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International Climate Fund: Annual Review - Summary Sheet

Title: Forest Carbon Partnership Facility (FCPF) Carbon Fund

Programme Value: £141.5m UK investment (£130m ICF + £11.5m ETF)

Review Date: December 2015

Start Date: 01 January 2016

End Date: 09 December 2016

Start and end dates should indicate the period that the review covers, including if this is over 12 months.

Summary of Programme Performance

Year 2012 2013 2014 20151 2016

Programme Score

A A A A A

Risk Rating Low Low Medium Medium Moderate2

Summary of progress and lessons learnt since last review A key recommendation of the previous Annual Review was to adjust the expected milestones to acknowledge that (1) the set up time of the Forest Carbon Partnership Facility (FCPF) Carbon Fund was initially underestimated (consequently the end-date of the Fund was extended in 2015 by five years to 2025) and (2) that the pipeline of programmes and anticipated results had significantly expanded beyond original expectations (it was originally expected that the Carbon Fund would pilot five country programmes; there are now 19 programmes in the pipeline). For the first five years of this 14 year programme3 the focus was on laying the foundations for precedent defining, large-scale, results-based REDD+ programmes. Overall the Carbon Fund has performed well in 2016 and has met expectations. A significant milestone was reached in June 2016 with the presentation and provisional approval of the first two detailed programme design documents (Emissions Reduction Programme Documents or ERPDs) from Costa Rica and the Democratic Republic of Congo. This marks an important step for the Fund from the design/set-up phase towards implementation and delivery of results. Emissions Reduction Payment Agreement (ERPA) negotiations are expected to commence, for these first two programmes, in early-mid 2017. The Carbon Fund is therefore on track to signing its first ERPA in 2017. Although this is behind our initial estimated timeframe we consider targeting the first ERPA in 2017 to be ambitious. The challenge of negotiating a precedent defining deal, comprising several complex commercial terms, should not be underestimated. However, assuming that the those countries provisionally selected are able to fulfil the conditions of their approval4 by March 2017 and ERPA negotiations can therefore commence in the first quarter of 2017, it should be possible to conclude the negotiations and sign an ERPA in 2017 if no major objections are raised throughout the process. If not concluded by the time of the next Annual Review in December 2017, it is expected that the first ERPA negotiations will be well underway and that significant progress towards ERPA signature has been made.

1 It should be noted that from 2015 FCPF ICF Annual Reviews focus on the Carbon Fund. Previous

reviews 2012-2014 were assessed on the basis of slightly different criteria (including progress of the Readiness Fund). Therefore direct comparisons to earlier reviews are not possible. 2 New risk categories have been adopted for this review (i.e. Minor, Moderate, Major and Severe) 3 The Carbon Fund became operational in 2011 and is due to terminate in December 2025.

4 Approvals of Costa Rica and DRCs ERPDs were conditional upon completing further technical work

and upon satisfactory completion of the World Bank’s due diligence process.

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There continues to be strong demand from forest countries for the Carbon Fund, evidenced by the timely progression towards ERPDs; three additional ERPDs are expected to be presented at the December 2016 Carbon Fund meeting showing good momentum in the pipeline. There was a further expansion of the pipeline in 2016, with the acceptance of Cameroon’s Emissions Reduction Programme Idea Note (ERPIN), bringing the total number of countries in the pipeline to 19. This cements the Carbon Fund’s place as the world’s largest results-based REDD+ fund. Such continued demand demonstrates the relevance, and influence, of the Carbon Fund in the overall REDD+ architecture. Technical Advisory Panels (TAPs) were convened to review the draft ERPDs from the five countries that will have presented advanced draft ERPDs by the end of 2016 and to review at least three more draft ERPDs that are expected in early 2017. The TAP assesses the ERPDs against the criteria and indicators of the Methodological Framework which has helpfully informed the decisions on whether or not to accept programmes. The TAP process is also proving useful for the forest countries that are able to draw on the TAP’s advice to improve their programmes at the drafting stage to ensure compliance with the Methodological Framework and a speedier path to approval. The Carbon Fund has proficiently dealt with issues as they arise and developed additional guidance where necessary. The Carbon Fund’s Methodological Framework was updated in June 2016 to remove specific dates from the Framework; ensuring that it remains relevant and is a timeless standard for delivering results based REDD+ that others can learn from. Further technical guidance on the use of buffers to manage the risk of uncertainty and reversals was endorsed in January and supplementary guidance on the use of interpolation of data in relation to Reference Periods was issued in June. The FCPF has collaborated with the Partnership for Market Readiness (PMR) to develop additional guidance on emissions trading registries which was published in November. This completes the package of guidance expected, but the Carbon Fund should continue to respond to issues as they emerge during the development of detailed programme designs. The Second Independent Evaluation of the FCPF was completed in November 2016. The Final Evaluation Report was delayed by almost 12 months due to quality concerns. The UK has played an active role throughout the evaluation process as part of the Evaluation Oversight Committee (OC). Despite the UK’s efforts, the evaluation lacked the depth of analysis we had hoped for, and therefore is of limited utility. However, the UK will continue to contribute to the OC as the FCPF considers the recommendations for improvement and responds with an action plan. The lessons from the FCPF evaluation process have been captured (see Section H below) and are relevant to the development of future evaluation plans for the FCPF and other ICF investments. The FCPF’s Monitoring and Evaluation (M&E) Framework is expected to be reviewed in 2017. This provides a useful opportunity to draw on these lessons when planning future evaluations. The M&E review is also an opportunity to request, if possible, that ICF Key Performance Indicators (KPIs) are better incorporated into the FCPF’s overarching monitoring and reporting products which could supersede the separate M&E Memorandum of Understanding (MOU) that UK has with the Carbon Fund for reporting against ICF KPIs. The Facility Management Team (FMT) performed well throughout 2016, preparing a useful forward look at the year ahead in January and has supported efforts to streamline processes to improve efficient and effective decision making by Carbon Fund Participants (CFPs). The FMT recommended a small amendment to the TAP review process, which should result in higher quality and timely progression of advanced draft ERPDs allowing for minor issues or questions clarified by the TAP before the advanced draft is submitted for review by CFPs. The CFPs ‘virtual review’ process was also elaborated in 2016 to improve efficiency of the process, ensure deadlines are met and the most efficient

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process, sharing the review burden between CFPs to ensure we can meet deadlines and manage peak workloads if ERPDs come in at similar times. This should be sustained in 2017 as it has proven effective. A priority for 2017 will be preparing for ERPA negotiations which are expected to commence in early-mid 2017. The FMT has committed to prioritise building forest country capacity to engage in the process (e.g. understanding of commercial terms, contract ERs vs option ERs, etc.). However, for the negotiations to run and smoothly as possible it will also be important for CFPs to consider their approach to the negotiations in advance and establish positions on the key negotiable commercial terms (such as price, volume, use of ERs, and other variables that form the package of incentives included in the ERPA). An “A – met expectations” rating has been awarded in this Annual Review (2016) as the Carbon Fund is on track to meeting the new milestones in the logframe. The Carbon Fund retains a risk rating of “moderate” due to the inherent risk and complexity of the innovative, multi-sector, REDD+ programmes in the Carbon Fund’s pipeline. Progress on Recommendations from the Previous Review

A key recommendation of the 2015 Annual Review was to update the expected milestones and targets in the logframe. This was completed in mid-2016. The new milestones (reported on in this Annual Review) have been validated by the Fund Manager and are deemed to be both ambitious and achievable. Another important recommendation was to ensure a high quality independent evaluation of the FCPF, maintaining the effective role of the Oversight Committee and conclude recommendations for improvement based on the evaluation findings. The independent evaluation was completed in November 2016; it was delayed due to quality concerns. The final report has now been endorsed with caveats on areas that could have been further improved (see Section H). BEIS has reflected on the process and shared lessons learned to avoid lengthy and difficult evaluations in future (for both the FCPF and the ICF). BEIS will continue to play an active role on the evaluation Oversight Committee as an action plan to act on the recommendations as drafted. The action plan is expected to be endorsed at the next Participants Committee (PC) meeting in spring 2017; however time sensitive actions could be implemented sooner following a virtual decision from the PC, if necessary. One recommendation from 2015 that was not completed was any significant updates to UK BEIS’ economic modelling assumptions based on new guidelines (e.g. Buffers) and the details contained in ERPDs. This was de-prioritised for 2016 as there was limited evidence available to justify changes but should be re-prioritised once a few more ERPDs have been approved (potentially after the December 2016 Carbon Fund meeting) as there will be a diverse set of programmes in the portfolio to cross-check the assumptions in the model that was built upon Emissions Reduction Programme Idea Notes (ERPINs – concept stage design documents). It would also be useful, in early 2017, to expand this analytical work to include sensitivity testing on aspects of the ERPA Commercial Terms to inform our positions ahead of the ERPA negotiations to ensure the Terms agreed will be in line with our value-for-money expectations. Summary of recommendations for the next year

BEIS Programme Lead, in liaison with other CFPs and the FMT, should prioritise thinking about the ERPA negotiation process and the parameters for negotiating ERPA commercial terms (including issues such as price, contract volume, options, and the use of emissions reductions for NDCs). This should be

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completed in early 2017, in advance of the first ERPA negotiations commencing, and include efforts to design and implement an efficient process that results in:

o value-for-money ERPAs, without undue delays; o a resource efficient process for CFPs to adequately manage concurrent

decisions on ERPD reviews and overlapping ERPA negotiations.

The World Bank should prioritise the completion of its due diligence process for ERPDs that have been approved or are under development. This internal World Bank process must be completed before the Carbon Fund can start ERPA negotiations. The process is currently on track but has the potential to cause a delay to the start of ERPA negotiations. Delays to timely completion of this work which risks delaying the ERPA negotiation process should be flagged to CFPs by the FMT5.

BEIS Programme Lead should attempt to influence the proposed review of the FCPF’s Monitoring and Evaluation (M&E) Framework which is expected to be on the work plan for 2017. Consider how the Climate Compass review of the ICF KPIs can inform this work and draw on any relevant conclusions from the upcoming IEG review of the climate funds. BEIS Programme Lead should also consider the suggested improvements to the logframe recommended in section B and C.

The FMT should further consider how the Carbon Fund can form part of the the

‘programmatic approach’ outlined in the World Bank’s Forest Action Plan including consider how other complementary, World Bank, financing mechanisms could be harnessed to address any identified upfront funding gaps in the programmes to ensure successful implementation and delivery of verified emissions reductions.

5 The World Bank’s due diligence process is an important safeguard in ensuring the environmental,

social and financial sustainability of Carbon Fund programmes. This important process should not be rushed. However, potential delays should be reported early to manage CFPs expectations in terms of the timing of ERPA negotiation and signature.

