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THELANDDEGRADATIONNEUTRALITYFUNDPROJECT

PresentationAAAHigh-level summitSeptember 29,2016

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FOREWORDProjectSponsors

Established in 1994, theUnited Nations Convention to Combat Desertification (UNCCD)is the solelegally binding international agreement linking the environment, poverty and development tosustainable land management in the drylands. TheUNCCD is particularly committed to a bottom-up approach, ensuring the participation of local communities in combating desertification andland degradation. The secretariat of the Convention also facilitates cooperation betweendeveloped and developing countries, particularly regarding knowledge and technology transfersfor sustainable land management practices. The Global Mechanism (GM) is the operational armof theUNCCD, mandated to support UNCCD country parties in themobilization of resources forits implementation. The GM facilitates countries to translate the Convention into action and toachieve LandDegradation Neutrality at the national level.

Mirova is the responsible investment division of theNatixis group. It offers a global responsibleinvesting approach involving Equities, Fixed Income, General and Renewable EnergyInfrastructure, Impact Investing, and Voting and Engagement. As of March 2016, Mirova has €6billion of assets under management and as ofDecember 2015, €40.3 billion under advisement inVoting and Engagement. Its team of circa 60 multidisciplinary experts includes specialists inthematic investment management, engineers, financial and environmental, social andgovernance analysts, project financingspecialists andexperts in solidarity finance.

Organization DescriptionRole,Location

Co-promoter,Germany- InitialConceptcreation- Buildingenabling

environment forLDN- Institutional coordination

Co-promoter/Investmentmanager,France- Fund strategy- Dealstructuring- Fund management- Fund raising- Investment

selection/monitoring

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PRESENTATIONOFTHELDNFUNDLanddegradationasaglobalissue

What is atstake?

Poor land management practices, often fueled by exploitation for short-term economic gains instead of favouringlong-term sustainability, have led to the loss of more than 25% of theworld’s arable land in the last two decades.

Causesoflanddegradation

Land-degradationis notanisolated issueAs well as the direct economic value of using land and its resources, land-based ecosystems and theirmanagement can have substantial indirect effects:

Landdegradationcosts

USD66billionperyear

12millionhectares

degraded each year

40%oftheworld’s degradedlandis inareaswithhighpovertyrates

1.5bn peoplerely directly upondegraded landfortheir livelihood

Sources:Nkonya,Ephraim et.al.(2011):Economics ofLandDegradation.,IFPRIIssueBrief 68;Bonterra /Mirova 2016Market Study

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PRESENTATIONOFTHELDNFUNDLanddegradationneutrality:akeySDGtarget

IncreasingawarenessthatthecostofinactionissignificantlyhigherthanthecostofactionledtotheemergenceoftheLandDegradationNeutrality(LDN)concept,anditsinclusion intheSDGs:

LandDegradationNeutralityisastatewheretheamountandqualityoflandresourcesnecessarytosupportecosystemfunctionsandservicesandenhancefoodsecurity,remainsstableorincreases

LDNislinkedtomanyotherSDGs,andshouldserveasacatalystformakingprogress…

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1,4

1,5

0,8

0,3

$0tr

$1tr

$2tr

$3tr

$4tr

Totalannualinvestmentneeds

Current annualinvestment

Estimatedannualinvestmentgap

EstimatedinvestmentneedsinkeySDGsectorsUSDtrillions

Foodsecurity

Climatechange

OtherSDGsectors

SDG 15.3ACHIEVINGLDN

BY2030

Avoidingorreducingtherateofdegradation

Restoringdegradedland

…contributingtowardsthegreatneedformoreinvestmentintheSDGs

Source:Adapated fromUNCTAD“WorldInvestmentReport2014”

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PRESENTATIONOFTHELDNFUNDLanddegradation neutrality:strong publicsupport

Publicmomentumgeneratedbyvarious forest andlandscape restoration initiativesaround theglobe:

Increasing political support

Overa100countriestodatehaveshownastronginterestinLDN,participatinginnationaltargetsettingexcercises and/ordeveloping governmentinitiativestospurthegrowthofsustainablelandmanagementandlandrestorationinvestments

Publicmoneyasthemainsourceoffinancing

Ofthe$5-10billion annualinvestmentcurrentlybeingdeployed intoLDNactivities,itisestimatedthatasmuchas90% ofitarecontributedbypublic funding sources(FAO&UNCCD,2015);fewmultilateralkeydedicatedpublic fundinginitiatives thatinclude LDN-relatedactivitiesaspartoftheirinvestmentmandate.

