7.2.1 Planning and managing finance solutions

Each finance solution can constitute a separate project on its own, with unique dynamics on engagement, leaders and stakeholders, costs of implementation, political exposure and timeline. While written with the best intentions, the analysis produced might not be detailed enough to determine detailed steps for each finance solution. In the implementation phase, the critical task is to reach a sufficient level of detail to guide operationalization. We can broadly distinguish three development stages:

  • Feasibility analysis
  • Development
  • Implementation
1

Feasibility

For many solutions, sufficient feasibility and preliminary decision-making processes should already have been undertaken in the BFP formulation. For solutions still at a conceptual stage, or requiring a detailed feasibility study, additional analysis can be conducted. This includes gathering baseline data, such as cost-benefit information, the legal requirements, capacity assessments for implementation and perception surveys over investors or payers. The result is a well-informed decision to either adopt the solution as it is or in an amended form, or not. With time the configuration of some solutions may also change, depending on endogenous and exogenous factors. An example is the cost-benefit analysis of a tax or subsidy reform or a feasibility assessment for an investment in sustainable tourism.

Box 7.4: Using Willingness-to-Pay Surveys to Assess Biodiversity Finance Opportunities

Willingness-to-pay surveys are designed and often used to determine or review the rate of protected areas' entrance fees. They aim to determine the maximum amount users are willing to pay for the benefits derived from the site.

The determination of entrance fee levels should also be balanced with a comparison of fees charged at other similar sites in similar circumstances and the analysis of the costs associated with the provision and maintenance of recreational opportunities.

We can uncover the willingness to pay using two methods: stated and revealed preferences. The stated preference (or contingent valuation) is a survey-based technique asking direct questions about the value associated with the protected area. For example, visitors could be asked whether or not they would still choose to visit the site if the fee increased by a specified amount. Revealed preferences are found by studying the actual decisions people make; for example, how much visitors are paying in transportation costs to reach the site or how much real estate pricing is affected by the protected area. The revealed preferences may be very different from the stated preferences. However, the stated preferences method generates information about market options that do not yet exist.

The Tanzania National Parks used willingness-to-pay surveys to review the existing entrance fees. 6,000 people responded. Visitors from overseas represented 75 percent of park users, and the study found that for this group a US$60 increase in the Serengeti conservation fee over several years would not seriously diminish visitation, and would raise an additional US$14.8 million in 2020, equivalent to a 57 percent increase in total revenue from the park.

2

Development

Development of the solution includes drafting and adopting the required legal and policy documents, bylaws, charters, HR policies, organizational charts and other regulations required for the solution. This results in the solution being ready for implementation. Adequate safeguards and M&E need to be built in (see next sections). For many finance solutions, detailed guidance exists on how to design the solution step by step. Examples include the Biodiversity Offset Implementation Handbook, suggesting 8 steps for the design stage and 14 actions for implementation, and the CIFOR, which guides countries in assessing the feasibility of PES projects.

3

Implementation

The solution is operational, based on the regulations and policy provisions, financial and human resources in place. This solution produces measurable finance results. M&E mechanisms are in place and provide insights into adaptive management; for example, a conservation trust fund that shifts its focus to nature-based adaptation projects in response to funding opportunities from climate facilities. Learning is extracted and shared with a wider group of stakeholders.

BIOFIN recommends the use of a specific template to plan the feasibility, design and implementation of finance solutions (see Annex I), regardless of their unique characteristics. External experts and decision makers should assess the filled template, which must contain a clear business case for the investment. The template mirrors the distinction between finance solutions that are in the feasibility stage and those at the development and implementation stages.

Box 7.5: Improving the Biodiversity Offset Framework in Chile

In Chile, biodiversity offsets are regulated under the Environmental Impact Evaluation System (EIS). The BIOFIN Team conducted a study to assess 531 biodiversity offsets-like projects in the period 2000-2017. Out of the total, only 78 percent of the projects estimated their impact on biodiversity and 29 percent contained commitments on compensation. The value of compensation was below 0.5 percent of the project investment costs. The figure below illustrates the challenges in implementing biodiversity offsets. BIOFIN identified opportunities for improving the underpinning regulatory framework and the organizational management cycle to increase effectiveness. It is estimated that the optimization strategy will increase offset financing from 0.5 percent to 2 percent of the total costs.