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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED TRUST FUND GRANT FROM THE GLOBAL ENVIRONMENT FACILITY IN THE AMOUNT OF US$20 MILLION TO CONSERVATION INTERNATIONAL FOR A Report No: GLB SECOND CRITICAL ECOSYSTEM PARTNERSHIP FUND PROJECT (CEPF-2) November 8,2007 Rural Development, Natural Resources and Environment Sector Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS Currency Unit = US$1 FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS AFD Agence Franqaise de DCveloppement CABS CAS Center for Applied Biodiversity Science Country Assistance Strategy CBD Convention on Biological Diversity CEPF Critical Ecosystem Partnership Fund CI Conservation International EA Environmental Assessment GEF Global Environment Facility GEFSEC GEF Secretariat IA Implementing Agency IBA Important Bird Area IBRD MDG International Bank for Reconstruction and Development Millennium Development Goals METT Management Effectiveness Tracking Tool MSP Medium-sized Project NGO Nongovernmental organization O.P. Operational Program PA Protected Area PDF Project Development Facility PMO Project Management Office PRA Participatory Rural Appraisal PRSP Poverty Reduction Strategy Paper RAF Resource Allocation Framework RIT Regional Implementation Team SGP Small Grants Program SIDS Small Island Developing States SP1, SP2, SP4 GEF Strategic Priorities 1,2 and 4 STAP Scientific and Technical Advisory Panel WB World Bank WWF World Wide Fund for Nature Vice President: Sector Director: Sector Manager: Task Team Leader: James W. Adams, EAPVP James Warren Evans, ENV Rahul Raturi, EASRE Kathy MacKinnon, ENV

3 FOR OFFICIAL USE ONLY GLOBAL Second Critical Ecosystem Partnership Fund Project CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE Country and sector issues... 1 Rationale for Bank involvement... 2 Higher level objectives to which the project contributes... 3 B. PROJECT DESCRIPTION Lending instrument... 4 Project development objective and key indicators... 4 Project components... 5 Alternatives considered and reasons for rejection... 9 C. IMPLEMENTATION Partnership arrangements Institutional and implementation arrangements Monitoring and evaluation of outcomes/results Sustainability and Replicability Critical risks and possible controversial aspects Loadcredit conditions and covenants D. APPRAISAL SUMMARY Economic and financial analyses Technical Fiduciary Social Environment Safeguard policies Policy Exceptions and Readiness Annex 1: Country and Sector or Program Background Annex 2: Major Related Projects Financed by the Bank and/or other Agencies This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

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5 Annex 3: Results Framework and Monitoring Annex 4: Detailed Project Description Annex 5: Project Costs Annex 6: Implementation Arrangements Annex 7: Financial Management and Disbursement Arrangements Annex 8: Procurement Arrangements Annex 9: Economic and Financial Analysis Annex 10A: Safeguard Policy Issues Annex 10B: Summary Indigenous Peoples Planning Framework Annex 1OC: Summary Process Framework for Involuntary Restrictions. 71 Annex 11: Project Preparation and Supervision Annex 12: Documents in the Project File Annex 13: Statement of Loans and Credits Annex 14: Country at a Glance Annex 15: Incremental Cost Analysis Annex 16: STAP Roster Review Annex 17: Independent Evaluation Executive Summary MAP GEF #35366

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7 WORLD SECOND CRITICAL ECOSYSTEM PARTNERSHIP FUND PROJECT APPRAISAL DOCUMENT GLOBAL PROJECT EASRE Date: November 8, 2007 Team Leader: Kathleen S. Mackinnon Sector Director: James Warren Evans Sectors: General agriculture, fishing and Sector Managermirector: Rahul Raturi forestry sector (100%) Project ID: P Themes: Biodiversity (P) Focal Area: Biodiversity Environmental screening category: Not Lending Instrument: Specific Investment Loan Required [ ] Loan [ ] Credit [XI Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): from GEF Borrower: Conservation International Crystal Drive, Suite 500 Arlington VA United States 2400 Tel: Fax: cep f@conservation.org Responsible Agency: Conservation International 1919 M Street NW

8 Suite 600 Washington DC United States Tel: Fax: cep Project implementation period: Start February 25,2008 End: December 31,2012 Expected effectiveness date: February 18, 2008 Expected closing date: April 30,2013 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated substantial or high? [ ]Yes [XINO Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The Project Development Objective is to strengthen the involvement and effectiveness of civil society in contributing to the conservation and management of globally important biodiversity. Global Environment objective Re$ PAD B.2, Technical Annex 3 The Global Environment Objective is to achieve sustainable conservation and integrated ecosystem management in areas of globally important biodiversity, through consolidating Conservation outcomes in existing CEPF regions and funding to new critical ecosystems. Project description [one-sentence summary of each component] Re$ PAD B.3., Technical Annex 4 Component 1. Strengthening Protection and Management of Globally Significant Biodiversity. CEPF-2 would support activities that strengthen management and address threats to biodiversity across broad landscapes that include a matrix of land uses, including protected areas, biological corridors and high value conservation sites in production landscapes. Component 2: Increasing Local and National Capacity to integrate Biodiversity Conservation into Development and Landscape Planning. CEPF-2 would support activities to integrate biodiversity conservation in production landscapes and sectors, including enabling civil society

9 groups to plan, implement and influence biodiversity outcomes as effective partners in sustainable development. Component 3 : Monitoring and Knowledge Sharing. This component would support monitoring and evaluation of individual projects and programs as well as deriving and sharing lessons learned within and across hotspots. Component 4. Ecosystem Profile Development and Project Execution. This component would support three subcomponents: a) the development of ecosystem profiles, b) the role of Regional Implementation Teams as an extension service and in grant- making and c) overall execution and administration of the global program by Conservation International, through the CEPF Secretariat. The GEF Grant will be used solely to fund subprojects under components 1 and 2. Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10-A Forests (OP/BP 4.36) - Policy is triggered, but not applied. Indigenous Peoples (OP/BP 4.10) - Yes Involuntary Resettlement (OP/BP 4.12) - Yes The project has an environmental assessment of C. Significant, non-standard conditions, if any, for: Re$ PAD C.6 Board presentation: None Loadcredit effectiveness: This Agreement shall become effective on the date that evidence in form and substance satisfactory to the IBRD shall have been furnished to the IBRD demonstrating that: a. the Donor Council has approved the hnd-raising strategy referred to in Section 5.01 of the Financing Agreement; b. the Donor Council has approved an indicative list of Biodiversity Hotspots selected for investment under the Fund; c. the Donor Council has approved the revised Operational Manual; d. CI has established an internal audit fbnction, with staffing, resources and functions based on terms of reference satisfactory to IBRD; and e. Execution and delivery of the Agreement on behalf of CI has been duly authorized by all necessary corporate action and, upon execution and delivery, the Agreement shall constitute the legal, valid, binding and enforceable obligation of each Party hereto.

10 Covenants applicable to project implementation: Dated Covenant: a. Adoption of TOR for external audit acceptable to the Bank, within 120 days of project effectiveness. b. Agreement on TOR for program audit to assess economy, efficiency and effectiveness in relation to achieving the CEPF objectives, within 12 months of project effectiveness. c. Completion of a program audit of CEPF by the internal auditor within 24 months of project effectiveness.

11 A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues 1. Earth s biologically richest ecosystems are also the most threatened. Together these biodiversity hotspots harbor more than 75 percent of the most threatened mammals, birds, and amphibians yet they have already lost 86 percent of their original habitat. These critical areas for conservation are also home to millions of people who are highly dependent on healthy ecosystems for their livelihoods and well-being. 2. In response to the growing threats to species and habitats, the Critical Ecosystem Partnership Fund (CEPF) was launched in 2000 to provide strategic assistance to engage non-governmental organizations (NGOs), community groups, and other civil society partners in conserving Earth s biodiversity hotspots. CEPF is a partnership between Conservation International (CI), the Global Environment Facility (GEF), the World Bank (Development Grant Facility), the Government of Japan, and the John D. and Catherine T. MacArthur Foundation. In March, 2007 the Agence Franqaise de De veloppement (AFD) joined the program as the sixth partner. 3. The hotspots approach to conservation is a highly targeted strategy for tackling the challenge of biodiversity loss at the global level. As many hotspots cross national borders, the approach transcends political boundaries and fosters coordination and joint efforts across large landscapes for local and global benefits. During its first phase, CEPF established active grant programs in 15 regions within 14 hotspots, with spending plans authorized for more than $100 million. By the end of March 2007, CEPF had committed $89.8 million in grants to more than 600 civil society groups in 33 countries in South and Central America (4 hotspots, $28.9m), Africa and Madagascar (5 hotspots, $28.8m), the Caucasus ($7m), and East Asia (4 hotspots, $25.lm). By December, 2006, grant programs in nine of these hotspots closed after five years of implementation. Each grant awarded helps implement a region-specific investment strategy developed together with diverse stakeholders and approved by a council of high-level j representatives from each CEPF donor institution. Grant recipients range from small farming cooperatives to local and international NGOs. Achievements include more effective management of 20 million hectares of protected areas, including creation of more than nine million hectares of new protected areas; promotion of biodiversity-friendly management of forests and agricultural crops; strengthened community management of natural resources and key habitats; successful piloting of new financing mechanisms, including payments for ecosystem services and successful interventions by civil society to influence development decisions. 4. A 2005 independent evaluation of the CEPF global program was very positive and recommended that the donors seek further expansion opportunities (Annex 17). Current CEPF funding from the World Bank and GEF finished in mid 2007; the project was rated satisfactory in the Implementation Completion Report. Although the CEPF program has been shown to be highly effective, there are still significant conservation needs, both in the 14 hotspots already targeted and in other critical ecosystems that have not yet benefited under the CEPF program. In several hotspots, investments only targeted selected regions, while other areas within the hotspot also have major conservation needs. Moreover, in 2005, based on new research by 1 The 30 hotspots eligible for Bank support are listed in Annex 1. 1

