Mitigating Risk to Catalyze Private Investment in REDD GCF Task Force September 2011 Mark Lambert

1. Mitigating Risk to Catalyze Private Investment in REDD • GCF Task Force September 2011 • Mark Lambert Terra Global Capital, LLC

2. REDD Risks Mitigation key to private investment REDD projects present a unique set of risks • Implementation risk • Financial risk • Political risk • Natural disturbance risk • Methodological risk (conversion from project to jurisdictional accounting) Investors need to assess and minimize these risks • Projects must be “investment ready” • Actors responsible for generating emission reductions must be engaged Methods of reducing risk to REDD projects: • Project design • Financial arrangements • Contractual arrangements & carbon rights • Insurance Instruments Page 2

3. Project Design Primary method of risk mitigation for REDD projects Clearly defined project activities • Address all drivers and agents of deforestation • Scope and scale of each activity is clearly defined • Aligned with capacity of implementing partners • Supported by activity-based budget Leakage mitigation • Project activities effectively target activity-shifting • Alternative income streams developed Project plan is sustainable and adaptable • Documented in workplans and contracts with implementing partners • Activities can be can replicated over project life • Process for adaptation to reflect changing conditions Page 3

4. Financial Arrangements Determines funding needs and financial viability Financial projections for crediting period • Reliable carbon estimates (conservative, after buffers) • Carbon development budget (conservative 1st verification date) • Project implementation budget (activity-based tied to project plan) Investment terms meet project needs • Size of up-front cash based on project breakeven • Carbon price, vintages, profit share • Balances project profits with investor’s return Funds flow to appropriate partners • Benefits sharing mechanisms in place • Tied to specific activities with supporting disbursement mechanisms Importance of Donor Funding • Capacity building and carbon readiness • Closes funding gap for projects (from carbon readiness credit issuance) • Supports development jurisdictional REDD MRV Page 4

5. Contractual Arrangements & Carbon Rights Ensures legal enforceability Clearly defined rights • Land tenure structure must be clarified prior to implementation • Tenure often secured as part of implementation (requisite for investment) • Conflicting claims require resolution Agreements between implementing partners • Includes forest management plans, project actions, and technical service providers • Assigns roles and responsibilities over project lifetime • Ties project workplans and budgets to legal agreements Agreements to secure carbon rights • Seller’s entity defined and established • “Belt and Suspenders” approach to securing carbon rights • Driven by tenure and government position • Government must be included, even with lack of regulatory clarity Page 5

6. REDD Insurance Instruments Reduces risk of loss for projects and investors Political risk insurance • Terra - OPIC Insurance agreement for REDD, covering: • Expropriation: e.g., government grants tenure but later revokes • Political violence: e.g., civil war or unrest causes deforestation Catastrophic risk insurance • Fire, weather, disease VCS Buffer insures issued credits • Already-issued credits insured using risk buffer • Future issuance is what is at risk Page 6

7. Thank you NameMark Lambert Emailmark.lambert@terraglobalcapital.com www.terraglobalcapital.com Page 7