whenever the board deems necessary.


                     Box 1 Possible Checks and Balances for Fund Management
   Advisory committees should include outside participants who will provide a fresh, objective
    perspective
   For board voting rules, certain types of votes could require super-majorities (75%, 80% or 100%)
   Board membership terms could be staggered, with members serving terms that expire at different
    times
   International arbitration and dispute resolution provisions
   Detailed provisions on auditing, accounting and reporting requirements.



3.1.4   Governance structure

One of the most important (and often controversial) purposes of these legal documents is to establish
effective “checks and balances” for governance of the EF. Several of these are outlined in Box 1. Among
these checks and balances, the composition and voting rules of the governing board are particularly
important. Key issues include, for example:
 the size and composition of the board
 the procedures for electing and replacing board members
 voting rules for approving grants, “invading” endowment capital, dissolving the EF and other more
    controversial actions.
The EF Steering Committee must work out the details of the EF’s governing structure before the EF can
be legally incorporated. EFs are overseen by a governing board (usually called a board of trustees,
board of directors or management board) that has ultimate fiduciary responsibilities, defines the grant-
making program, approves grants, and decides on key policy and other issues facing the EF. The
governing board's decisions should be open and transparent (e.g., documented and available to the
public), and an internal checks and balances system should be in place (see above).
The composition of the board is critical to success of the EF. A primary requirement of governing
boards is diversity – that it represents the interests of a broad group of stakeholders in the society,
including government, communities, the commercial private sector, and the NGO sector. The board
members must be committed to the goals of the EF, and fulfilling their obligations as stipulated in the
origination documents. Sometimes, board members serve in their individual capacity, but they can also
“represent” their constituencies. In constituting the board, some consideration should also be given to
how well the board members will work together. In most cases, successful boards have a chairman
and/or executive committee who leads and shepherds the board and the fund to success.
Examples of actual board composition can be examined by accessing the web sites of existing EFs listed
in the Resources Section. The Board of the Mexican Nature Conservation Fund (Fondo Mexicano para la
Conservación de la Naturaleza), a fund with a truly national scope, is comprised of 21 members, to
ensure adequate representation from a cross-section of Mexican society. Most board members serve in
an individual capacity (not representing their institutions) and are prominent businessmen, philanthropists,
scientists, NGO activists and government representatives (for more information see case study on the
Mexican Nature Conservation Fund).



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In contrast, the board of the Forest People's Fund in Suriname is relatively small, with only five members,
including two representatives from the Saramaka Maroons (a local indigenous group), two
representatives from Conservation International (CI), and one representative from the Surinamese
pharmaceutical partner. The smaller size of this board reflects the regional and community focus of the
fund (See case study in Bioprospecting Chapter).
The case study of the Mgahinga and Bwindi Impenetrable Forest Conservation Trust also provides details
on an environmental fund governance structure.
Equally important when deciding upon the composition of the board is consideration of perceptions of
and attitudes towards the fund. For example, if a board does not have any government representation,
the government may distrust the organization and believe that it is trying to undermine its authority
regarding management of natural resources. If there are too many government representatives, the
NGOs, communities, researchers, and other stakeholders may feel that the fund serves only the national
government's agenda. The GEF and USAID – both significant donors to EFs – will not contribute to the
capital of a fund whose board has more than 50% government representatives. This reflects the general
desire of donor agencies to promote the growth of civil society. Usually donors only hold observer status
on the board of an EF, without board voting rights. In cases where donors are represented on the board,
they will need to be judicious with their voting rights to avoid perceptions that the Fund is donor-
controlled.
Securing the explicit support and goodwill of the national government is nearly always critical to EF
success. Limited (i.e. minority) representation for government on the board, without sacrificing the
independence or objectivity of the EF, is a common design approach for achieving government support
and involvement.
Operating procedures for boards can also be elaborated in greater detail in the EF’s by-laws and/or
operational manual. This can cover, for example: frequency and rules for board meetings, mechanisms
for making board deliberations and decisions available to the public, periodic audits and annual financial
reporting, etc.