12 nearly 400 experts, CI revised the number of hotspots up from 25 to 34, of which 30 are eligible for Bank and GEF support - see Annex The proposed project would support a second phase of the global CEPF program to expand and replicate successful civil society implementation models more broadly within at least 14 of the 30 eligible hotspots, including at least nine new ones. It would build on the lessons learned under the first phase of CEPF, as well as recommendations from the independent evaluation to further strengthen the program in existing hotspots and to expand activities to marine ecosystems and to new hotspots. By focusing on a small number of critical ecosystems, and expanding into at least nine new hotspots, the project would maximize overall impact. The program can also serve as a mechanism to direct other donor investments to the hotspots. 6. Expected global benefits will arise from the increased participation and capacity of national and local civil society groups to manage and deliver conservation initiatives in a strategic and effective manner and to integrate biodiversity conservation into development and landscape planning in regions of recognized global importance. These interventions are expected to lead to generation, adoption, adaptation, and application of lessons for improved conservation outcomes, relevant both to CEPF and the broader Bank and GEF biodiversity portfolios as well as to other small- and medium-size grant programs. 2. Rationale for Bank involvement 7. The World Bank has a long commitment to biodiversity conservation both through lending to client countries and as an Implementing Agency of the GEF. Over the last 15 years, the Bank has supported more than 500 biodiversity projects, including both protected area projects and projects which support more sustainable natural resource management. The number of biodiversity projects and projects with biodiversity components has increased steadily each year, with GEF accounting for approximately 40% of the funding and IBRD and IDA contributing 29% each to the overall portfolio. Many of these projects have been large scale and government-led, though GEF Medium-sized projects (MSPs) have enabled more involvement of international NGOs and a few national NGOs. 8. This project would complement these efforts by: Providing a streamlined mechanism for capacity building and engagement of a wide range of local civil society actors, including local NGOs, community groups, Indigenous Peoples, and the private sector, many of whom are outside the reach of traditional funding mechanisms.. Supporting projects that combine community development and livelihood opportunities with small, but effective, conservation initiatives to promote environmental sustainability. Promoting an ecosystem approach to conservation through strategic investment planning so that individual grants contribute to overall conservation targets 2

13 . Targeting new CEPF programs to complement and add value to activities supported by the Bank and other donors, including support to client countries under the new Resource Allocation Framework (RAF) adopted by the GEF.. Deriving and disseminating good practice for greater involvement of civil society in biodiversity and natural resource management, through local capacity building and testing new management models and incentives. 9. Under the hotspot approach, more than 90 countries could qualify for CEPF support. Thus CEPF has the potential to be able to complement conservation efforts in those Bank client countries with modest conservation funding, and to focus resources to innovative civil society and private sector conservation efforts that may not otherwise be supported. Expansion into marine ecosystems would also expand the opportunities for small island developing states (SIDS). 10. The CEPF program is a unique example of a global partnership that links the comparative strengths of the Bank with bilateral agencies, leading conservation NGOs and private foundations within a common approach to build a powerful biodiversity fund. The emphasis on empowerment of civil society promotes strong local ownership, good environmental governance, effective national and local institutions and more efficient and cost-effective delivery of global and national benefits. 3. Higher level objectives to which the project contributes 11. This is a global program designed to address biodiversity loss in Bank client countries that have ratified the Convention on Biological Diversity (CBD). In many countries CEPF activities would complement national priorities identified in environment strategies, CAS and PRSPs to promote sound natural resource management and sustainable development linked to protection of ecosystem goods and services. Prior to implementation each ecosystem profile would be endorsed by the relevant national GEF Focal Points to ensure consistency with country biodiversity priorities, as outlined in national Biodiversity Action Plans. Additional cofinancing at the regional and national levels will also be actively sought. 12. GEF Operational Strategy/program objective addressed by the project. The project supports the objectives of the Strategic Priorities of the Biodiversity Focal Area and specifically supports SP 1 (Promoting Sustainability of Protected Area Networks) and SP 2 (Mainstreaming Biodiversity into Production Landscapes and Sectors) as well as SP 3 (Prevention, Control and Management of Invasive Alien Species). By taking a strategic approach to conservation investments within critical ecosystems, the CEPF investments are also consistent with OP12 (Integrated Ecosystem Management). CEPF will also incorporate recent GEF Scientific and Technical Advisory Panel (STAP) guidance with respect to mainstreaming biodiversity to maximize impact, effectiveness, and replicability. Mainstreaming biodiversity considerations into management of production landscapes that include, or affect, areas of high conservation value is central to the CEPF purpose. 3

14 13. Enhancing the capacity of civil society organizations for improved natural resource management inherently links national and global biodiversity benefits to environmental sustainability and local economic benefits. The program is unique because of its global scale and its focus on civil society participation in biodiversity conservation. It complements other GEF investments at national level by focusing strategically on programs of investments in regions of highest biodiversity value. It promotes an ecosystem approach to biodiversity conservation by supporting landscape-level conservation outcomes and transnational cross-border initiatives. The CEPF-2 project includes a specific strategy to promote cross-learning and replication, building on lessons learned. 14. B The CEPF-2 project is fully consistent with, and explicitly supports, the goals and agreed work programs of the CBD, including the protected areas work program as well as ecosystemspecific work programs in forests, mountain, marine, island and dryland habitats. By directing resources to the most critical and irreplaceable ecosystems, CEPF directly supports the CBD goal to achieve by 2010 a significant reduction of the current rate of biodiversity loss at the global, regional and national level. The project responds to recognized national needs to target conservation funding more efficiently and effectively through development of strategic investment plans for critical ecosystems through a consultative and participatory process. PROJECT DESCRIPTION Lending instrument The CEPF is a long-term global program with multiple donors. The CEPF-2 project would support a specific time slice of that program, through a Grant from the GEF Trust Fund for $20 million over five years. The CEPF-2 grant would be combined with at least $80 million in cofunding from other donors over the same period, with all funds managed by Conservation International. Project development objective and key indicators The Project Development Objective is to strengthen the involvement and effectiveness of civil society in contributing to the conservation and management of globally important biodiversity. The Global Environment Objective is to achieve sustainable conservation and integrated ecosystem management in areas of globally important biodiversity, through consolidating conservation outcomes in existing CEPF regions and expanding funding to new critical ecosystems. These objectives would be achieved by providing strategic assistance to locally-based NGOs, community groups, Indigenous Peoples, the private sector and other civil society partners to support: a) strengthened protection and management of biodiversity within selected hotspots and critical ecosystems, b) increased local and national capacity to integrate biodiversity conservation into development and landscape planning, and c) expanded and improved monitoring and learning to demonstrate biodiversity impact and enable adaptive management 4

15 and replication. The CEPF program provides a field-tested mechanism for achieving these objectives, demonstrated by successful experience since its inception in Key indicators related to the project development and global development objectives are: 0 At least 14 critical ecosystemshotspots with investment programs involving civil society in conservation, including at least nine new regions. At least 600 NGOs and civil society actors, including local community organizations and the private sector, actively participate in conservation programs guided by the CEPF ecosystem profiles. At least 20 million hectares of key biodiversity areas with strengthened protection and management, including at least 8 million hectares of new protected areas. At least 1 million hectares in production landscapes managed for biodiversity conservation or sustainable use. 3. Project components 20. The proposed project would build upon the experiences and lessons learned in phase 1 and recommendations from the independent evaluation to expand the CEPF global program, including expansion into new ecosystems and hotspots. The CEPF-2 project would focus on critical ecosystems within at least 14 biodiversity hotspots in World Bank client countries that have ratified the CBD. Investment strategies for three new hotspots have already been developed and would be the first to be implemented: Polynesia-Micronesia, Indo-Burma (Indochina region); and the Western Ghats and Sri Lanka (Western Ghats region). Other ecosystems for investment would be chosen based on biodiversity status and threats, conservation needs, social and political environment, and current or planned investment by other donors. The donor partners would also review eligibility criteria to enable CEPF investment in marine ecosystems within, and adjoining, hotspots. Supplemental criteria are being developed for the CEPF Donor Council to decide whether to re-invest or exit from hotspots that have already received CEPF support. 21. The number of hotspots approved for new investment would continue to be staggered to ensure adequate funding and implementation capacity. Total investment level per hotspot will vary depending on needs and local capacity. In each hotspot, disbursement of grants will be guided by ecosystem profiles based on a stakeholder-driven prioritization process to create a shared strategy from the outset. 22. The project would include four interlinked components. GEF grant funding would be used exclusively to support Ecosystem Grants under components 1 and 2. The other donors, including CI, AFD and the John D. and Catherine T. MacArthur Foundation, will support all components. 5

16 Component 1: Strengthening protection and management of globally significant biodiversity (Total Budget: $52.1 million; GEF $13.22 million). 23. CEPF-2 would focus on key biodiversity areas and address threats to biodiversity across broad landscapes that include a matrix of land uses, including protected areas, biological corridors and high value conservation sites in production landscapes, including indigenous reserves, community and private lands managed for a conservation objective. Support to civil society groups would contribute to the strengthened protection and management of more than 20 million hectares of key biodiversity areas within hotspots, including at least 8 million hectares of new protected areas. Specific activities will be selected on a competitive basis at the ecosystem level, as outlined in the operational manual, but could include activities under the following themes: a) strengthening management of protected areas and other key biodiversity areas; b) community and Indigenous Peoples initiatives; c) innovative financial mechanisms for sustainability; and d) multi-regional priorities. 24. This component would finance civil society participation in improving management and expansion of protected areas, conservation planning, and support to communities, including indigenous groups and other partners, in management and stewardship of biologically-rich lands that buffer key biodiversity and protected areas. Activities to strengthen or pilot innovative financial mechanisms would also be supported. Component 2: Increasing local and national capacity to integrate biodiversity conservation into development and landscape planning (Total Budget: $23.9 million, GEF $6.78 million). 25, Reconciling ecosystem conservation with sustainable development on different scales across complex jurisdictional boundaries, often in situations of weak governance, is perhaps the major challenge facing the conservation and development community. Mobilizing civil society to play a more effective role in this process is the CEPF niche. Grantees range fiom individuals, farming cooperatives and community organizations to research institutions, private sector organizations, and national and international NGOs. Many of these groups also act as vital multipliers, hrther building local and national capacity for conservation. A key CEPF-2 goal is empowerment of civil society actors to take part in, and influence, decisions that affect local lives and livelihoods and, ultimately, the global environment. 26. CEPF would support activities to integrate biodiversity conservation in production landscapes and sectors, including enabling civil society groups to plan, implement, and influence biodiversity outcomes as effective partners in sustainable development. Examples could include development of community, municipal or regional land use plans, plans for local economic development, territorial development plans, certification for more sustainable management and private agreements. Such participation will build on local knowledge and technical expertise, and leverage social capital to bring innovative ideas to solving local problems. The focal approach would be to strengthen protection of critical biological corridors that link key biodiversity areas within a multiple use landscape, including trans-boundary collaboration to protect key areas that straddle national boundaries. 6