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Outline of the programme The Forest Carbon Partnership Facility (FCPF) is managed by the World Bank and was established in 2008 to assist developing countries in their efforts to reduce emissions from deforestation and forest degradation and foster conservation, sustainable management of forests, and enhancement of forest carbon stocks (all activities commonly referred to as "REDD+") by providing value to standing forests. The FCPF has two separate but complementary funding mechanisms — the Readiness Fund and the Carbon Fund. As recommended in the 2014 FCPF ICF Annual Review, at the end of 2014 DECC/BEIS stopped directly reporting on the UK’s 2008 £3.5m Environmental Transformation Fund (ETF) investment in the Readiness Fund. A Programme Completion Report for the Readiness Fund was concluded and published in March 2015. The Carbon Fund, which is the focus of this Review, has been operational since 2011. The Carbon Fund is a payment for results mechanism, designed to incentivise ambitious actions to reduce deforestation through payments for verified emission reductions (ERs) generated by REDD+ programmes in countries that have made progress towards REDD+ Readiness via the Readiness Fund. There are currently 19 Emissions Reduction Programmes (ERPs) accepted, or provisionally accepted, into the Carbon Fund Pipeline from Cameroon, Chile, Costa Rica, Cote d’Ivoire, Democratic Republic of Congo, Dominican Republic, Fiji, Ghana, Guatemala, Indonesia, Lao PDR, Madagascar, Mozambique, Mexico, Nepal, Nicaragua, Peru, Republic of Congo, and Vietnam. Two of these (Costa Rica and DRC) have been provisionally accepted into the Carbon Fund Portfolio on the basis of their detailed programme documents (ERPDs).

Carbon Fund Pipeline (Image source: FMT Presentation. Those countries highlighted in green have signed a Letter of Intent with the Carbon Fund)

Carbon Fund Contributions

(Data source: FCPF Annual Report)

To date, UK has invested £141.5m in the Carbon Fund (£11.5m ETF investment in 2011; £45m International Climate Fund (ICF) investment in 2014; £85m ICF investment in 2015). Committed funds to the Carbon Fund at the end of FY16 (30 June 2016) totalled c.$741m6. UK is the second largest financial contributor with a c.25% burden share.

6 Amounts may vary due to exchange rate fluctuations.

A. Introduction and Context

Link to Business Case:

Original ICF Business Case (£45m), 2013 ICF Extension Business Case (£85m top up), 2015

Link to Log frame: Logical Framework, 2016

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B: PERFORMANCE AND CONCLUSIONS

Annual outcome assessment The Carbon Fund’s ultimate success will be measured against its outcomes. Although the Carbon Fund is still in a relatively early stage of its lifetime (it became operational in 2011 and will terminate in 2025) and ER programmes are still under development, there have already been some indications of progress towards the outcomes identified in the Theory of Change and Logframe.

Carbon Fund Theory of Change

OUTCOME 1: The FCPF has contributed to the design of a global regime under or outside UNFCCC that provides incentives for REDD+ and has catalysed the creation of recognised global standards for REDD+ In 2016, the Carbon Fund’s experience with the Methodological Framework continued to inform the development of other results-based REDD+ standards. For example, The FCPF has continued to input into Green Climate Fund (GCF) processes as the GCF prepares guidance on its funding for REDD+, including results-based payments. The Carbon Fund has also shared its experience with the International Civil Aviation Organisation (ICAO) as it

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defines the eligibility criteria for its Global Market Based Measure, CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). The BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISLF), where UK BEIS and Defra are also invested through the ICF, will define its methodological approach in 2016/7 and will be informed by the Carbon Fund’s Methodological Framework. The development of the ISFL will also be informed by the Carbon Fund’s General Conditions for ERPAs which complements the Methodological Frameworks and defines the legal framework for ER transactions. The FCPF has also been present at various side-events held in the margins of UNFCCC meetings. For example, at COP21 the FCPF participated in panels that highlighted how countries were piloting large-scale, jurisdictional REDD+. The FCPF also participated in the Standing Committee of Finance to discuss how various funding streams for forest activities could be coordinated to deliver better outcomes. Under the UNFCCC, the Paris Agreement recognised the critical importance of conserving and enhancing forests. It sends a clear political signal that global efforts to slow, halt and reverse forest cover and carbon loss will continue, and encourages all Parties to play their part in these efforts, through action at home and support abroad. Five countries specifically mentioned their FCPF Emissions Reduction Programme as part of their Intended Nationally Determined Contribution (INDC). The Carbon Fund has an opportunity now to demonstrate how to implement REDD+ results-based payments and achieve the goals captured in the Agreement by operationalising the Methodological Framework. These examples provide promising signals that the Carbon Fund will deliver on this outcome and it should continue to share its valuable experience to inform global standards for REDD+’s interaction with carbon markets. OUTCOME 2: Large scale, results-based payments Emissions Reduction Mechanism effectively demonstrated (reduced emissions from deforestation and forest degradation from FCPF Carbon Fund portfolio countries) This outcome is dependent upon (a) successfully signing ERPAs and (b) programmes successfully delivering on their ERPA. The Carbon Fund has not yet delivered verified emissions reductions from its programmes but is not expected to until c.2019/20 (2-3 years after the first ERPAs are signed). Carbon Fund programmes are making progress towards this stage with ERPA negotiations for Costa Rica and DRC expected to commence in 2017, with at least one ERPA agreed by the end of 2017. If the three countries that are expected to present ERPDs at the 15th Carbon Fund meeting in December 2016 are approved into the portfolio they can also progress towards negotiating an ERPA with the Carbon Fund. The UK BEIS modelling estimates that the UK ICF investment in the Carbon Fund is expected to deliver 22,965,231 tCO2e of emissions reductions (attributed).7 As the Carbon Fund is on track to meeting its outputs (see section C below) related to this outcome, it is likely to succeed against this outcome.

OUTCOME 3: FCPF has catalysed investment in REDD+ REDD+ countries in the Carbon Fund are seeking investments to support the implementation of their programmes in order to successfully deliver emissions reductions

7 96,168,349 tCO2e (non-attributed).

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and receive downstream payments from the Carbon Fund. In 2016, 13 Carbon Fund pipeline countries have reported on non-FCPF investments received implementation of ER programs (from sources such as the FIP, bilateral donors, and the private sector) totalling $694m or an average of $53m per country8. This is five more countries than reported last year and an increase of almost $100m leveraged finance from that reported last year. However, there is a risk that significant financing gaps for ER programmes remain. The extent of the risk will become clearer once the World Bank’s due diligence process (completed after ERPD approval but before ERPA negotiations commence) has assessed the financial viability of individual programmes and the role of that the ERPA will play as part of the overall incentive package. The World Bank should further consider how the Carbon Fund can form part of the ‘programmatic approach’ outlined in the World Bank’s Forest Action Plan including considering how other complementary World Bank financing mechanisms could be harnessed to address any identified upfront funding gaps in the programmes to ensure successful implementation and delivery of verified emissions reductions. The Carbon Fund continued to attract financial contributions for results-based payments in 2016, due to the expansion of the pipeline in 2015/6, with an additional $4.5m investment from the US. There are some positive signs that the Carbon Fund will deliver on this outcome. Developments in the broader context for REDD+ (including emerging carbon markets, new financing mechanisms, private sector deforestation-free supply chain commitments) are likely to affect this outcome, but it is too early to judge this. OUTCOME 4: The FCPF has generated momentum to address governance and transparency issues and policy reforms related to sustainable forest resource management and REDD+ There are numerous examples of policy reforms initiated in Carbon Fund pipeline countries which are an encouraging demonstration of commitment towards successfully implementing their Carbon Fund programme and delivering their (I)NDCs under the Paris Agreement. REDD+ Readiness preparations have created an environment for strategic cross-sector policy planning which is also an important feature of Carbon Fund Programme design. For example, in 2016, Guatemala passed the “PROBOSQUES” (pro-forests) law which contains a significant investment in the forest sector; it is expected to provide 80,000 jobs and represents a public investment of c.$1.2bn between 2016 and 2046. Indonesia created the Peat-land Restoration Agency to address degradation of carbon-rich peat-lands and tackle peat forest fires. Mozambique has initiated a broad agenda of forest sector reform including an assessment of all forest concessions and simple licences with a two year moratorium on issuing new forest concessions and simple licences.9 These are strong indications of the Carbon Fund already delivering against this outcome. Overall output score and description A – Outputs met expectations. Key actions

Implement the recommendations outlined in the Summary Sheet above.

8 See FCPF FY16 Annual Report, Table 2 p. 27

9 These are just a few examples of policy reforms initiated in Carbon Fund pipeline countries. Further

information and examples are described in the FCPF FY16 Annual Report, p. 28-31.

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Has the logframe been updated since the last review? Yes. The 2015 Annual Review recommended that the logframe was rebaselined to reflect updated expectations that are both ambitious and achievable (reflecting both the extension in the Term of the Carbon Fund (out to 2025) and expansion of the pipeline (an additional 8 countries were accepted into the pipeline in 2015/6). These new milestones have been agreed with the FMT. As a result the following changes to the logframe were made in 2016:

Outcome Indicator 2.2: Number programmes with signed ERPAs (cumulative). The 2015 version of the logframe suggested that 2 ERPA would be signed by the end of 2016; 8 in 2018; 13 in 2019. In the 2016 version of the logframe this expectation has been changed to 1 in 2017; 3 in 2018 and 10-13 in 2020 (a range is given for the target date as the ultimate number of ERPAs depends on the contract volumes versus the available capital in the Fund). The expectation is that ERPAs will have a minimum Term of 5 years; therefore early 2020 is the latest ERPAs should be signed given the planned closure of the Carbon Fund in December 2025. It is expected that ERPA negotiations for more than one ERPA may commence in 2017 although only one signed ERPA is expected due to the potential difficulty in agreeing the commercial terms and trialling the negotiation process for the first time. The same milestones and targets have been used/updated for Output Indicators 1.4 (exactly the same indicator) as well as 3.1; 3.2; 3.3.

Output Indicator 1.2-3: Number of ERPINs and Early Ideas: The target was amended to keep it open to considering additional programmes in the future; the ultimate number of programme ideas will depend on demand from forest countries and financial contributors. However, at this stage, on the basis of the Carbon Fund’s current financial resources, no additional ERPINs or Early Ideas are expected.

Output Indicator 1.6: Amount of ER purchase - Milestones have been removed until further portfolio analysis is available and the M&E framework is revisited by the World Bank. Milestones for ER purchases following ERPA signature were set out in the World Bank's FCPF logframe agreed in 2013 (10m USD in FY15, 50m USD in FY16, 70m USD per annum in FY 17-19, 85m USD in FY20) - however these forecasts need to be updated in the context of (1) extension of Term of the Carbon Fund (through to 2025) and (2) expansion of both the pipeline and the financial resources available to the Carbon Fund. The target (the total volume of the Carbon Fund finance remains unchanged).

Output 4 Indicators - baseline and targets were added but simply mirror the targets in the World Bank's FCPF's logframe (agreed in 2013) and some are 'TBD in strategy/work plan' and have not been updated. UK BEIS should consider revisiting the utility and ambition of the milestones as part of the review of the FCPF's M&E expected in 2017.

A change log was added to capture changes made to the logframe. The logframe could be further improved in the following ways (and should also be considered in the context of the review of the FCPF’s M&E Framework, expected in 2017):

Output Indicator 1.1: Number of R-Packages endorsed by the PC. This indicator is actually beyond the control of the Carbon Fund (though within the control of the FCPF overall) – consider moving to assumptions. If this indicator remains in the logframe it should be updated to align with current expectations regarding R-Packages (i.e. shift the milestones by at least one year as this indicator was not rebase lined when the indicators related to ERPs was shifted).