LDNTARGETSETTINGS THENEWYORKDECLARATIONOFFORESTS

Restore 350Mhaby2030

4P1000

Increaseofsoilcarbonby0.4%/year

Restore 20Mhaby2020

Restore 100Mhaby2030

THEBONN CHALLENGE

20x20 AFR100

Reach LDNby2030

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PRESENTATIONOFTHELDNFUNDTheLDNFund Concept:amission-driven impactfund

TocontributetotheobjectiveofLDNbybringingtogetherpublicandprivateintereststofundtriplebottomlineinvestmentsthatcombatlanddegradationaroundtheworld.

TheLDNFund’smission:

FUNDING(Liabilities)INVESTEES(Assets)

Capital raisedfromPublicandPrivateInvestors:• public:DFIs,internationalandmultilateralfinancial

institutions,donors• private:impactinvestors,institutionalinvestors,

foundations

Layeredstructurewithdifferentrisk-returnprofiles:• publicinvestorsarejuniortoprivateinvestors,i.e.junior

investorsarerepaidaftertheotherinvestors• bytakingfirstlossrisk,juniorinvestorsplayacatalyticrole

toattractmoreprivatecapital• issuanceofnoteswithlowerriskandhigherliquiditywill

allowfurtherprivatefundraising

Investorscommitcapitalandhaveexpectationsintermsofimpactandreturn

Land DegradationNeutrality Fund

Project fromvarioussectors:• sustainableagriculture• sustainableforestry• greeninfrastructure• landrehabilitation

Projectsmeetingfourcriteria:• strongcontribution toLDNandstrictenvironmentaland

socialstandards• potential forscalabilityorreplicabilitytomaximise

impact• bankability /abilityfortheprojecttogeneratereturn• investmentreadinesswithpotentialassistancefroma

technicalassistancefacility

Developerscanimplementlandusetransformationandrepaythefinancingwithrevenuesgeneratedbytheprojects

Landrehabilitation anddegradation avoidance projectsworldwide

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INVESTMENTAPPROACH

Investees/partners:TheFundwillteam-upwith:• supplychainsactorstoimprovetheirsupplychains,• landscapeinvestmentspecialiststoscale-uptheirpilotprojectsand• localbanksandsmallfundstoreachsmall-scaleprojectsandSMEsTermsandconditions:• Providelongtermfinancingtofundlandusetransformation CAPEX(replanting,rehabilitation,renovation)mainlyintheformofmezzaninedebt(andequity)

• ProvidetechnicalassistancethroughTAFacilityset-upalongsidetheFund• Support blendedfinancestructures andcoordinationwithpublicpartners atprojectlevel

FINANCINGSCHEMES(examples) Phase0- Kickoff

LDNFUND

Cash(Loan)

PROJECTOPERATORCash(after servicesarerepaid inkind)

Smallholders

Smallholders

Smallholders

Smallholders

Smallfarmers andcooperatives

SERVICEPROVIDERS

Cash(payment forservices)

OFF-TAKER

SoftCommo

Cash(Debt service)Cash

Softcommo

LDNFUND

PROJECTOPERATORTECHNICALPARTNER

OFF-TAKER

Tree planting,maintenance,harvest

Cash(Loan /equity)

Cash

Cash(Debt service/Dividends)Cash

Timber

PROGRAMMATICAPPROACH(well-suited foragricultureandoutgrower schemes)

INTEGRATEDAPPROACH(well-suited forforestry andgreeninfrastructureprojects)

Renovation andReplanting Services(seedlings,inputs,training,etc.)

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PRESENTATIONOFTHELDNFUNDInvestmentapproach

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Argan region plays a key role against desertification• Argan trees represent a surface of 830 000 ha, with a sharp decrease over

recent years• A large-scale programme consisting in the rehabilitation of 200,000 ha has

been established by public authorities (Ministère de l’Agriculture et des PêchesMaritimes, Haut Commissariat aux Eaux et Forêts et à la Lutte contre laDésertification, le Ministère des Finances avec la FédérationInterprofessionnelle Marocaine de l’Argane (FIMARGANE).

Argan oil as a growing export sector• Local structure are being implemented to support the development of the

argansector• Local operators are implementing robust operational processes• Arganoil market is expected to grow 4 times until 2022

An investment opportunity for the LDN Fund• Given the triple bottom line potential for the project: environmental, social and

economic, Mirova is structuring an investment in the argan oil supply chain inMorocco for the LDN Fund

• Specific features and challenges:• Establish the right contractual structure in order to reach smallholders

while limiting counterparty risk• Share benefits with all stakeholders• Increase technical assistance to improve SLM practices

LDNFUNDANDAAAPotentialcollaborationbetweentheAAAinitiativeandtheLDNFund