17 27. This component builds upon Component 1 through strategic and effective alliances to increase impact and sustainability, especially in production landscapes. Activities to be financed include catalyzing diverse partnerships and integrated approaches, assisting in improved land-use planning and activities that mainstream conservation into management of production landscapes, including collaboration with the private sector and informing policy and legislative frameworks. Component 3: Monitoring and knowledge sharing (Total Budget: $4.5 million; no GEF allocation). 28. This component would support monitoring and evaluation of individual projects and programs and deriving and sharing lessons learned within the hotspot. Monitoring and evaluation of individual projects would be led by Regional Implementation Teams (RITs) and would include: a) systematic analysis and documentation of grantees performance against individual project and ecosystem targets; b) assisting civil society groups, including local communities and Indigenous Peoples, to engage in participatory monitoring; and c) expanding and formalizing information sharing and learning opportunities across the hotspot. Additionally this component would support specific activities to strengthen outcomes monitoring and to document, disseminate and replicate lessons learned and good practice. Previous CEPF experience with monitoring and knowledge-sharing will be scaled up under CEPF-2 to further strengthen capacity for adaptive management by CEPF partners and the broader Conservation community. 29. This component would finance technical assistance and consultant services, training for participatory monitoring, hotspot review meetings, documentation of lessons learned, and cross-site visits for targeted training and exchange programs to promote uptake of good practice. Component 4: Ecosystem profile development and project execution (Total Budget: $19.5 million; no GEF allocation). 30. This component would support three subcomponents a) the development of ecosystem profiles; b) the role of the Regional Implementation Teams as an extension service and in grant-making; and c) overall execution and administration of the global program by CI, through the CEPF Secretariat Subcomponent 4a would finance the ecosystem profiles which provide the basis for grant making and overall implementation within selected hotspots. Profile development would be led by civil society partners, selected through a competitive process. For each ecosystem profile, the investment strategy will be based on a stakeholder-driven prioritizing process to identify conservation targets, major threats, socioeconomic factors, and current conservation investment, 32. Subcomponent 4b would finance the role of Regional Implementation Teams (FUTs), recruited on a competitive basis (as outlined in the operational manual), to lead implementation of the ecosystem profiles, and assist other civil society groups in designing, implementing and replicating successfwl conservation activities. The RITs would have full responsibility for 7

18 awarding all grants below a $20,000 threshold. RITs and local advisory groups will also play a role in deciding other grant applications (>$20,000) with the CEPF Secretariat. This subcomponent would finance technical assistance provided by the RITs, including training in grant development and implementation for local groups, and evaluating grant applications. 33. Subcomponent 4c would finance overall management and administration of the program by CI through the CEPF Secretariat. The Secretariat is responsible for strategic and financial management, oversight and reporting for the global program. This includes supervision of the ecosystem profiling process; training and management of the RITs; and overall ecosystem portfolio development, grant-making, compliance on safeguards issues, and monitoring and reporting under supervision of the regional Grant Directors. The Secretariat is also responsible for fimdraising, donor coordination, and global information management and outreach, as well as development and implementation of a program-wide replication and dissemination strategy. 34. This subcomponent would finance consultant services, technical assistance, and CEPF administration costs, including program management, financial management and annual audits, organizing independent evaluations, and communications and outreach, including website management, newsletter and publication production. 4. Lessons learned and reflected in the project design 35. Lessons learned during the first phase of implementation and highlighted in the independent evaluation include: 36. Need for greater inclusiveness and transparency in decision-making. The ecosystem profiles are the primary tool for prioritizing conservation needs and planning investment strategies. Under CEPF-2 explicit efforts will be made to inform all stakeholders, including indigenous and local communities and the private sector, about the profile process and opportunities to access grants Roles of Regional Implementation Teams (RITs). Small grants programs usually require targeted efforts to access and build capacity among small local organizations. In this regard, the independent evaluation identified the regional coordination units as one of the key strengths of CEPF. CEPF has expanded the roles and responsibilities of the RITs to further devolve responsibility for grant-making decisions, capacity building of local partners and monitoring of individual projects at the regional level. Strategic oversight would remain at the Secretariat level to maintain focus and the reporting and safeguard standards required by the CEPF donors Need for strengthened monitoring. Conservation outcomes are difficult to attribute because they usually result from the efforts of numerous actors. It is therefore difficult to determine how specific CEPF investments, separately or cumulatively, contribute to outcomes within a critical ecosystem. Under CEPF-2, monitoring will be strengthened by developing an explicit subset of short-term benchmarks to monitor progress in achieving identified conservation targets for each ecosystem investment profile. As recommended by the evaluation, monitoring at the portfolio level will also be strengthened and involve both the RITs and the CEPF Secretariat. 8

19 Socioeconomic and capacity benefits. While aiming for conservation outcomes, the process and implementation of CEPF grants generates considerable socio-economic, governance and capacity impacts. Explicit efforts would be made under CEPF-2 to better capture these impacts in the monitoring and evaluation frameworks at the ecosystem level through the development and testing of new tools. Lessons learned from other small grants programs. Experience from the Bank GEF portfolio shows that community benefits and small grants are a good way to engage a broad range of stakeholders and elicit public support for protected areas but linking development activities to conservation outcomes remains a challenge. As part of documentation of lessons learned, the CEPF Secretariat and World Bank would develop a joint work program to assess the impact and value of small grants programs in achieving biodiversity conservation. Alternatives considered and reasons for rejection Hotspot Focus CEPF-2 active in all 30 eligible hotspots. This option was rejected in favor of a more targeted approach so that CEPF ecosystem programs would be active in only a limited number of hotspots at any one time to maximize impact. CEPF-2 to focus only on new hotspots that had not benefited under thefirst phase. This option was rejected since in larger hotspots, several current CEPF programs focus on only specific sub-regions (e.g. only Sumatra in Sundaland). Thus some first phase hotspots may require additional support to consolidate conservation gains or expansion to new regions. An initial indicative list of potential hotspots for investment has been approved by the Donor Council. Investments in new regions will be phased and choices may be revised during implementation, according to emerging needs and other donor efforts. CEPF-2 to focus only on terrestrial habitats as in phase 1. Hotspots are defined according to terrestrial biodiversity and phase 1 of the CEPF focused on terrestrial systems. CEPF-2 would also support some conservation activities in adjacent marine and coastal habitats as part of a more holistic approach to address agreed conservation needs and hotspot targets. Implementation arrangements CEPF to become an independent legal entity responsible only for grant-making so that C I would not have the dual role of administering the program and being a potential beneficiary from grant funds. This option was rejected because the CEPF receives additional benefits and services from linkages with C I headquarters and regional programs and Centers for Biodiversity Conservation. Cap on grant resources available to CI and other international organizations. Under the first phase of CEPF, CI could apply for up to 50 percent of the total funds available globally for ecosystem grants. Over time, the CI share o f field grants declined to 26 percent of the available 9

20 funding (as of March ), a trend that is expected to continue. The emphasis under CEPF-2 would be to further empower and engage national and local stakeholders. Nevertheless local capacity may vary between hotspots and in some regions there may still be a substantial role for international NGOs, including CI, to take a lead in conservation projects. Rather than establish a funding cap for international NGOs, the project design incorporates measures to ensure further transparency and devolution of effective decision-making, including steps to avoid potential conflict of interest. 46. C Under CEPF-2, the role of RlTs would be awarded on a competitive basis and approved by the Donor Council. All RITs, whether C I or other locally-based organizations, would be ineligible to apply for additional CEPF grant funds within those regions where they serve as the RIT. All proposed grants above $20,000 to CI, would be approved by the CEPF Working Group (grants of $20,000 and less will be awarded directly by the RITs). The overall objective is to ensure that international organizations would not implement projects that could be successfully undertaken by local groups. IMPLEMENTATION Partnership arrangements CEPF is a partnership of CI, GEF, the World Bank, the Government of Japan, the John D. and Catherine T. MacArthur Foundation and AFD. Partnerships are also a fundamental tenet of the program, which focuses on building alliances and coordinated approaches between NGOs, governments, donors and other sectors to contribute to better planning of natural resource management and conservation investments and to promote their long-term success and sustainable outcomes. Under CEPF-2, the partnership would retain the overall structure of a Donor Council, Secretariat and Working Group. The Donor Council, comprised of senior representatives from each CEPF donor institution,2 reviews and approves each ecosystem profile, annual spending plans and the CEPF Operational Manual, which contains the specific operating policies and procedures of the Fund. The Working Group, comprised of technical experts from each donor institution, provides guidance to the Secretariat on strategy development, monitoring, and other aspects of implementation. Members act as advisors to their respective Donor Council representatives and as CEPF focal points for their broader institutions. Strengthening operational collaboration with the CEPF donor partners will be an explicit priority during implementation. Activities will include engaging regional and national representatives of the partners and GEF Implementing Agencies in the planning process for each ecosystem. Each profile would include information on programs of the World Bank and other donors in the region to emphasize synergies and potential linkages. Mechanisms would be developed for regular sharing of information and collaboration, and further strengthening of synergies and cooperation with World Bank operations. Both the GEF and World Bank are represented on the CEPF Donor Council; the SDN VP, Kathy Sierra is Acting Chair for the CEPF Donor Council. All Bank GEF projects, including global projects, are mapped to a Bank region. Since two of the fist three new hotspots fall within East Asia and the Pacific region, the CEPF-2 project is mapped to EASRE. 10