Consider removing the ‘nice to have indicators’ that are difficult to monitor and beyond the immediate control of the FCPF e.g. ‘Examples of other Carbon Fund mechanisms that have adopted and/or scaled up the approach piloted under FCPF’

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and ‘Number of policy reforms initiated, completed or underway complying to REDD+ standards in Participants’ country, potentially include issues of land tenure’

Now that most of the Carbon Fund’s standards and guidance documents are in place, consider decreasing the weighting of the output 2 ‘standards and preparations in place for high-quality ER Programmes discussed and endorsed by CF Participants’. The target remains relevant until the end of the fund i.e. the guidance remains relevant throughout the life time of the Fund. The milestones should reflect the date which each piece of guidance was endorsed. The output should include an assumption that all guidance that is needed has been produced and endorsed.

Influence the FCPF M&E framework update to include targets and milestones for each proposed indicator – make sure we are monitoring what really counts and receive regular reporting on ICF KPI and ensure the assumptions are correct. Following the review of the overarching FPCF logframe, update the ICF Carbon Fund specific logframe.

Re-consider how the logframe links to ICF results collections and how the World Bank reporting on e.g. leveraged finance, hectares, GHGs, and other ICF KPIs is compatible with the methodologies being reviewed/under development. How does what the WB and UK report differ? Including consideration of UK attribution rules on e.g. GHGs.

Targets and milestones for outcome 3 should also be completed – they are not defined in the World Bank’s FCPF logframe, nor in the M&E MOU we have with the World Bank.

Recommendation to include number ERPDs accepted into the pipeline (assumption in current log frame is that all those presented will be accepted i.e. sufficient quality)

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C: DETAILED OUTPUT SCORING

Output Title Emissions Reductions Programmes planned and implemented/progressing through the Carbon Fund process

Output number per LF 1 Output Score A

Risk rating (H, M or L): Moderate Impact weighting (%): 60

Risk revised since last AR?

No Impact weighting % revised since last AR?

No

Key Points

Indicator(s) Milestones Progress

1.1 Number of Readiness Packages endorsed by PC (cumulative)

2 by 2014 8 by 2015 20+ by 2018

Late but volume of R-Packages stepping up. Total (cumulative) at time of 2016 Annual Review: 8 2 in 2015 6 in 2016

1.2 Number of Early Ideas presented to the Carbon Fund (cumulative)

10 by 2014 20 by 2015

Over-achieved. No new early ideas were presented in 2016 15 by 2014 24 by 2015

1.3 Number of ER-PINs invited into pipeline (cumulative)

10 by 2014 17 by 2015

Total (cumulative) at time of 2016 Annual Review: 19 11 by end of 2014 18 by end of 2015 19 by end of 2016

1.4 Number of ERPAs signed (cumulative)

1 in 2017 3 in 2018 10-13 in 2019

On track but not yet achieved. Total (cumulative) at time of 2016 Annual Review: 0

1.5 Amount of disbursements for ER Programmes according to plans (%)

Targeting 100% disbursement by the end of the fund in 2025

Progress cannot yet be assessed: Milestones for this indicator will be completed once ERPAs are signed and the expected schedule of payments is confirmed

1.6 Amount of ER purchases following ERPA signature (USD millions/year)

Targeting total available balance of the Carbon Fund by the end of the fund in 2025

Progress cannot yet be assessed: Milestones for this indicator will be completed once ERPAs are signed and the expected volume of ERs and the expected schedule of payments is confirmed.

1.7 Number of pilots where carbon accounting, programmatic elements and pricing are operating as planned (cumulative)

1 in 2017 3 in 2018 10-13 in 2019

On track but not yet achieved. Total (cumulative) at time of 2016 Annual Review: 0

1.8 Average % of monetary benefits shared with beneficiaries in approved pilots

TBD Progress cannot yet be assessed. Milestones for this indicator will be defined at the time of preparation of benefit sharing plans and ERPA signatures.

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Good progress has been made against this output with the first two Emissions Reduction Programme Document (ERPDs) selected into the portfolio demonstrating programmes’ ability to progress through the Carbon Fund process.

The next important milestone for the Carbon Fund will be the negotiation and agreement of the first Emissions Reductions Payment Agreement (ERPA), expected in 2017.

Once ERPAs are in place further milestones can be placed on the implementation and delivery stage of the process (indicators 1.5 – 1.8) as planned.

An important milestone was reached in 2016 with the presentation and provisional approval of the first two detailed, programme design documents (Emissions Reduction Programme Documents or ERPDs), which marks and important step for the Fund from the design/set-up phase to implementation and delivery of results. Costa Rica and DRC became the first two countries to be provisionally included in the Carbon Fund portfolio. Emissions Reduction Payment Agreement (ERPA) negotiations will commence with these two countries once the World Bank has completed its due diligence process and the countries have adequately addressed the technical provisions to their approval; ERPA negotiations are expected to commence in early-mid 2017. The Carbon Fund is therefore on track to signing its first ERPA in 2017 (with at least two more expected by the end of 2018), however the challenge of negotiating a precedent defining deal, comprising several complex commercial terms, should not be underestimated. It is assumed that in order to achieve the first ERPA signature in 2017, all parties will be prepared for the negotiation process and participate early on so that no objections will be raised to the final version of the ERPA (which would cause delays). It is also assumed that the Safeguards Plan, Benefit Sharing Plan, and Ability to Transfer Title (which are all required between approval of the ERPD and ERPA signature) will progress as planned and the review of these products (by the World Bank as Trustee) will be a straight forward process. In order to make the process as smooth as possible and increase the chances of a successful negotiation in 2017, the Facility Management Team (FMT) are prioritising building forest country understanding of the ERPA process. This should help minimise any delays in the negotiation process. Financial contributors, including UK BEIS, should also prioritise organising themselves and agreeing the parameters for the negotiation of the ERPA commercial terms. If these assumptions do not hold it is expected that by the time of the next Annual Review in December 2017 the first ERPA negotiations will at least be well underway and that significant progress towards ERPA signature has been made. The presentation of ERPDs is positive evidence that Emissions Reductions Programmes are progressing well through the Carbon Fund process. In addition to the two ERPDs approved in June, three further programmes (from Chile, Mexico and Vietnam) are expected to present ERPDs for approval at the next Carbon Fund meeting, 12-15 December 2016. The number of ERPDs invited into the portfolio (cumulative) should be added as an indicator for this Output 1 and monitored from now on to ensure the performance of the Fund can be judged (including through future Annual Reviews) during the phase until 2020 as new ERPDs are developed and submitted. There continues to be strong demand from forest countries for the Carbon Fund, evidenced by the timely progression towards ERPDs and a further expansion on the pipeline in 2016. Cameroon presented a revised ERPIN in June and was provisionally accepted into the Carbon Fund pipeline, bringing the total number of countries in pipeline to 19. This cements the Carbon Fund’s place as the world’s largest results-based REDD+

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fund. Such continued demand demonstrates the relevance, and influence, of the Carbon Fund in the overall REDD+ architecture. Guyana is eligible to present a revised ERPIN at the December Carbon Fund meeting, however further assessment of the anticipated portfolio and available funding would be required to accept any further ERPINs into the pipeline. The Carbon Fund is well over-programmed (there are 19 countries in the pipeline with financial resources for c.10-13 ERPAs) which reduces the risk of under-delivery or the impact of programmes dropping out of the pipeline. However, the expectations of countries regarding the limited available finance may need to be managed; countries have been encouraged to move swiftly through the process in order to secure their place in the eventual portfolio. The Carbon Fund has successfully attracted a diverse set of country programmes and so the eventual portfolio will have strong learning value, sharing this evidence and experience supports the Carbon Fund’s likelihood of transformational change (see Section I below). Good progress has been made in pipeline countries. For example:

Caveats to the approval of ERPINs from Fiji, Indonesia, Lao PDR and Mozambique were resolved. All four are now able to sign Letters of Intent (LOI) to purchase ERs, formalising their place in the pipeline.

Seven additional LOIs were signed (Cote d’Ivoire, Dominican Republic, Lao PDR, Madagascar, Mozambique, Nicaragua, and Peru); a total of 15 LOIs have been signed, with the remaining 4 pipeline countries (Guatemala, Indonesia, Fiji, Cameroon) working towards LOI signature.

Fewer Readiness Packages have been endorsed than forecast but a sharp increase in the presentation of R-Packages in 2016 (and those expected in 2017) means this should not affect the Carbon Fund’s ability to select ERPDs. Although this indicator primarily relates to a country’s progress in the Readiness Fund, an R-Package endorsement is required before a country can present an ERPD to the Carbon Fund. Despite a slow start to R-Package endorsement10, there is now significant momentum with six R-Packages endorsed in 2016, enabling all countries with draft ERPDs to present to the Carbon Fund in December 2016. A high volume of R-Packages is also expected in 2017 and 2018. Therefore this should not create a bottleneck and the number of programmes progressing through to the Carbon Fund can continue as expected. As the endorsement of R-Packages is beyond the control of the Carbon Fund (it is the responsibility of the Readiness Fund), indicator 1.1 should be removed (It should, instead, be an assumption that needs to be met in order to achieve the outputs that are within the control of the Carbon Fund). Extensions to Carbon Fund Letters of Intent have been granted to countries that remain committed to their ER Programme. Whilst this could cause knock on delays downstream in the Carbon Fund process the extensions have been justified in each case. The 24 month Exclusivity Period (which prevents the programme from entering negotiations with other buyers for the volume of Emissions Reductions intended to be purchased by the Carbon Fund) has been extended for countries that are positively progressing towards submission of ERPDs and still intend to sell Emissions Reductions to the Carbon Fund. These extensions protect the Carbon Fund as the primary buyer of ERs from pipeline countries. An extension to the milestone/deadline which allows a nine month period from ERPIN selection to LOI signature was granted to Guatemala where a change of government contributed to a delay, but they remain committed to the programme and the

10

The initial delays in the Readiness Fund were partly due weak in-country capacity in procurement and financial management creating bottle-necks for the disbursement of Readiness Grants. However, this initial delay has now been overcome and Readiness work in most countries is now back on track.