3.1.5   Financial structure

In designing the financial structure of an EF, it is necessary to consider such factors as the goals and
expected operating life of the fund, and urgency of threats to be addressed. There are four main options:
 endowment                                               a combination of two or more of these
 revolving fund                                             structures
 sinking fund
An endowment is a fund whose capital (also called its ”principal”) is invested in order to generate a
steady annual stream of income. Only the investment income is spent, while the principal is either
maintained or increased. Only under unusual, specifically defined circumstances can the capital (corpus)
of an endowment be invaded (i.e. spent), and typically the endowment must be replenished (i.e. restored
to its previous size) within a short number of years afterwards. An EF’s board typically reinvests a portion
of the investment income in order to hedge against inflation and my also decide to reinvest a significant
percentage of the investment income in order to increase the size of the endowment so as to be able to
generate higher investment returns in later years, or because the money is not currently needed. The
size of endowments vary between less than US$1 million to over US$50 million. Many EF experts
believe that it is not cost-effective to establish an endowment fund whose capital (principal) is less than
US$5 million, because otherwise the annual investment income will be largely eaten up by administrative
and transaction costs.
A sinking fund is designed to disburse its entire capital plus its income over a designated period of time.
This type of funding can be well adapted to the funding of projects with development or income-
generating potential that are expected to become self-sufficient after an initial seed money or start-up
phase. In addition, sinking funds offer donors the opportunity to earmark funding for specific projects or
activities. Debt-for-nature swaps have been a major source of sinking funds denominated in local
currencies. In order to increase the size of its endowment, Peru's FONANPE has negotiated with some
of its donors to deposit interest generated by sinking funds into its endowment.

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A revolving fund is periodically (e.g. annually) replenished through fees, taxes or levies collected or
through donor contributions or swapped interest payments (such as on forgiven debt). The Belize
Protected Areas Conservation Trust is a revolving fund whose capital comes partially from a US$3.75 fee
on visitors entering the country, and partially from an earmarked 20% from fees for PA entrance,
recreational licenses and permits, and cruise ships. Five percent of the collected revenues are managed
as a permanent endowment for emergency purposes.
With over a decade of EF experience, many experts and fund managers now agree that the most
effective EFs often include a combination of two or three funding mechanisms. New EFs are often under
pressure to demonstrate concrete results and success quite rapidly, in order to secure contributions to the
EF from other donors. It might therefore be advisable, in the start-up phase, to sink (i.e. spend down) a
percentage of the fund and finance some priority projects that can generate immediate impacts and
benefit key stakeholders – while the remainder of the funds remain as an endowment. In addition, some
donors are prohibited from contributing to endowments, but are able to support sinking fund components
of an EF that may also have an endowment component (based on contributions from other sources).
This can be particularly useful in an EF’s early years.

3.1.6   Sources of funding

EFs traditionally receive funding from three categories of donors: multilateral donor agencies, bilateral
donor agencies, and private and NGO donors. In many cases, host governments also provide financial or
in-kind support. Examples of multilateral donor agencies that support EFs are the EU, GEF, Inter-
American Development Bank, UNDP and the World Bank – with the GEF by far the largest single
supporter of EFs. Bilateral donors, such as Canada, Germany, Switzerland and the United States,
support EFs, in large part through bilateral debt-for-nature swaps (see Chapter on Debt Swaps ). Many
European bilateral donors provide substantial support to cover start-up costs and technical advice; some
(such as the Netherlands, Norway and Switzerland) have also contributed to EF endowments. Private
foundations, such as the MacArthur, Mott and Summit Foundations, and international NGOs such as
Conservation International, The Nature Conservancy and WWF have supported start-up costs and
capacity-building. They have also provided limited capital for endowment and sinking funds. New
sources of private sector funding have emerged, such as the oil consortium that provided the initial capital
for the Foundation for Environment and Development in Cameroon (FEDEC) in Cameroon.
Along with funding local currency contributions to debt-for-nature swaps, some national governments
have also committed specific amounts to funds in their own countries. For example, the Mexican
Government contributed the equivalent of US$10 million to FMCN. As described above, the Belize
Government collects a US$3.75 “conservation fee” from all visitors entering the country, and channels the
entire amount (roughly US$600,000 per year) to PACT. Such reliable streams of domestic contributions
to an EF can be crucial to meeting the ongoing capitalization needs of the fund.
EFs that were originally based on specific sources of revenue (e.g. debt-swaps or biodiversity prospecting
fees) may be able to attract contributions from additional donors if the fund's goals match the donor's
priorities. In some situations, it may be advisable or necessary to widen the funds' goals. Alternatively,
the fund can create a "sub-account" to facilitate contributions from other donors, who may be interested in
channeling long-term project funds through existing EF mechanisms which have project management
experience, effective accounting and monitoring procedures and other advantages. However, this needs
to be balanced with identity, focus on program priorities and board independence.