21 2. Institutional and implementation arrangements 50. The CEPF implementation arrangements are designed to build on lessons learned during the first phase, to enable continued expeditious, efficient support to diverse civil society groups, and to establish a clear and effective chain of accountability for results CI will continue to administer and execute the project, through the CEPF Secretariat, on behalf of the CEPF donors as detailed in component 4. The Regional Implementation Teams (RITs) comprised of locally based civil society groups, will lead implementation within the hotspots. Each application to serve as the Regional Implementation Team will be reviewed by the CEPF Working Group, with final selection by the Donor Council through an approved transparent, competitive process. The CI members of the CEPF Working Group and Donor Council will not participate in the deliberations in instances where CI, its branch office or affiliate, is an applicant. The RITs will be responsible for the strategic implementation of the ecosystem profiles and building a broad constituency of civil society groups to work across institutional and geographic boundaries toward shared conservation goals. As recommended by the independent evaluation, RIT responsibilities have been standardized and expanded to devolve further responsibilities to these teams. 52. All grants will be awarded on a competitive basis. The RITs will have direct decision-making authority for all grants up to $20,000. For grants above $20,000, the relevant team as well as CEPF Secretariat staff and other external reviewers as appropriate will be involved in decisionmaking within each hotspot. Grants above $250,000 would be subject to additional external technical review, including review by Bank regional staff as appropriate. Additional criteria will apply to grants to international organizations, including demonstration of comparative advantage. International proposals designed and implemented with a local partner or incorporating strong capacity building would be given preference. CI would not be eligible for a set share of CEPF funds but would compete for CEPF grant funding on an equal basis with other groups. To avoid potential conflict of interest, the individual groups that comprise the RITs, as well as other offices and programs of those organizations, would not be eligible for additional grants within that particular hotspot. Applications from formal partners of those organizations that have an independent operating board of directors will be accepted, but subject to additional external review. All proposed grant awards over $20,000 to Conservation International will require approval on a time-bound no objection basis by the CEPF Working Group. The CI Working Group member would not participate in any aspect related to the grant submission or review and approval by the Working Group. 3. Monitoring and evaluation of outcomes/results 53. The CEPF monitoring approach would focus on monitoring and evaluation at three levels: the overall program, ecosystem and project levels. Data gathered will inform decisions and adaptive management of ecosystem portfolios and also feed into outreach and documentation of lessons learned and best practice. 11

22 54. The independent evaluation recommended strengthening performance monitoring at a hotspot level in two specific directions: i) involving both the Grant Directors based at the CEPF Secretariat and the locally based Regional Implementation Teams in ecosystem-level analysis and reporting on a regular basis and ii) complementing the use of conservation outcomes as long-term operational targets with the development and adoption of socioeconomic, policy and civil society measures and indicators to measure interim progress toward the outcomes. The proposed project incorporates both recommendations. 55. At the hotspot/ecosystem level, each ecosystem profile would set the baseline, conservation targets and indicators against which progress will be monitored. Priorities for a second phase of CEPF include: i) ensuring that conservation targets and indicators are defined in all regions that receive CEPF funding; ii) improved outcomes monitoring at the ecosystem level in all critical ecosystems receiving funding; and iii) sharing the results widely to demonstrate biodiversity impact and enable adaptive management. Individual projects would use the GEF Monitoring tools, including the Protected Area management effectiveness tool SP1 and the GEF SP 2 tracking tools to assess the biodiversity impact of CEPF investments. At the ecosystem level, the RIT and other local partners would lead the monitoring to further strengthen ownership and capacity so that results feed into follow-up actions. 56. Results of monitoring at site and ecosystem levels will contribute to assessment of progress in achieving the 2010 targets set by the CBD. This information will be calibrated against data on biodiversity status drawn from the Biodiversity Early Warning System developed by the Center for Applied Biodiversity Science at C I as well as data from other NGOs regional programs. 57. The Bank will conduct semiannual supervision missions to assess progress and provide input to overall project activities. Under CEPF-2, explicit mechanisms would be put in place to ensure greater involvement in project operations, including supervision, of Bank regional staff from headquarters and country offices. In addition, the Bank will conduct a midterm evaluation of project execution no later than three years after the first project selection. 4. Sustainability and Replicability 58. The CEPF-2 project would contribute to ecological, institutional, social and financial sustainability. 59. Ecological sustainability. The fundamental premise of CEPF is that large-scale actions taken by multi-lateral institutions and national government agencies to protect biodiversity (and the ecosystems on which many economic systems depend) are more likely to succeed if they are both influenced and supported by civil society. The CEPF-2 program would contribute to ecological sustainability in at least 14 hotspots through strategic civil society actions that would complement government and other donor conservation programs. All investments at the hotspot level would be made in accordance with the strategic framework and five year investment plan laid out in the ecosystem profile. The project s components and specific elements are designed to interlink, with each complementing and building upon the activities in 12

23 the other, to contribute to sustainability of project initiatives, influence larger policy and institutional framework, and ensure ecosystem conservation in the long term. 60. Social and institutional sustainability. The CEPF experience over the past five years demonstrates that the program can strengthen positive roles for civil society by building longterm skills and strengthened environmental governance. When local communities are enabled to contribute knowledge about the natural systems that form the basis of their livelihoods and can articulate their economic and cultural interests, better and more enduring decisions are likely to be made at national and international levels. A key component of the RITs responsibilities would be to assess potential projects for sustainability and to build the capacity of local actors to design and implement appropriate conservation activities. CEPF-2 would empower a wide variety of civil society actors to engage in biodiversity conservation, to acquire a positive stake in sustainable development programs, and to contribute to improved design, support, monitoring and sustainability of those efforts. At the midterm of investments in each profile, specific measures will be identified and put in place to ensure sufficient strengthened capacity for collaborating organizations to sustain activities beyond CEPF grants, including training in grant-making applications and information on other sources of finance Financial sustainability. The CEPF is a long-term multi-donor program with different donors funding different time slices. The first phase of CEPF leveraged an additional $130 million of non-cepf funds toward specific projects and civil society activities within certain hotspots, thereby contributing to sustainability of these efforts beyond CEPF involvement. Based on lessons from the first phase, CEPF-2 would also promote piloting of specific innovative financial mechanisms, including payments for ecosystem services and market transformation initiatives. Individual sub-projects are also required to consider sustainability issues. 62. The capacity of CEPF to attract other donors, both within, and beyond, the partnership, constitutes a significant market test of the initiative. It is predicted that a second GEF investment in CEPF would leverage even greater additional funding, further illustrate the value of the program and encourage other donors to contribute both during, and beyond, the period of GEF investment. The recent commitments from AFD recognize the cost-effectiveness and utility of the CEPF program. There is no expectation of GEF support beyond this second phase but it is expected that the overall CEPF program would continue with funding from other donors. 63. Replicability. One of the project activities is development and implementation of a focused replication strategy to disseminate information on best practices and lessons learned, including i) cross-site exchanges between grantees for learning and dissemination of best practice; ii) seminars, workshops and outreach activities to increase the uptake of good practice, and iii) documentation and dissemination of lessons learned by CEPF in managing a global grants program for the conservation community. Systematic information sharing, both through workshops and the CEPF website, will hrther build local capacity and disseminate experiences and good practice more broadly among the conservation community. 64. Regular liaison and partnerships with national and international development agencies, relevant government agencies, and business corporations will emphasize good practice and the socioeconomic benefits of fostering biodiversity conservation as part of sustainable 13

24 development. In particular, more regular liaison with World Bank staff will be a focus to help replicate good practice within Bank operations. 5. Critical risks and possible controversial aspects 65. Risks include potential shortfalls in achieving the full $loom funding target, due to changes in donor priorities, but experience from the first phase of CEPF suggest that the expected additional co-financing will be secured. Economic and governance conditions, international terrorism, regional conflicts and lack of local capacity could disrupt conservation efforts in some hotspots. Such risks are assessed in the preparation of the ecosystem profiles for each hotspot and further minimized by targeting multiple countries and critical ecosystems. 66. The expected risks and their ratings are summarized in the following matrix: Risks Expected co-financing may not be secured in full Reduction in conservation funds in general due to changes in political priorities Economic downturns, international terrorism, and regional conflicts could disrupt conservation activities. Risk Rating N N M Risk Mitigation Measures $62 million co-funding commitments achieved. CI committed to fundraising strategy to raise additional $18 million. Donor Council approval of profiles and annual spending plans assures investments consistent with agreed funding commitments. CEPF is not reliant on donor government priorities. Co-funding expected from a mix of donors, including NGO, MDB, bilaterals and a foundation. Investment strategies and ecosystem profiles assess risks prior to investment in any hotspot. Targeting multiple countries and critical ecosystems also mitigates this risk. Lack of interest and/or capacity of local organizations to serve as RITs M Criteria for choice of ecosystem would include civil society capacity and/or 14

25 Slow uptake of funds due to limited capacity of local organizations Inappropriate use of grant funds due to weak capacity and inexperience of local organizations Overall risk rating N M M presence of capable international NGO. Levels of investment will be based on assessment of capacity of locally-based organizations. RITs engaged to assist and train local organizations. RITs monitor to ensure compliance and appropriate financial management. Risk Rating: H (High risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 6. Loadcredit conditions and covenants Effectiveness conditions: This Agreement shall become effective on the date that evidence in form and substance satisfactory to the IBRD shall have been furnished to the IBRD demonstrating that: a. the Donor Council has approved the fund-raising strategy referred to in Section 5.01 of the Financing Agreement; b. the Donor Council has approved an indicative list of Biodiversity Hotspots selected for investment under the Fund; c. the Donor Council has approved the revised Operational Manual; d. CI has established an internal audit function, with staffing, resources and functions based on terms of reference satisfactory to IBRD; and e. Execution and delivery of the Agreement on behalf of CI has been duly authorized by all necessary corporate action and, upon execution and delivery, the Agreement shall constitute the legal, valid, binding and enforceable obligation of each Party hereto. Dated Covenants: a. Adoption of TOR for external audit acceptable to the Bank, within 120 days of project effectiveness. b. Agreement on TOR for program audit to assess economy, efficiency and effectiveness in relation to achieving the CEPF objectives, within 12 months of project effectiveness. c. Completion of a program audit of CEPF by the internal auditor within 24 months of project effectiveness. 15