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LOI has now been agreed but has yet to receive Congressional approval. Guatemala’s deadline for signing an LOI is now March 2017, which should still allow sufficient time for them to reach an ERPA with the Carbon Fund. Fiji, Indonesia, and Cameroon have also not yet signed LOIs but are still within the default 9 month period so are on track to signing as planned. The Carbon Fund’s milestones and deadlines (agreed in 2015) can be flexed, if necessary, to respond to country specific circumstances. Requiring approval from Carbon Fund Participants for such extensions means that we are able to better monitor the performance of the pipeline and can receive early warnings of any delays to the development and implementation of ERPs. Although progress from ERPIN to ERPD has been slower than originally expected (resulting in the need to grant extensions to deadlines) there is now strong momentum in the fund and should not result in delays to ERPA signature, arguably the most important milestone for the carbon Fund. As was planned, progress cannot yet be assessed against indicators 1.5, 1.6 and 1.8 as they relate to the delivery of emissions reductions. The verification and payment schedule will be confirmed in the ERPAs which are yet to be agreed. Once ERPAs have been signed the milestones and targets for these indicators should be updated. Indicator 1.7 follows the same schedule as indicator 1.4 but intends to track the programmes’ progress beyond ERPA signature. As a result, the milestones are reliant on 1.4 proceeding as intended. Any delay in 1.4 will have knock-on delays for 1.7. This means that achieving ERPA signatures is of paramount importance to the overall success of the Carbon Fund. Therefore designing and implementing an efficient process that results in value-for-money ERPAs is the top priority (for both CFPs and the FMT) in 2017. A score of A (met expectations) has been given for this output. Two of the indicators (1.2 and 1.3) have exceeded expectations (1.2 and 1.3); One is no longer considered relevant (1.1); Three of the indicators have not yet reached milestones and should be updated to reflect revised expectations on timings (1.4, 1. 6 and 1.7); and milestones for two indicators can only be reasonably be set once ERPAs have been signed (1.5 and 1.8). Risk for this output remains moderate as there are still significant challenges to negotiating the first ERPA and a relatively high level of uncertainty with indicators relating to the implementation stage as programmes have not yet reached that stage. However, we are confident that the FMT is managing this risk and has prioritised preparations for ERPAs in the coming year. Summary of responses to issues raised in previous annual reviews (where relevant)

As described in Section B above, the milestones for the indicators relating to this output were re-baselined (specifically indicator 1.4 and all other interdependent indicators such as 1.7) to reflect updated expectations that are both ambitious and achievable. Further improvements to the logframe are suggested in the recommendations below.

CFPs have coordinated well to share resources and provide a thorough assessment of ERPDs when they are submitted. CFPs have formulated a structured process to efficiently conduct the virtual review of advanced draft ERPDs which should be used in future in order to provide timely feedback to forest countries before they submit final draft ERPDs.

Countries have been supported to meet agreed milestones and deadlines which should avoid any delays (and a negative impact on the efficiency of the ICF investment). Extensions to deadlines have been granted where deemed appropriate and necessary by CFPs. BEIS should continue to monitor the performance of the pipeline to ensure timely progress towards ERPA signatures.

Recommendations

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BEIS Programme Lead, in liaison with other CFPs and the FMT, should prioritise thinking about the ERPA negotiation process and the parameters for negotiating ERPA commercial terms (including issues such as price, contract volume, options, and the use of emissions reductions for NDCs). This should be completed in early 2017, in advance of the first ERPA negotiations commencing, and include efforts to design and implement an efficient process that results in:

o value-for-money ERPAs without undue delays; o a resource efficient process for CFPs to adequately manage concurrent

decisions on ERPD reviews and overlapping ERPA negotiations.

The World Bank should prioritise the completion of its due diligence process for ERPDs that have been approved or are under development. This internal World Bank process must be completed before the Carbon Fund can start ERPA negotiations. The process is currently on track but has the potential to cause a delay to the start of ERPA negotiations. Delays to timely completion of this work which risks delaying the ERPA negotiation process should be flagged to CFPs by the FMT11.

BEIS Programme Lead should consider the following improvements to the logframe in 2017:

o Remove R-Package endorsement as an indicator in the Carbon Fund logframe. It should, instead, be an assumption that needs to be met in order to achieve the outputs that are within the control of the Carbon Fund

o Number of ERPDs invited into the portfolio (cumulative) should be added as an indicator for this Output 1.

o Consider additional indicators relating to the Carbon Fund’s agreed milestones and deadlines e.g. LOI signature, if monitoring these smaller aspects of progress through the Carbon Fund process is deemed to be valuable.

o Attempt to define the ‘TDB’ milestones on the basis of the terms agreed in the first ERPA.

11

The World Bank’s due diligence process is an important safeguard in ensuring the environmental, social and financial sustainability of Carbon Fund programmes. This important process should not be rushed. However, potential delays should be reported early to manage CFPs expectations in terms of the timing of ERPA negotiation and signature.

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Output Title

standards and preparations in place for high-quality ER Programmes discussed and endorsed by CF Participants

Output number per LF 2 Output Score A

Risk rating (H, M or L): Minor Impact weighting (%): 20

Risk revised since last AR?

No Impact weighting % revised since last AR?

No

Key Points

The final standards and guidance documents expected for ER programmes were endorsed in 2016.

The Carbon Fund’s Methodological Framework was updated in 2016 to remove specific dates from the Framework, ensuring that it remains relevant and is a timeless standard for delivering results based REDD+ that others can learn from. Further technical guidance on the use of interpolation to establish baselines was issued.

This output significantly contributes to the expected outcomes. However, now that all of the envisaged building blocks and standards for ERPs are in place (i.e. all of the milestones for this output have now been achieved) it is recommended to reduce the weighting of this output in future Annual Reviews. However, the output should be continually monitored to ensure the standards remain relevant and comprehensive as the Carbon Fund progresses.

The submission and Technical Advisory Panel (TAP) reviews of the first two ERPDs were the first times that the Methodological Framework was truly tested and programmes were assessed against the Framework. The two ERPDs accepted into the portfolio have specific provisions relating to methodologically compliance which they must meet before ERPA negotiations can commence. However both countries have agreed the provisions are achievable. We were pleased with this outcome as it highlights the ability of the Methodological Framework to flexibly adapt to diverse country circumstances whilst ensuring the environmental integrity of the proposed programmes. The Methodological Framework stipulates that it may be refined by CFPs from time to time as ERPs progress and lessons are learned. In June 2016 an amendment to the Methodological Framework was agreed. Specifically, Methodological framework indicator 11.1 relating to the end date of the Reference Period was amended to replace a specific date (‘the most recent date prior to 2013’) with a more dynamic provision (‘two years before the TAP starts the independent assessment of the draft ER Programme Document’) and the

Indicator(s) Milestones Progress

2.1 Methodological Framework and Pricing Approach endorsed

Endorsement by 2014

Achieved in December 2013. An updated Methodological Framework was endorsed in 2016.

2.2 Business Processes endorsed (ER-PIN, ERPD, ERPA)

Endorsement by 2014

Achieved in 2014/15. An updated Business Process was endorsed in 2016.

2.3 Legal Documents (General Conditions, ERPA Term Sheet) endorsed

Endorsement Achieved in 2014. ERPA Term Sheet was endorsed in March 2013. The General Conditions for ERPAs was endorsed in November 2014.

2.4 Buffer and registries guidelines approved

Endorsement Partially achieved. Buffer Guidelines were endorsed in January 2016 Registries guidance was published in November 2016.

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specific date (2019) was removed from Methodological Framework indicator 20.2 relating to the treatment of Carbon Fund Buffer ERs at the end of the ERPA Term. This should improve the Methodological Framework by ensuring it remains a relevant and timeless standards for results based REDD+. The ‘pricing approach’ could become controversial as the commercial terms for ERPAs are negotiated from 2017 and therefore should be closely monitored by UK BEIS as the Carbon Fund prepares for the first ERPA negotiations. In 2014, CFPs indicated a willingness to pay of up to $5/tC02e however the precise value is yet to be determined. It should be noted that price is just one aspect of the ERPAs and all the negotiable commercial terms should be considered as a coherent package of incentives. The Facility Management Team (FMT) has supported efforts to streamline business processes to improve efficient and effective decision making by CFPs. The Carbon Fund Process Guidelines were updated in June 2016 to clarify the TAP review process. There are now three versions of the ERPD envisioned:

A ‘draft ERPD’ which is submitted prior to the TAP’s country visit where further clarifications or changes can be made to the ERPD.

An ‘advanced draft’ ERPD is reviewed by the TAP who then provide an Assessment Report describing the level of compliance with the Methodological Framework. This advanced draft is virtually reviewed by CFPs who can provide feedback before the final version is submitted

A ‘final ERPD’ and updated TAP Assessment Report is submitted three weeks before the Carbon Fund meeting where a decision on its approval (or not) will be made.

The FMT and UK BEIS are optimistic that this amended process should improve the quality of the ERPDs as early as possible so that they are able to comply with the Methodological Framework by the time the final ERPD is submitted for approval. A structured approach to providing virtual feedback from CFPs, on draft ERPDs was adopted in 2016 which resulted in CFPs successfully meeting the deadlines by sharing the reviewing burden of early drafts. Observers have also been invited to participate in the virtual review process, strengthening the transparency of the process and enabling Observers to share early thoughts on programmes at the draft stage. Based on the experience of the first five ERPD reviews, CFPs views are well aligned and are therefore able to represent each other in this review process. This level of detail is not captured in the ‘Business Process Guidelines’ but should be sustained in 2017 as it has proven effective. The FMT are also considering suggestions to maximise the efficiency of Carbon Fund meetings, including scheduling ‘closed sessions’ for CFPs only. Permitting closed sessions is controversial in the Carbon Fund which is an extremely transparent process, however the FCPF Rules of Procedure outlines that ‘Portions of the Carbon Fund Meeting shall normally be conducted in closed session (i.e., for the Carbon Fund Participants only) if said portions involve confidential deliberations’ relating to inclusion of ER Programmes in the portfolio or issues relating to ERPAs. Scheduling time in the Carbon Fund meeting agenda for such closed sessions would make the process overall more transparent as such discussions have happened anyway, often into the small hours after the formal agenda has finished. Further work and attention to this issue will be required as the workload to prepare for Carbon Fund meetings is expected to increase with an increasing number or ERPDs under-development and with the possibility of concurrent ERPA negotiations. A score of A (met expectations) has been given for this output as all of the indicators relating to this output have now been met. Risk for this output remains minor as most guidance and standards have been endorsed. However there is a small risk that, as the standards and guidance are put in to practise, forest countries are unable or unwilling to fully

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satisfy the requirements of the standards. Although most of the guidance and standards have already been endorsed they may face challenge as they are put into practise when programmes develop. It will be important to maintain the robust standards which are central to the Carbon Fund’s credibility. Summary of responses to issues raised in previous annual reviews (where relevant) N/A Recommendations

BEIS Programme Lead, in liaison with other CFPs and the FMT, should prioritise thinking about the ERPA negotiation process and the parameters for negotiating ERPA commercial terms (including issues such as price, contract volume, options, and the use of emissions reductions for NDCs). This should be completed in early 2017, in advance of the first ERPA negotiations commencing, and include efforts to design and implement an efficient process that results in:

o value-for-money ERPAs without undue delays; o a resource efficient process for CFPs to adequately manage concurrent

decisions on ERPD reviews and overlapping ERPA negotiations.

BEIS Programme Lead should consider the following updates to the logframe: o Consider reducing the weighting of this output now that all the guidance listed

in the indicators has been achieved. But continue to monitor o Assumption that once they are endorsed they will remain relative so should be

continued to be monitored o Add an assumption that the indicators described in the logframe list all the

standards and guidance required for high-quality ERPs. Additional guidance may be required and the Carbon Fund should continue to be responsive to issues as they emerge.

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Output Title Pilots have been successfully implemented on ways to sustain and enhance livelihoods and conserve biodiversity

Output number per LF 3 Output Score A

Risk rating (H, M or L): Moderate Impact weighting (%): 15

Risk revised since last AR?