3.1.7   Legal domicile and location of trust assets

EFs must be legally incorporated (“domiciled”) in a particular country. This need not necessarily be the
same country in which the EF has its offices and operations, or the country where its financial assets are
located or invested. Each of these components may be located in different countries, depending on
various factors. The most common options are:
 A domestically incorporated trust or foundation, with a domestic and/or off-shore asset management
    account;
 An offshore trust or foundation, with offshore asset management.
In determining where to locate an EF, the following factors should be considered:

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1)    Are there good reasons not to locate the EF in the country? For example, is the government
      unstable or is there a possibility that in the future the government might try to seize control of the EF
      or divert its assets for other purposes?
2)    Does the country’s legal system NOT recognize the concept of trusts or foundations? Are there
      significant legal restrictions on how trusts or foundations can be structured or operate?
3)    Are investment laws inadequate in the country? Does the country prohibit offshore investment? Is
      the local economy unstable? Is there NOT enough technical expertise to manage the assets
      domestically?
4)    Will the interest or investment earnings of the EF be subject to tax?
If the answers to these questions are affirmative, then an offshore fund would make more sense. If
negative, then a domestically incorporated trust or foundation would be more appropriate. Cases will not
always be clear-cut, however, and it may be necessary to come up with a creative solution. Other options
may include: establishing an EF by special new national legislation and obtaining a government
exemption from restrictions on investing abroad; establishing a trust under the auspices of the United
Nations or other international agency; or establishing a two-tier fund with legal registration in the country
and offshore.

3.1.8     Criteria for grant-making

Once the feasibility and design phases are settled, criteria for grant-making must be agreed upon. The
following questions can serve as the starting point for developing more detailed criteria for evaluation of
grant proposals:
 Is the project in conformity with the underlying principles, general scope and priorities of the fund?
 Does it have the potential to have a significant impact on conservation of biodiversity and sustainable
     development?
 Will it meet the priority needs of target communities/institutions/stakeholders, as defined by these
     groups?
 Does it have the support of relevant stakeholders?
 Will it promote the development of domestic and local capacity to conserve biodiversity?
A clearly defined set of criteria, a reasonably simple application and transparent evaluation process are
necessary in order to facilitate efficient grant application and approval processes.




3.2       Worksheet for Summarizing Design Stage Data


Instructions for EF3: Worksheet for Summarizing Design Stage Data
This worksheet is intended as a tool to help organize, summarize and decide upon the major design
elements of an EF. It can be used, for example, in consultation meetings involving groups of
stakeholders and in decision meetings involving the EF Steering Committee.

     Review the data input categories provided as defaults; modify as needed.
     To the extent possible, fill in key information for each design element. Drawing on the Design Phase
      Section above, the worksheet should be self-explanatory.




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To open this excel sheet for modification, click here and go to the third sheet




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4     RESOURCES


4.1    Bibliographic References

To open a document from this CD, click if there is a hyper linked document name. In addition, URLs
show download locations or sources.
Bayon, Ricardo and Carolyn Deere, Ruth Norris, Scott E. Smith. 1999 Environmental Funds: Lessons
            Learned and Future Prospects. IUCN/GEF.