26 D. APPRAISAL SUMMARY 1. Economic and financial analyses 67. For a complete Incremental Cost Analysis, refer to Annex 15. Incremental costs will also be calculated for each ecosystem profile. 2. Technical 68. The ecosystem profiles prepared for each hotspot are the main planning tool for prioritizing conservation needs and strategies. These profiles are based on wide consultation and scientific and technical input from stakeholders within the region. The Donor Council reviews and approves the profiles and proposed levels of investment. This review involves the Working Group and provides an opportunity for additional review by Bank staff representing the regions, both at headquarters and in country offices. 3. Fiduciary 69. Financial management. The first phase of CEPF already has financial management systems in place that meet Bank financial management requirements, e.g. financial and programmatic risk assessments and an anti-terrorism screening process. The Bank has conducted an updated assessment to ensure the adequacy of financial management as stipulated in BP/OP Procurement. CEPF already follows Bank procedures for procurement. The CEPF Operational Manual sets out templates for grant agreements and procurement provisions. It will be revised and updated as needed, as a condition of project effectiveness. 4. Social 71. While this project principally aims to improve the conservation and management of biodiversity, it would also support projects that enhance livelihoods, ecosystem services and economic benefits for local people and provide incentives to participate in sustainable management of natural resources. Specific measures on social safeguards issues have been incorporated in the Operational Manual to address potential impacts on local communities and Indigenous Peoples, including development of an Indigenous Peoples Planning Framework and a Process Framework for Involuntary Restrictions. These frameworks will be available on the CEPF website and Bank Infoshop. 5. Environment 72. The CEPF-2 project has been assigned a category of C. Despite this overall categorization, all individual CEPF projects have to be screened for safeguards and appropriate mitigation taken as needed; the process is laid out in the Operational Manual. 16

27 6. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.01) [ XI [I Natural Habitats (OPBP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OP 4.1 1) [I [XI Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [XI [I Forests (OP/BP 4.36) [XI [I Safety of Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OPBP 7.60)* [I [XI Projects on International Waterways (OPBP 7.50) [I [XI Environmental Assessment. The CEPF-2 project will address priority Conservation objectives. Project activities will be selected on a competitive basis according to criteria that will ensure that resources are directed to addressing conservation needs while ensuring minimum adverse environmental effects. All project proposals will be screened for safeguard issues. Natural Habitats. By design, CEPF would finance activities that promote conservation of natural habitats. All project activities will be consistent with conservation priorities. It is anticipated that any activity funded by CEPF would be consistent with existing protected area management plans or other resource management strategies that are applicable to local situations. Beyond the selection criteria for identifying project activities, it is not anticipated that any additional measures will be required under this policy. Forestry. The Project fully complies with the Bank s Forest Policy. Project activities will focus on conservation and more sustainable management of forests. Beyond the selection criteria for identifying project activities, it is not anticipated that any additional measures will be required under this policy. Involuntary Resettlement. It is possible that sub-projects may restrict access to resources through enforcement of protection measure. In cases where sub-projects could lead to restrictions in access to resources, proponents must demonstrate that they have followed an appropriate process framework to establish off-setting management or compensation measures. Indigenous Peoples. Many of the world s remaining areas of high biodiversity overlap with lands occupied and utilized by Indigenous Peoples. Individual project activities would be selected at the ecosystem level but it is expected that Indigenous Peoples, as well as other civil society actors, will participate in identifying conservation priorities and have access to CEPF grants. Some CEPF-funded activities could potentially impact indigenous communities, either positively or adversely, depending on the nature of actions on the ground. Projects proposed for CEPF funding should demonstrate that they have made provisions for evaluating the potential impacts on indigenous communities and site-specific action plans may be required. * By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas 17

28 For more information on safeguard measures see Annex Policy Exceptions and Readiness 78. The project is designed fully consistent with Bank policies and no exceptions to policy are required. 18

29 Annex 1: Country and Sector or Program Background GLOBAL: Second Critical Ecosystem Partnership Fund Project 1. The Millennium Ecosystem Assessment showed that over the past 50 years, human activities have changed ecosystems more rapidly and extensively than at any comparable period of time in human history, largely to meet growing demands for food, fresh water, timber, fiber and fuel. This has resulted in a substantial and largely irreversible loss of biodiversity. These changes have contributed too many net gains in human well being and economic development but have been achieved at growing environmental costs, biodiversity loss and the exacerbation of poverty for some groups of people. The degradation of ecosystem services could grow significantly worse during the first half of this century and is a barrier to achieving the Millennium Development Goals (MDGs). Unless addressed, these problems will substantially diminish future options and the ecosystem goods and services available to future generations. 2. Earth s biologically richest ecosystems are also the most threatened. Together, these biodiversity hotspots harbor more than 75 percent of the most threatened mammals, birds, and amphibians yet they have already lost 86 percent of their original habitat. In response to these growing threats, the Critical Ecosystem Partnership Fund (CEPF) was launched in 2000 to provide strategic assistance to engage NGOs, community groups, and other civil society partners in conserving biodiversity hotspots. The CEPF is a partnership program, with different donors committing resources against different timelines. The first phase of the CEPF involved CI, GEF, the World Bank, the Government of Japan, and the John D. and Catherine T. MacArthur Foundation, each committing $25 million for a total of US$125 million in grant funding towards a program that targeted 14 hotspots. The first phase of GEF funding and World Bank DGF funding will be completed in mid In March 2007 the Agence Franqaise de DCveloppement (AFD) joined the partnership as a sixth donor. 3. By the end of 2006, grant programs in nine of the original hotspots closed after five years of implementation. A 2005 independent evaluation of the CEPF global program recommended that the donors expand the program. Although the CEPF program has been shown to be highly effective, there are still significant conservation needs, both in the first phase hotspots and in other critical ecosystems that have not yet benefited from CEPF. Moreover in 2005, based on new research by nearly 400 experts, Conservation International revised the number of hotspots up to 34, of which 30 are eligible for Bank and GEF support - see matrix below. 4. The proposed project is a second phase project that would replicate and expand successful civil society implementation models for biodiversity conservation. It would build on the lessons learned under the first phase of CEPF as well as recommendations from the independent evaluation to further strengthen the program and to expand activities to marine ecosystems and new hotspots. It would complement government-led conservation efforts, by providing a streamlined and agile mechanism for capacity building and engagement of a wide range of local civil society actors, including local community groups, Indigenous Peoples, NGOs and the private sector, many of whom are outside the 19

30 reach of traditional funding mechanisms. By focusing on a small number of critical ecosystems the project would maximize overall impact. 5. The conservation and sustainable use of natural ecosystems and biodiversity are critical elements that support sectors as diverse as agriculture, forests, fisheries and water management. Lessons learned from the Bank partnership with the CEPF are relevant to enhanced natural resource management and especially community driven development projects that are attempting to achieve enhanced livelihoods, poverty alleviation and environmental sustainability. These interventions are expected to lead to generation, adoption, and application of lessons related to improved biodiversity outcomes, relevant both to CEPF and the broader Bank and GEF biodiversity portfolios as well as to other small- and medium-size grant programs. 6. The CEPF framework is consistent with the Bank s emphasis on partnerships to deliver development outcomes. CEPF is a unique global partnership that links the comparative strengths of the Bank with bilateral agencies, leading conservation NGOs and private foundations within a common approach to build a powerful biodiversity fund to support civil society involvement in conservation activities. The emphasis on empowerment of civil society promotes strong local ownership, good environmental governance, effective national and local institutions and more efficient and cost-effective delivery of global and national environmental benefits. To ensure consistency with government priorities, each ecosystem profile requires endorsement by the relevant GEF Focal Points prior to implementation at a national level. CEPF-2 Project: Indicative List of Hotspots with Countries Eligible for World Bank and GEF Funding. Critical Ecosystem (Hotspot) CEPF-2 WBIGEF Eligible Countries * Conservation Significance Threats Atlantic Forest Argentina, Brazil, Paraguay 40% of plants (8,000), 27.3% of mammals, 15.4% of birds, 30.2% of reptiles, 61.8% of amphibians, and 38% of fishes are endemic. Endemism in trees is particularly high, with more than half the species endemic. Logging, intensification and expansion of agriculture, clearing for plantation forestry, and fragmentation. California Floristic Province ** Mexico 61% of plants (2,124), 12% of mammals, 2.4% of birds, 6% of reptiles, 54% of ampl-ubians and 21% of freshwater fishes are endemic. Of nearly 3,500 species of vascular plants in the hotspot, more than 2,120 (61%) are endemic. Commercial farming, urbanization, pollution, habitat encroachment, construction, strip mining and oil extraction, invasive alien species, livestock grazing, and suppression of fires. I 20