No Impact weighting % revised since last AR?

No

Key Points

The Carbon Fund is not yet in the implementation stage; this output will become relevant once ERPAs have been signed and ER programmes are being implemented.

The indicators for this output follow the same schedule as indicator 1.4 (number of ERPAs signed (cumulative)). It requires ERPAs to be signed before performance against this indicator can be monitored. As a result, the milestones are reliant on 1.4 proceeding as intended (which is currently assessed to be on track). Any delay in 1.4 may have knock-on delays for 1.7. Although these indicators follow the same schedule as indicator 1.4 they intend to track the programmes’ progress beyond ERPA signature i.e. a programme could be progressing as planned according the payment schedule but may not be delivering as intended on livelihoods and biodiversity. In the FCPF M&E Framework which the World Bank FMT reports annually on, these indicators mostly relate to the design of national REDD+ strategies as part of the readiness process. Therefore it is recommended that, in connection with the Climate Compass review of ICF KPIs and the planned review of the FCPF M&E Framework, that these indicators are considered carefully to ensure that BEIS can accurately report results relating to livelihoods and benefits. A score of A (met expectations) has been given for this output as the Carbon Fund is on track to supporting programmes that will deliver these co-benefits. Risk for this output remains moderate as there remains some uncertainty about how programmes will be implemented and how progress against these indicators will be reported. Summary of responses to issues raised in previous annual reviews (where relevant)

As described in Section B above, the milestones for the indicators relating to this output were re-baselined (specifically indicator those indicators related to output

Indicator(s) Milestones Progress

3.1 Number or ER programmes that demonstrate ways to maintain or enhance livelihoods including at local levels

1 in 2017 3 in 2018 10-13 in 2019

On track but not yet achieved. Total (cumulative) at time of 2016 Annual Review: 0

3.2 Number or ER programmes that demonstrate ways to conserve/restore biodiversity (fauna and flora) and take into account traditional knowledge

1 in 2017 3 in 2018 10-13 in 2019

On track but not yet achieved. Total (cumulative) at time of 2016 Annual Review: 0

3.3 Number or ER programmes that demonstrate relevant sustainability standards, as provided for in the Common Approach for Readiness preparation including those for grievance redress, and in the World Bank

1 in 2017 3 in 2018 10-13 in 2019

On track but not yet achieved. Total (cumulative) at time of 2016 Annual Review: 0

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indicator 1.4) to reflect updated expectations that are both ambitious and achievable. Further improvements to the logframe are suggested in the recommendations below.

Recommendations

BEIS Programme Lead should consider the following improvements to the logframe: o Consider adding in specific KPI wording for output (not just outcome)

indicators, including the expected results and targets. o Consider if there are any additional or more informative milestones relating to

this output once ERPAs have been agreed.

BEIS Programme Lead should consider how the Climate Compass review of ICF KPIs fits with the indicators reported here. This should be considered as part of the broader FCPF M&E Framework review expected in 2017. Further clarity should be gained from the Bank on how livelihoods and biodiversity will be monitored and reported in practice. For example, will the countries be mandated to report on this? Will the data gathered be compatible with the UK ICF’s KPI methodologies which are currently under review?

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Output Title Knowledge gained in the development of the FCPF and implementation of ER programmes are broadly shared and used by international REDD+ practitioners

Output number per LF 4 Output Score A

Risk rating (H, M or L): Moderate Impact weighting (%): 5

Risk revised since last AR?

No Impact weighting % revised since last AR?

No

Key Points

Feedback from FCPF countries has highlighted some examples of FCPF knowledge products being used and informing their decisions.

Increase in social media activity is increasing awareness of the knowledge gained by the FCPF.

In general the level of media attention has remained consistent. However, there were some instances of targeted publications by NGOs highlighting concerns relating to safeguards, land tenure, and carbon rights in carbon fund countries. The issues raised should be considered carefully.

The Carbon Fund has generally performed well in 2016 in regards to sharing the work, knowledge, and lessons learned from the Carbon Fund. The Carbon Fund featured positively in World Bank news stories and promotional events. However there were a few instances of negative mentions of the FCPF which should be monitored closely. In 2016

Indicator(s) Milestones Progress

4.1 Examples of utilisation of/or reference to FCPF knowledge products

An increasing number of examples exist by 2015 and remains stable until the end of the fund

On track. Some evidence of use of knowledge products in 2016. E.g. several countries reporting using the ‘REDD+ decision support tool’ to guide the development of their Reference Level and MRV Systems.

4.2 Number of people reached, by type of knowledge product and type of audience (including website site counts)

TBD Increase in reach reported in 2016. e.g. 23% increase in FCPF website visits between FY15 and FY16; 600 stakeholders receive quarterly email updates (estimated 25% open rate); Facebook page popularity more than doubled.

4.3 Number of neutral/positive mentions of FCPF and REDD+ issues in different key media worldwide

TBD - Increase in neutral and positive mentions worldwide

Positive mentions of FCPF in the media remained consistent.

4.4 Number of negative mentions of FCPF and REDD+ issues in different key media worldwide

TBD - Decrease of negative mentions worldwide

Negative mentions of the FCPF have also remained consistent.

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these mostly related to safeguards issues and risks in proposed ERPs. The NGO Observers to the Carbon Fund also raised these concerns at Carbon Fund meetings. It is important to note, that whilst these concerns relating to safeguards are of paramount importance, they will be addressed as part of the World Bank’s due diligence process. A score of A (met expectations) has been given for this output as the Carbon Fund sustained its efforts to share knowledge. Risk for this output remains moderate as the negative mentions should be carefully handled and concerned addressed as the programmes move from design stage to implementation. Summary of responses to issues raised in previous annual reviews (where relevant) N/A Recommendations

BEIS Programme Lead should consider the following improvements to the logframe: o Consider if there are any relevant milestones for this output; none are given

as part of the FCPF’s logframe. o Consider if the current level of media attention sufficient and FCPF reach is

sufficient or if more should be done to enhance the FCPF’s knowledge management strategy.

o Consider if the ‘number of media mentions’ is the most appropriate indicator as this is beyond the control of the FCPF. Do we need an alternative indicators that judges how the FMT have responded to negative mentions? This could be fed back to the FMT as part of the review of the FCPF’s M&E Framework, expected in 2017.

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D: FUND PERFORMANCE NOT CAPTURED BY OUTPUTS

Technical Advisory Panels (TAPs) were convened for the first time in 2016 to review the draft ERPDs from the five countries that will have presented advanced draft ERPDs by the end of 2016 and at least three more draft ERPDs that are expected in early 2017 (from Ghana and 2 others). The TAP assesses the ERPDs against the criteria and indicators of the Methodological Framework which has helpfully informed the decisions on whether or not to accept programmes. The TAP process is also proving useful for the forest countries who are able to draw on the TAP advice to improve their programmes at the drafting stage to ensure compliance with the Methodological Framework. This was a key objective for the UK so that CFPs, including the UK, had access to the technical resources and advice required to effectively assess the quality and methodological compliance of EPRDs which are lengthy, technical, documents. Nevertheless support from BEIS Science Team colleagues was/is still required to further interrogate the methodological rigor of the programme proposals. In addition, there are further selection criteria beyond the scope of the TAPs remit which also requires detailed review by CFPs (for the UK this includes a review of the ERPD by BEIS programme lead, with support from science team and economic analysts) which can be resource intensive (in terms of time needed to assess 300+ page documents) but important to assure the quality of the programmes.

E: VALUE FOR MONEY & FINANCIAL PERFORMANCE

Key cost drivers and performance The Carbon Fund attracted an additional contribution of $4.5m from the United States in 2016. Financial contributions to the Carbon Fund now total c.$741m12 of which approximately $688m will be available for ER purchases. Since the Carbon Fund became operational in 2011, expenditure to date totals $14.5m, solely on costs relating to fund administration13; no payments for emissions reductions have been made yet. Most of the UK’s £141.5m investment in the Carbon Fund has been committed via Promissory Note and has not yet been cashed14. As a result, the UK contribution is vulnerable to exchange rate fluctuations. The Carbon Fund has not yet produced any results as it is in the pre-delivery stage, so the evidence has been evaluated as moderate.15 This evidence base is built on expected results as opposed to actual results.

12

Further financial performance information can be found in the FCPF FY16 Annual Report, produced annually by the Facility Management Team. Numbers may vary due to exchange rate fluctuations. 13

$3.6m were administration expenses including meeting and financial management costs; $0.4m of Technical Advisory Panel (TAP) work; $1.6m of direct technical support to countries; $3.8m of programme development costs; and $5.1m of shared costs with the Readiness Fund (including items relevant to both Funds, such as the FCPF Secretariat, REDD+ methodology development, knowledge management and communications, evaluation). 14

The UK’s 2011 ETF investment of £11.5m ($17.94m) was cashed in 2011. The 2014 (£45m) and 2015 (£85m) ICF investments in the Carbon Fund were committed by Promissory Note and have not yet been cashed. Any investment income from cashed contributions is reinvested into the Readiness Fund; therefore there is no investment income to report for the Carbon Fund. 15

Countries are responding to the incentive provided by the Carbon Fund’s Results Based funding scheme as evidenced by the growing pipeline, and are developing and implementing appropriate plans to achieve planned results. Actual results related to finance leveraged and individuals supported may start reporting in 2017 following the signing of the first ERPA. First actual results related to

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Economy (i.e. Are we or our agents buying inputs of the appropriate quality at the right price?)

The economy of the Carbon Fund is sensitive to changes in the Sterling to US dollar exchange rate and as a result has decreased this year due to unfavourable exchange rate movements from a UK perspective.

An important consideration in the coming year is the ongoing price negotiations for the verified emissions reductions. Fund participants have signalled that $5/t CO2e is the upper limit they are willing to pay. If the final price agreed is lower, the economy of the Carbon Fund would increase; if the final price agreed in higher, the economy of the Carbon Fund would decrease.

Efficiency (i.e. How well do we or our agents convert inputs into outputs?)

The efficiency of the programme was decreased during the revised value for money assessment as part of the 2015 Extension Business case. This was largely due the set up time for the Carbon Fund being initially underestimated (there was no previous benchmark for the time required to establish a complex and robust mechanism of this type). As recommended by the 2015 Annual Review, the expectations and milestones for the Carbon Fund were re-baselined. Since then, there has been no further slippage in 2016. So there is no change to the assessment of efficiency and the Carbon Fund is still judged to be value for money in this regard.

Cost –effectiveness (i.e. How much impact does an intervention achieve relative to the inputs that we or our agents put in?)

The cost of reducing a tonne of carbon is used as a measure of cost effectiveness; this has risen from £13.8 to £16.8 (at the project-level and from £4.85 to £5.66 at the fund-level) due to unfavourable GBP:USD exchange rate fluctuations in 2016. However this is still within the value-for-money range for ICF programme, and is close to the original business cases’ estimation, suggesting that the Carbon Fund remains a sound investment.