Bayon, R. and Deere, C. 1998. Financing Biodiversity Conservation: The Potential of Environmental
            Funds. IUCN


Global Conservation Fund. 2003. Guidelines for Funding Requests. Conservation International.


Guerin-McManus, M. no date. Conservation Trust Funds. Conservation International


Tan, J. G. 1998. Environmental Foundations: Funding Community Innovations in Biodiversity
            Conservation. Foundation for the Philippine Environment.


GEF. 1999..Evaluation of Experience with Conservation Trust Funds. Washington, DC. Full report
           available in English, with summaries in English, French and Spanish.
           http://www.gefweb.org/ See Results and Impacts, Monitoring and Evaluation, Evaluations.


GEF's Web page also provides GEF Lessons Notes. Three of the Lessons Notes provide information
           about environmental funds:
           No. 7, The Mexican Nature Conservation Fund, April 1999
           No. 6, Building Strategic Focus in a Conservation Trust Fund, February 1999
           No. 5, When is Conservation Best Served by a Trust Fund? January 1999


Lambert, Alain. 2000. Environmental Funds: Much More Than Financial Mechanisms. 63-75pp,
            proceedings of a DFID seminar on Economic Instruments for Environmental Management,
            Cuiaba, Brazil; 22-23 March 2000. Available in English and Portuguese.


Lambert, Alain. 2002. Financing Global Sustainability: A Proposal for Multilateral Environment
            Agreements, 92-117pp, in "Ensuring sustainable livelihoods: challenges for governments,
            corporates, and civil society at Rio+10", Teri Research Centre, India, Nov. 2002. Also
            published in PoemaTropic N°9, 34-49pp, Brazil, Nov.2002.


Mikitin, Kathleen. 1995. Issues and Options in the Design of GEF Supported Trust Funds for Biodiversity
              Conservation. ..\..\OtherSources\TrustFunds\Mikitin-
              TrustFunds1995_Multi_page.pdfEnvironment Department Paper 011. Washington, DC: The
              World Bank.




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The Interagency Planning Group on Environmental Funds (IPG) provides many useful resources for
environmental funds, primarily through its members. For more information about the IPG, see
http://www.conservationfinance.org/ Two recent IPG publications are listed below.


Moye, Melissa; Ruth Norris. 2000. Preliminary Assessment. The Current Situation And Capacity
            Building Needs Of Environmental Funds In Africa.. New York: Interagency Planning Group
            on Environmental Funds (IPG) and Pact Publications. Available in English and French.
            Order hard copy from http://www.pactpub.com/


Norris, Ruth, ed. 2000. The IPG Handbook on Environmental Funds. New York, NY: Interagency
             Planning Group on Environmental Funds (IPG) and Pact Publications. Available in English
             and French. Order hard copy from http://www.pactpub.com/


Winder, David and A. Scott DuPree with Cristina Parnetti, Chandni Prasad and Shari Turitz. 2003.
            Foundation Building Sourcebook: A Practicioners Guide Based upon Experience from Africa,
            Asia and Latin America. New York, NY: Synergos Institute.




4.2     Web Sites
For web sites for specific funds see the fund contacts in the IPG Handbook on Environmental Funds
in Norris et al 2000: pp 107-133 (see reference above). For a September 2002 revision of some of the
environmental funds' addresses click here or on the Web go to:
http://www.geocities.com/shores_system/ef/ef_list.html


For information about environmental funds in Africa, consult the web site for the First Conference of
African environmental funds (April 3-6, 2002, Arusha, Tanzania).
http://www.conservationfinance.org/Africa_Conference/participants.htm


For information about environmental funds in Latin America and the Caribbean, consult the web site
of the Latin American and Caribbean Network of Environmental Funds (RedLAC): http://www.redlac.org/


Web sites for three environmental funds in Asia are listed below:


Indonesian Biodiversity Foundation – Yayasan KEHATI             http://www.kehati.or.id/
Philippines Foundation for Philippine Environment – FPE         http://www.fpe.ph
Bhutan Trust Fund for Environmental Conservation                http://www.bhutantrustfund.org/




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