31 Cape Floristic Region South Africa 69% of plants (6,210), 4.4% of mammals. 2% of birds, 22% of reptiles, 35% of amphibians and 4 1 % of freshwater fishes are endemic. The region is the only hotspot that encompasses an entire floral kingdom. Agriculture expansion, population growth, invasive alien plant species and ecosystem degradation. Caribbean Islands ** Dominican Republic, Haiti, Jamaica, Islands in the Lesser Antilles 50% of plants (6,500), 46% of mammals, 27% of birds, 93% of reptiles, 100% of amphibians and 40% of freshwater fishes are endemic. Deforestation, Agriculture (cacao, coffee, sugar cane and tobacco plantations), mining, tourism, and invasive alien species. Caucasus Armenia, Azerbaijan, Georgia, Iran, Russia, Turkey 25% of plants (1,600), 14% of mammals,.3% of birds, 23% of reptiles, 18% of amphibians, 9.4% of freshwater fishes are endemic. Logging, fuel wood consumption, illegal hunting, pollution, and overgrazing by livestock. Cerrado Bolivia, Brazil, Paraguay 44% of plants (4,400), 7% of mammals, 3% of birds, 15% of reptiles and amphibians, and 25% of freshwater fishes are endemic. Of the 200 amphibian species, more than 25 are endemic. Agriculture, ranching, charcoal harvesting, drought, and infrastructure. Chilean Winter Rainfall- Valdivian Forests Argentina, Chile 50.3% of plants (1,957 of 3,892), 22% of mammals, 5.3% of birds, 66% of reptiles, 71% of amphibians, and 56% of freshwater fishes are endemic. Overgrazing, invasive species, accidental and intentional forest fires, population growth and urbanization. Agriculture, urbanization, lack of legal protection, wildlife-human conflicts and pressure on forest resources. Coastal Forests of Eastern Africa Kenya, Mozambique, (Somalia) Tanzania 44% of plants (1,750), 5.6% of mammals, 2% of birds, 2 1 % of reptiles, 7% of amphibians, and 15% of freshwater fishes are endemic. Eastern Afromontane Burundi, D.R. of Congo, Ethiopia, Kenya, Malawi, Mozambique, Rwanda, (Somalia), Tanzania, Uganda, Yemen, Zambia, Zimbabwe 31% ofplants (2,356 of7,598), 21% of mammals, 8% of birds, 27% of reptiles, 30% of amphibians, and 69% of freshwater fished are endemic. Agriculture, logging, fires, mining, infrastructure development, and collection of firewood andor plants for medicinal use, hunting and disease. 21

32 East Melanesia Islands Papua New Guinea, the Solomon Islands, Vanuatu 37.5% of plants (3,000 of 8,000), 45.3% of mammals, 4 1.4% of birds, 46% of reptiles, 90.5% of amphlbians, and 5.7% of freshwater fishes are endemic. Rapid forest clearance, logging, mining, unsustainable farming, invasive alien species. Forests West Africa I- r Himalayas Horn of Africa Benin, Cameroon, C6te d'ivoire, Equatorial Guinea, Ghana, Liberia, Nigeria, Sao Tome and Principe, Sierra Leone, Togo Bhutan, China, India, (Myanmar), Nepal, Pakistan Djibouti, Eritrea, Ethiopia, Kenya, (Somalia), Sudan and Yemen 20% ofplants (1,800 of 9,000), 21% of mammals, 10% of birds, 25% of reptiles, 38.5% of amphibians and 28% of freshwater fishes are endemic. 31.6% ofplants (3,160 of lo,ooo), 4% of mammals, 2% of birds, 27% of reptiles, 40% of amphibians, and 12.3% of freshwater fishes are endemic. 55% of plants (2,750 of 5,000). 9% of mammals, 3.4% of birds, 33% of reptiles, 20% of amphibians and 10% of freshwater fishes are all endemic. Habitat loss and fragmentation of forests, illegal logging, mining, agriculture, population growth, bush-meat hunting and trade. Cultivation, logging, overgrazing, fuel wood, unsustainable harvest of medicinal plants. Overgrazing, agriculture, charcoal production, poor governance and political instability. I Indo-Burma Bangladesh, Cambodia, China, India, Laos, Malaysia, (Myanmar), Thailand, Vietnam 52% (7,000 of 13,500) of plants, 17% of mammals, 5% of birds, 39% of reptiles, 54% of amphibians and 44% of freshwater fishes are endemic. Irano- Anatolian Armenia, 42% (2,500 of 6,000) of plants, 7% of I Azerbaijan, mammals, 10% of reptiles, 11% of Georgia, Iran, amphibians, and 33% of fresh-water fishes (Iraq), Turkey, are endemic. Turkmenistan Agriculture, overharvesting, logging, over-fishing, habitat loss, rapid population growth and unsustainable economic development. Over-grazing, overharvesting of woody plants for fuel wood, mining. Political tensions and military operations have also resulted in the loss of forests and wetlands. Madagascar and Indian Ocean Islands** Madagascar, Comoros Mauritius, Seychelles 89% (1 1,600 of 13,000) of plants, 93% of mammals, 58% of birds, 96% of reptiles, 99.6% of amphibians, and 59% of freshwater fishes are endemic. Agricultural methods, invasive alien species, industrial and smallscale mining are growing threats. 22

33 Madrean Pine- Oak Woodlands** Mexico 75% of plants, 2% of mammals, 4% of birds, 10% o f reptiles, 25% of amphibians, and 21% of freshwater fishes are endemic. Logging and fragmentation. Maputaland- Pondoland- Albany Mozambique, South Africa and Swaziland 24% o f plants, 2% o f mammals, 14% o f reptiles, 15% o f amphibians, and 27% of freshwater fishes are endemic. Industrial and local farming, over-grazing by livestock, timber, mining, urbanization, and invasive alien plant species. Mediterranean Basin * * Mesoamerica Mountains of Central Asia Mountains of Southwest China Philippines Polynesia- Micronesia ** Algeria, Cape Verde, Egypt, Jordan, Lebanon, Libya, Morocco, Syria, Tunisia and Turkey. Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama Afghanistan, China, Kazakhsta Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan an Uzbekistan China and (Myanmar) Philippines Chili Easter Island, Fiji, Micronesia- Polynesia, Tonga 52% of plants, 11% of mammals, 5% of birds, 34% of reptiles, 34% o f amphibians and 29% o f freshwater fishes are endemic. 17% o f plants, 15% o f mammals, 19% o f birds, 35% of reptiles, 65% of amphibians and 67% of freshwater fishes are endemic. 27% of plants, 4% of mammals, 2% o f reptile 57% of amphibians and 19% of freshwater fishes are endemic. 29% of plants, 2% of mammals, 0.3% of birds, 16% of reptiles, 9% of amphibians and 25% of freshwater fishes are endemic. 66% of plants (6,091), 61 mammals, 35 birds, 68 reptiles, 85 amphibians and 24 freshwater fishes are endemic. 58% of plants, 75% of mammals, 56% of birds, 48% o f reptiles, 100% o f amphibians and 21% o f freshwater fishes are endemic. Infrastructure, urbanization, habitat fragmentation and increasing tourism. Deforestation, timber and mineral extraction. Civil conflicts, dams, reservoir construction, over-fishing, and invasil alien species. Deforestation, logging, over-grazing, illegal hunting. High population growth rate, poverty, illegal logging and timber, mining and land conversion. Invasive alien species, urbanization and commercialization, habitat degradation. 23

34 Succulent Karoo Namibia, South Africa 38% of plants, 3% of mammals, 4% of birds, 16% of reptiles, 5 % of ~ amphibians are endemic. Diamond mining, largescale extraction of heavy minerals, over grazing and illegal collection of succulents and bulbs. Sundaland Indonesia, Malaysia 60% of plants, 45% of mammals, 19% of birds, 54% of reptiles, 80% of amphibians and 37% of freshwater fishes are endemic. Illegal hunting and wildlife trade, road construction, mining, and civil conflict. Tropical Andes Tumbes- Choc6- Magdalena Argentina, Bolivia, Chle, Colombia, Ecuador, Peru, Venezuela Colombia, Ecuador, Panama, Peru 50% of plants, 13% of mammals, 34% of birds, 45% of reptiles, 67% of amphbians and 35% of freshwater fishes are endemic. 25% of plants, 4% of mammals, 12% of birds, 30% of reptiles, 15% of amphibians and 46% of fishes are endemic. Mining, logging, construction of hydroelectric dams, over-grazing, invasive alien species. Urbanization, mining, road construction, agricultural expansion, and deforestation. Wallacea Indonesia, (Timor Leste) 15% of plants, 57% of mammals, 41% of birds, 45% of reptiles, 69% of amphibians, 20% of fishes are endemic. ~~ Agriculture, grazing, clearing of land, illegal logging, wildlife trade, plantations and population growth. Fragmentation, population density, infrastructure, unsustainable agriculture, poaching. Western Ghats and Sri Lanka India, Sri Lanka 52% of plants, 13% of mammals, 7% of birds, 65% of reptiles, 73% of amphibians and 73% of freshwater fishes are endemic. Hotspots in bold e.g. Atlantic Forest are where CEPF invested during Phase 1. The table is based on the revised 34 hotspots e.g. Coastal Forests and Eastern Arc of Kenya and Tanzania has become two Hotspots. * Countries eligible for GEF funding as World Bank client countries that have ratified the Convention on Biological Diversity Countries in parentheses e.g. (Timor-Leste) not currently eligible. * * These hotspots include some countries not eligible for WB and GEF funding. The CEPF Donor Council may review the eligibility criteria to include marine ecosystems within targeted hotspots. Under the second phase of the CEPF program, the Donor Council may also decide to establish new funding windows outside the WBiGEF CEPF-2 Project to accommodate the strategic interests of specific donors. 24

35 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies GLOBAL: Second Critical Ecosystem Partnership Fund Project 1. The CEPF-2 project strongly complements several ongoing and planned World Bank global and regional projects, and other donor interventions. Relevant in this respect are:. Critical Ecosystem Partnership Fund. The Bank-implemented GEF grant for the first phase of CEPF closed in March, Coral Reef Targeted Research and Capacity Building for Management, a global project which focuses on strengthened conservation and sustainable management of coral reefs. 9 Several regional projects that focus on conservation and sustainable use of terrestrial and marine biodiversity in the MesoAmerican Biological Corridor, including: Conservation and Sustainable Use of the Mesoamerican Barrier Reef. System; and Integrated Ecosystem Management in Indigenous Communities. ADB Greater Mekong Subregion Core Environment Program 2. 3, There are also several ongoing and planned national projects relevant to the CEPF-2 program and especially to implementation in the first three hotspots selected: Indochina, Polynesia-Micronesia and Western Ghats and Sri Lanka. The table below provides a list of completed, ongoing and planned projects that are relevant to this project. The proposed project will build on the experiences obtained in recently completed projects, including lessons learned in linking biodiversity conservation activities with community development, more sustainable resource management and income-generating activities for local communities. Sector Issue Project I Latest Supervision (PSR) Ratings I I (Bank financed projects only) - I Implementation Development Progress (IP) Objective (DO) Biodiversity Conservation Critical Ecosystem Partnership Fund Satisfactory Satisfactory Coral Reef Targeted Research and Capacity Building Satisfactory Satisfactory for management MesoAmerican Biological Corridor Satisfactory Satisfactory IFC Environmental Business Finance Program Satisfactory Satisfactory China Guangxi Forest Project NIA NIA 25