As a payment-for-results mechanism, disbursements are tied to the achievement of clearly specified outcomes, in the case of the Carbon Fund this is emissions reductions. Therefore the majority of payments will only be made if the intervention is successful16. However it is possible that programmes will not be able to deliver all the anticipated ERs. Guidelines of Buffers have been agreed to insure programmes against the risk of reversals, though it is not clear yet how this will work in practise as countries may opt to use alternative mechanisms and the issue is closely related to contract volumes which will be negotiated as part of the ERPA’s Commercial Terms.

VfM performance compared to the original VfM proposition in the business case VfM assessment has not changed other than the reduction in economy due to unfavourable exchange rates in 2016. Assessment of whether the programme continues to represent value for money As the Carbon Fund is still in the early stages of implementation, it is too early to judge whether it is returning the expected results. However at the project-level it is expected that

carbon savings are only expected to be reported during the first payment year which will be dependent on the negotiated terms of the ERPA but is expected to be around 2019. 16

There is a possibility that programmes could negotiate advances to cover the upfront costs of their ER programme.

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the UK NPV will bethis a positive UK NPV of 894mXXXX with and a BCR of 7.7:117XX:XX The public abatement cost of the intervention – approximated by project level attribution -– is expected to be £136.78/tCO2e compared to the original expectation of £16.418/tCO2e and also has a high positive NPV (£1110m) and BCR (8.8:1). Overall, the cost per tonne of the Carbon Fund is well within the range of BEISDECC ICF current investments (£2.6 - £21/tCO2e) suggesting that it is a sound investment.

Quality of financial management The FMT provide annual financial reports as part of the FCPF Annual Report. Budgets are approved annually by Carbon Fund Participants at the Carbon Fund meeting closest to the end/start of the World Bank’s fiscal year, which starts on July 1 and ends on June 30. We have confidence in the capability of the World Bank as partners to deliver the requirements of the programme. The FMT have offered assurance it will scale up resources to meet the needs of an expanded pipeline, if required. It is likely that efficiencies will be realised as the portfolio size increases and learning is shared across programmes. Where additional expertise is required, such as a Technical Advisory Panel to support the development of programmes and provide an independent assessment of programmes’ technical quality, this has been be procured by the World Bank.

Date of last narrative financial report September 2016

Date of last audited annual statement September 2016

See FCPF FY16 Annual Report

F: RISK

Overall risk rating: Moderate Overview of programme risk. Key risks to the programme include:

Risk Description Mitigation Residual RAG

GBP:USD Exchange rate risk. GBP weakens further, UK contribution and overall financial resources of the Carbon Fund reduce as a result leading to lower than expected results. NB: CFPs pro-rate share of ERPA and other costs will be apportioned at the time of First Closing (shortly before signing the first ERPA).

Consider the implications of current UK contribution value in USD as part of portfolio management when selecting The World Bank, as Trustee, will require UK to cash its pro rata share of each ERPA agreed to ensure the UK does not over commit through ERPAs (which are agreed in USD). So UK will not have to increase its contribution but may wish to in order to secure the expected results.

This remains a high risk across ICF programmes. Mitigation strategy is unclear.

ERPA negotiations are prolonged causing delays (reducing the efficiency of UK ICF investment in the Fund) or fail altogether (meaning there is an insufficient number of ERPAs to commit 100% of Carbon

FMT will prioritise building capacity in forest countries’ understanding of the ERPA process and Terms. CFPs should also collaborate to consider their approach to the negotiations in

This is a moderate risk as little discussion has yet taken place on the

17

£2661m NPV and BCR of 21.5 when measured at the fund level 18

£5.66/tCO2e and £4.80/tCO2e respectively at the fund-level

26

Fund contributions – resulting in lower results than expected and a return of unspent capital)

advance and establish positions on the key negotiable commercial terms (such as price, volume, use of ERs, and other variables that form the package of incentives included in the ERPA).

commercial terms.

Delivery risk (including underspend) due to programmes being unable to attract sufficient funding from other sources for the upfront investments required to implement the programmes and produce the ERs which the Carbon Fund intends to purchase

Scrutinise the World Bank’s Due Diligence (which includes an assessment of financial viability) on each of the programmes before entering ERPA negotiations. Scrutinise ERPDs to ensure robust financial plans are in place and an integrated approach to leveraging public and private finance, before final approval of programmes for funding. Work with committed host countries that are prepared to contributes resources to the programme too. Support the World Bank’s efforts to advise countries on wider support that may be available to them from the Bank and other sources (including continuing to investigate the possibility of innovative financial instruments such as bonds and guarantees)

This is a moderate risk

Delivery risk (including underspend) due to attrition, quality concerns, external factors, or other delays, insufficient ER-PINs develop into full Programmes to absorb the full capitalisation of the Fund, and/or operational delivery of forest nations’ programmes is unsuccessful.

The Carbon Fund is currently over programmed (19 programmes in the pipeline with the intention to include 10-13 in the portfolio) and the pipeline is diverse. The Carbon Fund was extended to 2025 in April 2015. Part of the rationale for this extension was to improve the likelihood of programmes delivering the full volume of ERs. Milestones and associated deadlines have been agreed and countries should be encouraged to progress swiftly through the carbon fund process. The milestones and deadlines also facilitate monitoring of the pipeline’s progress.

Innovative, multi-sector, REDD+ programmes are inherently complex and risky. Programmes have not yet been implemented or tested so this risk remains moderate.

The Methodological Framework (MF) is too stringent, meaning that an insufficient number of ERPINS develop into full ERPS

Maintain a pragmatic position but uphold the principles of the MF to ensure the overall environmental integrity of the Carbon Fund programmes.

This is now considered to be minor risk. Early ERPDs show that it is possible to comply with the MF.

Outstanding actions from risk assessment

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Monitor the Foreign Exchange Rate Risk and the impact on portfolio management if the GBP:USD exchange rate remains significantly below the historical average.19

Innovative, multi-sector, REDD+ programmes, such as those in the Carbon Fund, are inherently complex and risky. We are content with the current level of risk and the World Bank’s approach to risk mitigation as detailed in the above table.

G: COMMERCIAL CONSIDERATIONS

Delivery against planned timeframe

The initial underestimation of set-up time and perceived delays in the Carbon Fund were discussed at length in the Extension Business Case. UK expectations (and logframe) were re-baselined in 2016 so that progress can be monitored effectively based on updated, realistic, expectations. According to these revised expectations the Carbon Fund is progressing as planned. Performance of partnership(s) In 2016 the World Bank launched its Climate Change Action Plan and Forest Action Plan. Both Action Plans acknowledge the contribution of forests to economic development, livelihoods, and climate objectives. The forest action plan takes a cross-sector perspective to assess potential trade-offs and maximise on potential synergies. However, we are yet to see how the ‘programmatic approach’, which considers the interactions of World Banks investments across sectors and the synergies with related funding streams, will work in practice. The launch of the World Bank’s Gender Equality Strategy in 2016, has also renewed focus social inclusion and the integration of gender issues in Carbon Fund programmes. This suggests that the World Bank is well aligned with the priorities of the UK BEIS and continues to effectively deliver the Carbon Fund, meeting our expectations. UK BEIS should continue to be an active partner in the Carbon Fund contributing to resolving issues and ensuring progress is made. Asset monitoring and control The assets in the Carbon Fund relate to the emissions reductions produced by the programme. The guidance on registries (expected by the end of 2016) will help inform how these assets will be recorded and transferred to CFPs. Further discussion on the use (by the seller or the buyer) of emissions reductions generated by Carbon Fund programmes will be discussed at the next Carbon Fund meeting in mid-December.

H: MONITORING & EVALUATION

Evidence and evaluation The Second Independent Evaluation of the FCPF was completed in November 2016. Unfortunately it was a protracted process and the final report was almost a year late due to quality concerns. UK BEIS has played an active role throughout the process as part of the

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The exchange rate used in the COP21 Joint Statement from Germany, Norway, and the United Kingdom was based on average exchange rates in the period from Sept 2014 to Nov 2015, which corresponds to an average exchange rate assumption of 1.59 USD to 1 GBP.

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Evaluation Oversight Committee (comprising 3 donor participants, 3 REDD+ country participants and 3 Observers) to support the evaluation process and ensure the structural independence of the Evaluation Team20.Despite the UK’s efforts, the final evaluation report still falls short of our quality and utility expectations. An initial draft report was shared in May 2016 with a wide range of stakeholders for feedback; the extensive comments and concerns raised by this draft confirmed that this version of the report did not meet the minimum quality standards for evaluation as set out by the OECD/DAC’s guidance on ‘Quality Standards for Development Evaluation’. The majority of comments highlighted that the report fell short of presenting clear, balanced, evidence-based conclusions and needed extensive revisions, including additional analysis and rewriting to address the technical concerns and gaps identified in the comments. Therefore the Oversight Committee advised stakeholders to discard the May version of the report. Subsequently, the report was substantially revised based on the feedback received. Although the final report (dated September 19, 2016) was improved it still lacked the level of detailed insight and depth of analysis that we had originally hoped for. Balancing the need to act on the evaluation whilst the findings are still relevant, the Oversight Committee concluded that the final report was of a high enough standard to develop actions to respond to the recommendations. Key caveats to the OC’s endorsement (i.e. areas of the evaluation that could have been further improved and/or sections that have not been endorsed by the OC) are outlined in a cover note to the evaluation. The final evaluation report was published in November 2016. The majority of the recommendations that have been deemed relevant would not result in major changes to the operation of the Carbon Fund. The Oversight Committee (on behalf of the Participants Committee), the Delivery Partners, and the World Bank Management, prepared a joint response to the recommendations of the evaluation. The recommendations and response relevant to the Carbon Fund have been included as Annex 1.). As next steps the Oversight Committee, as mandated by the Participants Committee, will facilitate drafting an action plan for implementation of relevant recommendations. A draft action plan will be made available at the twenty third meeting of the Participant Committee in spring 2017. The lessons from evaluation process have been captured and are relevant to the development of future evaluation plans for the FCPF and other ICF investments. These included:

Consider cancelling an evaluation contract if there are major red flags. The

Inception phase is crucial to assessing the skills and ability of the evaluation team. If

they are not able to meet quality or time requirements with the inception report,

consider if they can undertake the evaluation at all.

The need to better understand procurement processes by our delivery partners

who are procuring evaluations on our behalf. If they don’t a) have expertise on the

tender panel and b) don’t know what skills are required, we run a large risk of not

having a competent team contracted.

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The Global Program Review of the FCPF conducted by the World Bank’s Independent Evaluation Group (IEG) in 2012 recommended that in accordance with good practice the oversight of evaluation should be carried out by the program’s governing body instead of the FMT. The Oversight Committee was therefore set up to represent the Participants Committee to ensure organizational and behavioural independence of the evaluation. The evaluation team was procured by the World Bank.

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Involve an M&E expert from the outset to review the ToRs and the bids received.

Insist that our delivery partners to have evaluation experts available (either in-house

or contracted in) to help manage key aspects of the Evaluation process that require

expertise, including agreeing evaluation questions, drafting TORs, evaluating

bidders, and synthesising comments on reports.

Evaluation procurement is probably the single most significant point that

determines the success of an evaluation.

It is important to define tolerances (for quality, timeliness, independence,

resources and expertise) at the start of an evaluation and what should change if

the tolerances are exceeded (e.g. cancel the contract? Withdraw BEIS support (and

resources)?)

One important recommendation of the evaluation, which has gained broad support, was to review the FCPF’s M&E Framework which is expected to be on the work plan for 2017. The current version of the M&E Framework was endorsed in 2011 (before the UK’s ICF investments) and it has not been updated since the decision to extend the Carbon Fund by five years to 2025. The M&E review provides a useful opportunity to draw on the above lessons when planning furture evaluations. It is also provides an opportunity to request to that ICF KPIs are better incorporated into the FCPF’s overarching monirotinfg and reporting product when could supersede the separate M&E Memorandum of Understanding (MOU) that UK has with the Carbon Fund for reporting against ICF KPIs. Currently, the UK MOU with the FMT specifies that the World Bank will provide the UK with additional reporting on:

Number of tons of CO2 emissions from deforestation and forest degradation reduced in programmes supported by the FCPF Carbon Fund

Financed leveraged in FCPF Countries

Number of hectares where deforestation and forest degradation have been avoided in programmes supported by the FCPF Carbon Fund.

However, as the Carbon Fund has not yet reached the stage of delivering results for these KPIs the FMT has not yet provided such additional reporting. The timing of future evaluations should also be reassessed as the next planned evaluations were for 2017 and 2020. The delay of the second evaluation and the extension of the Carbon Fund should be considered to ensure that evaluations appropriately cover the entire operation of the FCPF until the facility is closed in 2025. The World Bank’s Independent Evaluation Group is also expected to review the climate funds in 2017 and it is believed that FCPF is within its scope, so this should also be taken into consideration. As the FCPF FY16 Report identified, not all countries have a robust M&E framework to monitor and report results and ensure that they report on time to allow portfolio level aggregation. Therefore due consideration should be made to ensure suitable quality of country reporting on indicators other than emissions reductions. This could be considered as part of the review of the FCPF’s M&E framework in 2017 as recommended by the Evaluation. The on-going work by the ICF Climate Compass on ICF KPIs and the World Bank’s own review of its core indicators should also be considered as part of a holistic overview of FCPF M&E. Monitoring progress throughout the review period The bi-annual Carbon Fund meetings provide great opportunities to monitor progress throughout the year. As outlined in Section C the Carbon Fund is continuing to meet our expectations in terms of outputs. The Annual Participants Assembly is also a useful

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opportunity to take stock on the progress of the facility overall (covering both the Readiness Fund and the Carbon Fund). At the programme level, there are some outstanding concerns (prepared by the NGOs and posted on the FCPF website) about programmes which will have to be taking into consideration when reviewing and selecting ERPDs into the portfolio.

I: TRANSFORMATIONAL CHANGE

Rating The Carbon Fund’s overall KPI 15 box marking is currently judged to be 1 – no evidence yet available/too soon to revise assessment in business case. Monitoring progress throughout the review period The note describing the indicators and methodology for KPI15 was prepared for the March 2015 Results Collection. Since then the evidence and scores have been updated for each Results Collection.

Evidence and evaluation

Assessment against ICF KPI 15 (December 2016)

As of December 2016, there is limited evidence available yet against the below indicators. Therefore the FCPF-C overall KPI 15 box marking is currently judged be box 1 – no evidence yet available – too soon to revise assessment in business case. However, some indicators show evidence of box 2 - Some early evidence suggests Transformation likely or box 3 - Tentative evidence of change – transformation judged likely. Increases to scores from the March 2016 results collection are marked with an arrow ().

CRITERIA INDICATOR EVIDENCE (BY DECEMBER 2016) SCORE

1. Fostering political will to act on climate change

1.1. A qualitative assessment of ER-PINs and ERPDs on the level of political buy-in.

ER-PIN reviews to date have assessed programs as Green or Amber. Where Amber rating was given countries were asked to take action to improve political buy-in. ERPDs that have been assessed by the Technical Advisory Panel have scored well on aspects relating to level of ambition

2

1.2. Number of R-Packages endorsed by Participations Committee (FCPF-Readiness Fund indicator but of relevance to FCPF-C as R-Package is required before an Emissions Reductions Payment Agreement (ERPA) can be

2 R-Packages were endorsed in 2015. A further 6 R-Package were endorsed in 2016. This suggests forest countries are making considerable progress towards REDD+ Readiness and progressing through the Carbon Fund process.

3

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negotiated)

1.3. Number of forest countries coming forward under the FCPF-C or similar funds with credible ER proposals.

The pipeline of Carbon Fund countries has almost doubled from 11 (at the start of 2015) to 19 (by June 2016); bringing the total number to 19. This shows strong demand from forest countries. This exceeds the original expectations of the Carbon Fund which has originally aimed to pilot REDD+ results based payments in 5 countries. At the movement there is no credible alternative to the Carbon Fund for countries to pitch to (it is possible that the GCF could receive bids for results-based REDD+ but the mechanism is still under development)

3

1.4. Number of ER programs designed and successfully implemented under the FCPF-C or similar funds.

0 programs at implementation stage.

1

As of December 2015, there has been some early evidence to suggest that transformation is likely against some of the above indicators. The number and quality of ER program proposals has been higher than expected. There are currently 19 countries in the FCPF pipeline. Approximately 10-13 programs will be piloted by the Carbon Fund therefore demand is exceeding supply. Furthermore 8 R-Packages enabling 8 countries to present ERPDs at upcoming Carbon Fund meeting. However no program is yet at the stage of implementing their programs.

2

2. Delivering at scale

2.1. Qualitative assessment of ER Programs against the aim to address a significant portion of forest related emissions and removals.

ER-PIN reviews to date have assessed programs as Green or Amber. Where Amber rating was given to take action to improve political buy-in. ERPDs that have been assessed by the Technical Advisory Panel have scored well against aspects of the programme relating to scale of the accounting area.

2

2.2 An assessment of the significance of the reported number of hectares where deforestation and degradation have been avoided through ICF support.

Evidence will be available once ERPAs have been signed (0 ERPAs to date)

1

2.3 An assessment of the Evidence will be available once 1

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significance of the reported number of forest dependent people with livelihoods benefits protected or improved as a result of ICF support.

ERPAs have been signed (0 ERPAs to date)

As of December 2016, no actual results have been reported as ER programs are still at design stage.

1

3. Evidence of effectiveness Ideas and lessons shared widely.

3.1. The number of and types of standards and management tools discussed and endorsed for ER programs, including (a) Methodological framework and Pricing Approach (b) business processes (ER-PD, ER-PIN, ERPA) and (c) legal documents (General Conditions, ERPA term sheet)

All of the anticipated standards and management tools have now been endorsed. The first two ERPDs were (provisionally) approved in June 2016 which is further evidence of the relevance and applicability of these standards. The FCPF-C could score a 3 against this indicator once ERPDs have been approved (and the provisions of their acceptance have been met) and ERPAs signed which will prove the viability of these standards.

2/3

3.2 Number and type of knowledge sharing resources made available on the FCPF website.

There a number of resources and templates available on the FCPF website. This could score even higher if there is evidence that these resources are widely used.

3

3.3 Qualitative assessment of improved quality of ER programs demonstrating learning from previous experience. Number of countries developing high quality ER program with limited support.

Await evidence from next set of final ERPDs presented to the Carbon Fund

1

3.4 FCPF has catalysed the creation of recognized global standards for REDD+ and there are examples of non-participant countries that have adopted FCPF standards in

The GCF have been actively engaging with the FCPF to learn from the standards put in place as the GCF is designing its approach to results based REDD+. The FCPF has also been referenced in discussed relating to the technical criteria for programmes eligible under ICAO’s CORSIA. However,

2

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their own REDD+ process

there are no concrete examples of this yet.

The FCPF is a relatively transparent fund. All of the materials and evidence of discussion is published on the FCPF website. There is some evidence to suggest the FCPF-C could be transformational in this regard, a higher score will be given when there is further evidence of the utility of these ideas and lesson sharing to forest countries inside or outside the FCPF.

2

4. HMG-supported activities are creating the incentives for others to act on climate change.

4.1. The volume of public finance mobilised for climate change purposes as a result of ICF funding (£s)

Evidence will be available once ERPAs have been signed (0 ERPAs to date)

1

4.2 The Volume of private finance mobilised for climate change purposes as a result of ICF funding (£s)

Evidence will be available once ERPAs have been signed (0 ERPAs to date)

1

No actual results reported yet. Nothing to warrant change against expected results.

1

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ANNEX 1: Excerpt from Joint Response to the Recommendations in the Second Final FCPF Evaluation Report Version of September 19, 2016, relevant to the Carbon Fund. The response is available at the back of the Evaluation Report.

Recommendations Addressed to the Carbon Fund

1. Review the Methodological Framework and, if relevant, align it with UNFCCC/IPCC methods/systems and guidance with the aim of reducing any additional reporting burdens on REDD Countries for both the Carbon Fund and UNFCCC. Present the results at a PC meeting and Carbon Fund Meeting with an accompanying report.

Agree The respondents agree with the report that the Methodological Framework (MF) is robust to ensure environmental and social integrity for results based payments for REDD+ yet there is a need to strongly support REDD countries to apply and conform to the MF. It is to be noted first two REDD countries have successfully applied MF and there are more in the Carbon Fund Pipeline that are in the process of applying MF and therefore timely support will be required. It is also to be noted however, the objective of the methodological framework and UNFCCC guidance is not the same. The MF is a standard for results based payments ie criteria against which monitored Emission Reductions will be paid for whilst the set of UNFCCC decisions that make up the Warsaw Framework are intended as guidance on the approach to REDD+ overall and not as funding criteria. The Warsaw Framework envisages funding through other mechanisms, including, inter alia, the Green Climate Fund (GCF). In addition, the MF is actually already being reviewed continuously, as exemplified by the revisions made to the MF in June 2016. It may be appropriate for the FMT to prepare a note to be discussed by the PC, assessing the commonalities and differences in the principles of the Methodological Framework with the other standards such as UNFCCC and once the GCF guidance on REDD+ is finalized.

2. Include detailed guidance on how to manage consultations during the ER-PIN formulation process, focusing on targeted consultations. The detailed guidance should be presented in the ER-PIN template and as a guidance note that other programs could also use

Ongoing/Partially Agree The respondents agree to the need for managing consultations throughout the REDD process (readiness, Emission Reductions program preparation and implementation). Countries have undertaken extensive consultations during Readiness preparation which have also resulted in raised expectations from stakeholders. The ER-PIN formulation process is largely complete in the majority of countries that have expressed interest in piloting programs with support of the FCPF Carbon Fund hence the recommendation is relevant for the Emission

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Reductions Programs rather than ER-PINs. Joint Guidance on consultations issued by FMT and UN-REDD Programme for readiness imbibes principles of robust and targeted consultations and remains relevant for consultations at jurisdictional level for program design and implementation. The Recommendation does not address the communication aspects of REDD+. Proper communication and messaging around program preparation, timelines, implementation and expected benefits is an important aspect for managing expectations. REDD countries have prepared communication strategies as part of the Readiness Process and communication related to programs needs to be integrated into country communication strategies. This recommendation including the need for further tailoring existing guidance on consultations at ER-PD stage, will be considered together with the recommendation on guidance on application of SESA with inputs from REDD countries.