36 26

37 Annex 3: Results Framework and Monitoring GLOBAL: Second Critical Ecosystem Partnership Fund Project Results Framework PDO / GEO Project Development Objective - Strengthen the involvement and effectiveness of civil society in conservation and management of globally important biodiversity. Global Environment Objective - Conservation outcomes consolidated in existing CEPF regions and funding expanded to new ecosystems in order to achieve strategic and sustainable conservation and integrated ecosystem management in areas of globally important biodiversity. Intermediate Outcomes Outcome 1: Globally significant biodiversity is under improved management and protection. Project Outcome Indicators At least 14 critical ecosystemshotspots with active investment programs involving civil society in conservation, including at least 9 new regions. At least 600 civil society actors, including NGOs and the private sector, actively participate in conservation programs guided by the CEPF ecosystem profiles. At least 20 million hectares of key biodiversity areas with strengthened rotection and P management. At least 8 million hectares of new protected areas4 established. At least 1 million hectares in production landscapes managed for biodiversity conservation or sustainable use. Intermediate Outcome Indicators 0 At least 70% of targeted key biodiversity areas with strengthened protection and management (SP 1 METT) At least 30% of projects globally enable effective stewardship of biodiversity and ecosystem services by indigenous and local communities in focal areas. Use of Project Outcome Information YR1 - YR5: Gauge CEPF s global performance in achieving coverage targets and key milestones under performance indicators against ecosystem profile targets. Missed targets may require the identification of causes and remedial actions. YR3: Contribute to independent mid-term assessment and adjust overall strategy and operations as recommended. All years: Identification and pursuit of opportunities for long-term sustainability and replication. All years: Results feed into global outreach program. End of project evaluation. Use of Intermediate Outcome Information Profile Midterm: Gauge portfoliolevel performance against targets and key milestones identified in ecosystem profile. Refine Results Framework or ecosystem profiles as needed. (Start-up in hot spots staggered) Project Midterm: Assessment of contribution to GEF and CBD 2010 targets based on SP1 METT; SP2 METT Guided by a sustainable management plan Protected through a formal legal declaration or community agreement 27

38 Outcome 2: Biodiversity conservation is integrated into landscape and development planning as a result of increased local and national civil society capacity, Outcome 3: Effective monitoring and knowledge sharing. At least 10 sustainablefinancing mechanisms established or strengthened with initial capital secured. At least 5 multi-regional projects contribute to the conservation of globally significant biodiversity. At least 60% of projects outside protected areas effectively introduce or strengthen biodiversity conservation in management practices (SP2 METT). At least 10 public-private partnerships mainstream biodiversity in production sectors, such as forestry, agriculture and tourism sectors. At least 50% of global grant funds allocated to local civil society groups5. At least 70% of targeted communities involved in sustainable use projects show socioeconomic benefits % of CEPF regions possess baseline data and indicators and report against approved logical frameworks. Selected indicators from global Results Framework standardized for all hotspots ecosystem profiles and contribute to global reporting and assessment, At least 75% of civil society groups receiving grants demonstrate more effective All years: Identification and pursuit of opportunities for long-term sustainability and replication. All years: Results feed into global outreach program. End of project: Assessment of overall project achievement and contribution to CBD work programs. Profile Midterm: With each hotspot, gauge portfolio-level performance against targets and key milestones identified in ecosystem profile. Refine Results Framework or ecosystem profiles as needed. (Start-up in each hotspot will be staggered.) Project Midterm: Assessment of contribution to GEF and CBD 2010 targets based on SP2 METT All years: Identification and pursuit of opportunities for long-term sustainability and replication. All years: Results feed into global outreach program. End of project: Assessment of overall project achievement and contribution to CBD work programs. Profile midterm: Portfolio review to feed into strategy decisions Midterm and end of project: Calibrate against other biodiversity status reports produced for the hotspot e.g. forest status, IBAs, etc. All years: Identifying best practice and lessons learned for dissemination and uptake. All years: Results feed into global CEPF defines a local civil society group as one that is legally registered in a country within the hotspot and has an independent board of directors or a similar type of independent governing structure. 28

39 Outcome 4: Ecosystem profiles act as shared strategies for effective programwide implementation. capacity to plan and manage conservation projects. At least 2 learning exchanges andor participatory assessments of portfolio-level results hosted and documented within each hotspot (at least 201). Ecosystem profiles and investment strategies developed with stakeholders, approved, and guide grantmaking. In at least 5 hotspots, ecosystem profiles influence other donors investment strategies. Number of local civil society groups capacitated by RITs to design and implement projects. Overall program, including all activities and financial management, effectively monitored and in compliance with CEPF Operational Manual. Program-wide replication strategy developed and implemented to disseminate best practice within and across hotspots. 10 publications produced and disseminated on CEPF experiences, lessons learned and specific themes. 100% of final project reports compiled by grant recipients available online. Visitors to Web site and newsletter subscribers increase by at least 70% 5 annual reports and 20 quarterly reports produced. outreach program. Midterm and end of project: assess progress and examples of replication All years: Results feed into profile planning, implementation and adaptation. All years: Profiles guide decisionmaking and assessments of progress and results. All years: Results feed into global reporting to CEPF donors and overall outreach program. Midterm and end of project: results feed into evaluation. 29

40 Arrangements for results monitoring 1. Monitoring and evaluation would be undertaken at three levels: the overall program, ecosystem and project levels. Data gathered will inform decisions and adaptive management as well as feed into analysis and documentation of best practices, lessons, and results within, and across, critical ecosystems and at the global level Institutional issues. The Regional Implementation Teams would have lead responsibility for monitoring at the ecosystem and individual project levels. All grantees, including the Regional Implementation Teams, will submit quarterly financial reports and regular programmatic reporting detailing progress toward specific deliverables. The Regional Implementation Team s monitoring will include review of these reports by grantees and a participatory assessment at the ecosystem level conducted together with grantees and other stakeholders at the profile midterm. Monitoring by the CEPF Secretariat will include monitoring the performance of the Regional Implementation Teams and lead responsibility for producing analytical overviews of each ecosystem portfolio, including details of interim progress toward the conservation outcomes and lessons learned. The Secretariat will also be responsible for monitoring performance of the overall program and ensuring that all activities and financial management are carried out in compliance with the guidance of the Donor Council and the Operational Manual, including GEF Policies and the World Bank Safeguard Policies. The Operational Manual has been revised and updated and will be presented to the Donor Council for approval. Monitoring for biodiversity outcomes. Specific conservation targets and related indicators would be developed as an integral part of the ecosystem profiling process for each ecosystem. Priorities for a second phase of CEPF will include: i) ensuring that conservation targets are defined in all regions that receive CEPF funding; ii) improved outcomes monitoring at the ecosystem level in all critical ecosystems receiving funding; and iii) sharing the results widely to demonstrate biodiversity impact and enable adaptive management by CEPF and the wider conservation community. In all cases, the Regional Implementation Team and other local partners would lead the monitoring. The approach will build upon and further strengthen the success of the first phase to conduct baseline assessments in partnership with these groups, and then to facilitate and support continuation of monitoring at the local level. These procedures will be systematically applied in every portfolio using common tools and reports to generate comparable data that can be used to develop portfolio overview reports and assessments of the overall program s impacts. The project would utilize the GEF SP1 and SP2 tracking tools to monitor impact of protected area and mainstreaming interventions. Results from monitoring at the ecosystem level will be calibrated against data drawn from the Biodiversity Early Warning System at the midterm and other expertise of CI s Center for Applied Biodiversity Science (CABS) as well as the global monitoring programs of other conservation organizations. This calibration would provide additional information on the status of specific conservation targets and landscapes and inform decisions on whether to adapt implementation strategies. 30

41 4. Other Outcomes. As recommended by the independent evaluation, CEPF-2 would complement data collected on conservation outcomes by utilizing simple socio-economic indicators and developing and testing new performance monitoring methodologies, including measures to reflect changes induced in civil society. The Regional Implementation Teams will also have lead responsibility for monitoring these outcomes as part of assessing individual project reports. These types of indicators and measures may also be further developed at the ecosystem level as part of the profiling process for each region, drawing from a strengthened analysis of the socioeconomic, policy and civil society context of each ecosystem. 5. Semiannual and midterm evaluation. The World Bank will conduct semiannual supervision missions to assess progress made in the overall project activities. Supervision missions will involve regional Bank staff in reviewing implementation of grants within selected hotspots to draw lessons learned and to provide guidance to the RITs and project team. In addition, a midterm evaluation of project execution will be conducted no later than three years after the first project disbursement. Indicative total cost of M&E (also reflected in the total project cost): $3.72 million; no GEF allocation. 31