3. Create a private sector program designed to improve private sector engagement, to leverage and scale up private sector commitment and participation in the FCPF. The private sector program could, for example, develop a linkage with the Science Based Targets Initiative. The FCPF could operate the program under the umbrella of the Green Climate Fund’s Private Sector Facility, for instance, or another organization that is resourced to reach out and engage effectively with the private sector. Step up efforts to establish direct partnerships with multinational companies, going beyond consultation for the implementation of Emission Reduction Programs. Provide a clear business case for attracting private sector interest

Partially Agree The respondents agree in principle with the need to enhance private sector engagement but not in its entirety. In our opinion carving out a dedicated Private Sector Facility is not the solution for engaging the private sector. It is our view that the private sector should be targeted strategically, including in partnership with organizations such as the Tropical Forest Alliance, World Business Council For Sustainable Development and others to realize the impact structurally across the REDD countries for addressing the drivers of deforestation. A discussion paper defining the purpose, scope and means of such engagement, in consultation with other Global Practices within the Bank with experience, IFC, FIP, and the GEF amongst others, will be prepared by FMT.

4. Revise the Charter to reduce the minimum threshold of USD 5 million for entry into the Carbon Fund in order to attract interest from smaller potential contributors.

Disagree Respondents disagree with this recommendation as it is not based in finding based on evidence. Reducing the threshold of 5 million will have implications such as high transaction costs and will not be worth the effort of engaging additional partners in the Fund. As the recommendation is partially meant to enhance private sector engagement, it should be noted that interest in purchase of ERs is not

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high at present.

Recommendations Addressed to both Funds

1. Strengthen the alignment of Delivery Partner country engagement strategies and the countries’ REDD+ agendas. The Delivery Partners should discuss options of how to ensure alignment of Delivery Partner country strategies with national REDD+ agendas. Delivery Partner country management units should report alignments and malalignments of the country engagement strategies with national REDD+ agendas. To improve transparency and accountability, the Delivery Partner Grant Reporting and Monitoring Report could be used as a basis for this.

Partially Agree Respondents partially agree with the rationale that this recommendation builds upon. However, the assumption that aligning DP country strategies with national agendas will elevate implementation of REDD+ nationally is not correct in its entirety. Further DP country offices reporting such alignments/ misalignments to the PC is not practical nor does it directly help with the national REDD+ implementation. Respondents therefore disagree with a mandated need for DPs to report on alignment to the PC due to limited value added and lack of practicality. However, aligning the DP country support strategies across various sectors with the national REDD agenda such as the INDCs would be helpful. Hence key consideration would be how to elevate the attention to forest/REDD+ nationally and comprehensive actions that could help this support.

2. Continue providing country-tailored technical support to REDD Countries. The FMT should continue to provide REDD Country Focal Points and technical staff with tailored capacity building and technical assistance, especially for matters that can improve efficiency. Technical support could also help REDD Countries to identify options of how to bridge financing gaps in Emission Reduction Project implementation.

Partially Agree Respondents agree that recognizing country specific context and providing country tailored support would be helpful. The recommendation implies that support continued at the current level would lead to increased efficiency at the level of the Facility. Some other pertinent questions need to be considered in the context of enhancing support across the FCPF countries and for operationalizing this recommendation such as (i) can we achieve more efficiency with more of the same form of support? (ii) what are the limiting factors in implementation?, and (iii) whether FCPF can provide the same level of intensive support to all countries and (iv) are there specific areas where tailored support could help with the acceleration of REDD+ implementation?

3. Consolidate the reporting system of the FCPF. The reporting system of the FCPF should be strengthened by revising the REDD Country Annual Report template to align it with the updated M&E Framework. The FCPF should continue using the

Agree Major steps have been taken since the first evaluation to develop and operationalize the M&E Framework, the reporting templates for the countries and the DPs. Some targets and indicators of the M&E

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“traffic light” system of the Annual Reports as long as it is aligned with the M&E Framework and completed in the same way by all REDD Countries. The Delivery Partner Progress Report templates should also be harmonized with the M&E Framework. Improve FCPF’s transparency, communication and ability to monitor stakeholder expectations by encouraging national CSOs – and IPs, if relevant – to provide a response to the Country Annual Progress Report. Upload the submission to the FCPF REDD Country page on the FCPF website

framework need to be revised in view of the changed assumptions since 2011. Revision of the M&E Framework and thereafter the country annual reporting template would be useful to align with the developments of the FCPF since 2011.

4. Change the Delivery Partner of the IP and CSO Capacity Building Program and overhaul the Program. The PC should transfer the management of the Capacity Building Program to a Delivery Partner whose internal management rules allow for more flexible administration of a small grants management scheme. The PC should also considerably increase the financing allocated for the Program. Earmark financing to ensure that Observers (from all categories) can apply for projects. Formulate an M&E Framework and Learning Strategy for the Program

Partially Agree This recommendation is partially relevant given the progress already made on implementation of IP and CSO capacity building program since the second evaluation was commissioned. IP and CSO capacity building program grants have been already committed and the program is now under implementation. Making changes/ transfer of existing program to another arrangement would not be helpful at this stage. Documentation on regional programs, including the results framework, is available on the Operations Portal of the World Bank. Depending on other sources of finance becoming available for the related initiatives supporting IP and CSO engagement (Dedicated Grant Mechanism of the FIP, potential increased financing through FCPF etc.) moving forward a programmatic approach could be considered with a single window to channel funds through the World Bank. Separate financing for all Observers categories could be considered by PC.

5. Formulate and implement a Gender Mainstreaming Strategy. The PC should make a decision about the formulation and implementation of a Gender Mainstreaming Strategy, including a work plan and related budget to allow for its effective implementation. Revise the Charter to formalize the Women’s Observer seat

Agree Respondents agree with the overall relevance of this recommendation based on the finding that gender mainstreaming in the FCPF has centered around collecting gender-disaggregated data (i.e. the M&E Framework), while other core aspects of gender mainstreaming (e.g. plans for gender inclusion and gender analysis) have received less or no attention in the past Mainstreaming gender issues is being carried out with support from the FCPF. PC approved a budget of US$ 411,000

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to kick start the gender relevant activities in the context of REDD+. Further opportunities will be explored to ensure synergies with World Bank Gender Strategy and ongoing efforts through PROFOR, and other Delivery Partners. PC can consider formalizing the Women’s Observer seat.

6. REDD Countries should continue working to involve multi-sectoral stakeholders in dialogues and institutional arrangements for REDD+, especially when preparing and implementing Emission Reduction Programs. Present success cases of multi-sectoral actors within institutions and in dialogues at PC meetings

Agree Respondents agree with the proposed recommendation and the need to engage other sectors, especially Agriculture, Energy and Environment and Finance. The PC, including REDD countries, could consider how to energize the multi-sectorial dialogues nationally beyond inviting countries to report/ present case examples of effective multi-sectorial dialogues in countries. Other sectoral partners (other than Ministries of Environment/Forest) should be encouraged to participate in knowledge exchange/ relevant fora and at PC meetings.

7. Design and implement a Final Knowledge Sharing and Communications Strategy. The PC should endorse a decision to design and implement a complete Knowledge Sharing and Communications Strategy. The formulation process should be outsourced to a specialized organization or company in order to reduce any risk of creating an unnecessary burden on the FMT in managing the Facility. The strategy should be formulated in coordination with other forest initiatives of the World Bank and other Delivery Partners in order to strengthen synergies and harmonize messages. Strengthen the knowledge-sharing dimension of the FCPF to go beyond knowledge sharing and focus on knowledge generation. The Knowledge Sharing and Communications Strategy should include indicators and M&E tools that allow systematical monitoring of user satisfaction and learning from knowledge products and events.

Ongoing/Partially Agree Respondents partially agree on the need to enhance the communication and knowledge sharing through the FCPF. FMT has fostered and scaled up efforts especially on communication aspects since the completion of first evaluation but there is a need to do more on this as countries begin to design scaled up programs that will require escalated knowledge exchange on several critical technical themes. There is an existing working strategy on communications that can be strengthened to add the systematic knowledge sharing dimension. More importantly a robust action plan could add impetus to knowledge sharing in coordination with the agriculture and environment practices within the Bank and with the Forest Investment Program. Options for a systematic approach for knowledge sharing and resources required can be explored further. M&E Framework could be adapted to include relevant indicators for monitoring the effectiveness of communications and knowledge sharing.

8. Revise the M&E Framework of the FCPF. The FMT should request a revision of the M&E Framework (2013) from the PC. The revised M&E Framework should be built on achievable targets based on assumptions with a risk mitigation plan. The

Agree The Respondents agree with this recommendation and its relevance. Need to adapt M&E targets is well recognized.

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new M&E Framework should also produce a monitoring tool that allows any stakeholder to obtain a snapshot of the portfolio-level situation on REDD Readiness implementation in the REDD Countries (i.e. alignment of the FCPF dashboard and the M&E framework). The indicators and targets for the Carbon Fund should be revised to reflect the extension of the Carbon Fund’s timeline to 2025

The FMT is in the process of improving the Facility level Monitoring Tool for tracking readiness and could consider a similar tracking tool for monitoring milestones for the Carbon Fund. This recommendation would be considered together with recommendation 3 on aligning reporting systems and the recommendation for future evaluations

Recommendation for Future Evaluations

1. Implement future evaluations in real-time and under a framework contract. The PC should amend the Charter for evaluations and set up a real-time, independent evaluation under a framework contract in order to assess and provide timely feedback and an opportunity to facilitate learning about the achievements and challenges of the FCPF. In order to facilitate the work of future Evaluation Teams, the FMT, Delivery Partners and REDD Countries should improve the availability of the contact details of key stakeholders. In addition, provide sufficient resources for in-depth field level lessons learning and stakeholder feedback from all continents by increasing the number of field visits and recruitment of local consultants. This second evaluation shows that it is especially challenging to obtain first-hand information from Africa and small islands, due to communication challenges. Ensure that all entities expected to follow up on the evaluations’ recommendations, including the PC, provide a systematic response in order to be compliant with OECD DAC evaluation quality standard.

Partially Agree Respondents are not clear on the recommendation suggesting amendment of the Charter. The Charter provides that the FCPF should conduct evaluations and mandates the PC to determine the purpose, timing and frequency of the evaluations. Perhaps revising the M&E Framework would be more appropriate as the objectives and frequency of evaluations is defined in the M&E framework. The various models of evaluation have pros and cons and implications of a framework contract for future evaluations will need further discussion. Thematic assessments focusing on specific areas of interest for example could yield real time lessons that could be more useful for the Facility in the short term. These could then be complemented with evaluations in the medium term commissioned by the FCPF. Opportunities to tap into evaluations conducted by other initiatives such as NICFI, and IEG will also be considered. A joint response to the recommendations in this evaluation is herewith provided. An action plan for implementing relevant recommendations will be prepared and shared with the PC for adoption no later than PC23. This recommendation would be considered together with recommendation 8, addressed to both Funds, on revising the M&E Framework.