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47 Annex 4: Detailed Project Description GLOBAL: Second Critical Ecosystem Partnership Fund Project 1. The proposed project would build upon the experiences and lessons learned in phase 1,, and recommendations from the independent evaluation, to expand the global CEPF program, including expansion into new ecosystems and hotspots. The CEPF-2 project would focus on critical ecosystems within at least14 biodiversity hotspots, including nine new hotspots, in World Bank client countries that have ratified the CBD. Investment strategies for three new critical ecosystems have already been developed as part of phase 1 and would be the first to be implemented: Polynesia-Micronesia; Indo-Burma; and Western Ghats and Sri Lanka. Other ecosystems for investment would be chosen based on biodiversity status and threats, conservation needs, social and political environment, and current or planned investment by other donors. The donor partners would also review eligibility criteria to enable CEPF investment in marine ecosystems within, and adjoining, hotspots. An indicative list of 14 hotspots for investment will be developed and endorsed by the Donor Council for phased implementation; this list may change over time in line with conservation needs and other donor investments. ' 6 %.\'?. 'h,.i 2. The number of hotspots approved for new investment would continue to be staggered to ensure adequate funding and implementation capacity, and the total investment level per hotspot will vary depending on needs and local capacity. In each hotspot, disbursement of grants will be guided by ecosystem profiles based on a stakeholder-driven prioritizing process to create a shared strategy from the outset. 3. The project will include four interlinked components. GEF grant finding would be used exclusively to support Ecosystem Grants under components 1 and 2. Component 1 : Strengthening protection and management of globally significant biodiversity (Total budget: $52.1 million; GEF $13.22 million). 4. CEPF-2 would focus on key biodiversity areas and address threats to biodiversity across broad landscapes that include a matrix of land uses, including protected areas, biological corridors and high value conservation sites in production landscapes. Protected areas remain a critical foundation of biodiversity conservation worldwide, yet only 5% of globally significant biodiversity within most hotspots is currently protected. Target areas would not be limited to formal designated protected areas and legal entities but will also include indigenous reserves, and community and private lands that are managed for a conservation objective. Support to civil society groups would contribute to the strengthened protection and management of more than 20 million hectares of key biodiversity areas within hotspots. This would include at least 8 million hectares of new protected areas. Activities will be selected on a competitive basis but are expected to include the following: (a) Protected areas and other key biodiversity areas. CEPF would support civil society efforts to catalyze improved management and expansion of existing protected areas, including creation of new protected areas and innovative 37

48 management involving civil society and public-private partnerships. Supported activities would include building awareness and support for protected areas and systems, development and provision of technical expertise and tools for effective conservation planning, and enabling local community and indigenous groups to take part in the design, implementation, and management of key biodiversity areas. (b) Community - Indigenous Initiatives. CEPF would assist communities, including indigenous groups and other partners in management and stewardship of biologically rich lands that buffer key biodiversity and protected areas. The CEPF-2 portfolios would supported community stewardship of biodiversity through improved use and management of natural resources, the reduction or elimination of practices harmful to biodiversity, and the development and adoption of a variety of alternative livelihood opportunities which emphasize synergies between biodiversity conservation and human welfare. (c) Innovative financial mechanisms for sustainability. Achieving financial sustainability for biodiversity conservation is an ongoing challenge. CEPF-2 would scale up efforts to create and support innovative financial mechanisms for sustainability, including the introduction and use of conservation financing tools such as payments for environmental services and economic incentives for conservation. CEPF-2 will also further strengthen joint efforts with government partners, the private sector and other funding mechanisms, including two complementary funds managed by CI (the Global Conservation Fund and Verde Ventures), to maintain and ensure the sustainability of globally significant biodiversity and ecological processes over time. (d) Multi-regional priorities. This subcomponent would support a few targeted grants to civil society groups to meet strategic needs in multiple hotspots based on profile priorities. These could include, for example, activities to address common threats such as trade in endangered species where demand and supply chains cross national borders, and global assessments to consolidate available information on the distribution, ecology and conservation status of groups of species to indicate the status of ecosystem health. Multi-hotspot grants would also capitalize on significant co-financing opportunities and replication and scaling up of successful approaches across hotspots in a cost-effective way. Component 2: Increasing local and national capacity to integrate biodiversity conservation into development and landscape planning. (Total budget: $23.9 million, GEF $6.78 million). 5. Reconciling ecosystem conservation with sustainable development on different scales across complex jurisdictional boundaries, often in situations of weak governance, is perhaps the major challenge facing the conservation and development community. Mobilizing civil society to play a more effective role in this process is the CEPF niche. Grantees include individuals, farming cooperatives and community organizations, national 38

49 NGOs, research institutions and private sector organizations, and international NGOs. Many of these groups act as vital multipliers, further building local and national capacity for conservation. A key CEPF goal is empowerment of civil society actors to take part in, and influence, decisions that affect local lives and livelihoods and, ultimately, the global environment. This component is particularly targeted to biological corridors and more sustainable management in production landscapes. It builds upon the activities supported under Component 1 through support for strategic and effective alliances to increase impact and sustainability. Grant making will foster alliances by identifying and linking potential partners; helping to design integrated and complementary approaches and supporting partnerships within civil society as well as with development institutions, government agencies, corporate partners, and others. 6. CEPF would support activities that seek to integrate biodiversity conservation in production systems and sectors, including enabling civil society groups to plan, implement, and influence biodiversity outcomes as effective partners in sustainable development. Such participation will build on local knowledge and technical expertise, and leverage social capital to bring innovative ideas to solving local problems. Examples could include development of community, municipal or regional land use plans, plans for local economic development, territorial development plans, certification for more sustainable management and private agreements. The focal approach would be to strengthen protection of critical biological corridors that link key biodiversity areas within a multiple use landscape. 7. Civil society activities to be supported will include assisting in improved land-use planning and activities that mainstream conservation into production landscapes, including collaboration with the private sector; promoting supportive policy and legislative frameworks; promoting more sustainable resource management linked to livelihoods; and implementing measures to control and manage invasive alien species in regions where these are a particular threat. Building upon successful models from the first phase of the program, CEPF would promote collaboration with governmental partners and sectors such as mining, agriculture, logging and tourism, by fostering innovative public-private partnerships and multi-stakeholder alliances to harmonize conservation with economic development. The project would strengthen civil society capability for sustainable resource management and for advocacy and influence over development decisions and national strategies at local, regional and trans-boundary scales. Component 3: Monitoring and knowledge sharing (Total budget: $4.5 million; no GEF allocation). 8. CEPF priorities include i) improved outcomes monitoring in all hotspots receiving CEPF funding and ii) promoting results-based conservation based on lessons learned and good practice. 9. This component would support improved monitoring, learning, replication and scaling up of promising models from components 1 and 2. Specific subcomponents would include: 39

50 Strengthening monitoring and evaluation at the ecosystem level, including systematic analysis and documentation of CEPF results and experiences. This component would support monitoring and evaluation of individual projects and deriving and sharing lessons learned within the hotspot. Monitoring and evaluation of projects would be led by the RITs and include: a) systematic analysis and documentation of grantees performance against individual project and ecosystem targets and b) engaging civil society groups, including local communities and Indigenous Peoples, in participatory monitoring and c) expanding and formalizing information sharing and learning opportunities across the hotspot. 10. Specific conservation targets and related indicators would be developed as an integral part of the ecosystem profiling process for each hotspot. In addition, selected indicators from the global Results Framework would be monitored and evaluated within each hotspot annually. These would include indicators to monitor biodiversity status and outcomes, as well as civil society, policy, and socioeconomic indicators. Data on the status of specific conservation targets and landscapes would be calibrated against data drawn from the Biodiversity Early Warning System of CI s Center for Applied Biodiversity Science (CABS) and the global monitoring programs of other conservation organizations and partners to determine whether shifts may be needed in investment strategy. Expanding and formalizing information sharing and learning opportunities. This subcomponent would support conservation at the regional level by expanding and formalizing information sharing and learning opportunities as part of a participatory monitoring approach already tested and replicated by CEPF in multiple hotspots. Results would lead to adaptive management and also feed into analysis and documentation of lessons learned and best practices, within, and across, the hotspot. The subcomponent will also support specific activities to promote distillation, dissemination and uptake of good practice, including i) analyses of specific management practices to derive lessons learned (ii) cross site exchanges between grantees for learning and dissemination of best practice; and iii) outreach activities targeting communities, local government and NGOs to increase the uptake of good practice into other conservation initiatives within the hotspot. Component 4: Ecosystem profile development and project execution (Total budget: $19.5 million; no GEF allocation) This component would support three subcomponents a) development of ecosystem profiles as strategic implementation documents for the partnership and wider conservation community; b) Regional Implementation Teams within the hotspots; and c) overall execution and administration of the global program through the CEPF Secretariat. Ecosystem profile development. In each hotspot, disbursement of grants would be guided by ecosystem profiles based on a stakeholder-driven prioritizing process to identify conservation targets, major threats, socioeconomic factors, and current conservation investments. The process would be led by locally-based NGOs or other civil society organizations to develop a shared strategy by identifying Conservation needs, gaps, opportunities and the specific CEPF niche. In line with recommendations from the evaluation, future profiling would include strengthened analysis of the socioeconomic, policy, and civil society context within each hotspot for a more comprehensive 40

51 understanding of development priorities, threats and opportunities. Ways to address poverty and conservation linkages, and gender issues, will also be explored. Future profiles would ensure greater inclusiveness by ensuring that key communities, including indigenous groups within the focal biodiversity areas, take part in determining priority actions. Regional Implementation Teams. Based on recommendations from the independent evaluation, CEPF-2 would devolve more responsibility to locally based Regional Implementation Teams for capacity building and grant-making and management at the local level. This subcomponent would support the RITs in standardized and expanded responsibilities and a more active role in overall CEPF grant-making. Responsibilities would include i) acting as an extension service to assist local groups in designing, implementing and replicating successful conservation activities; ii) reviewing all grant applications and managing external reviews with technical experts and advisory committees; iii) direct decision-making authority for grants up to $20,000 and deciding jointly with the CEPF Secretariat on other applications; and iv) interacting and collaborating with CEPF partners and other donor agencies across the hotspot, as well as governments and other sectors in implementation. CEPF Secretariat. CI would administer and execute the global program. This includes hosting the CEPF Secretariat, employing CEPF Secretariat staff, and ensuring that all funds are managed with due diligence and efficiency. The Secretariat is responsible for strategic and financial management, oversight and reporting for the global program. This includes supervision of the ecosystem profiling process; training and management of the Regional Implementation Teams; and overall ecosystem portfolio development, monitoring and reporting to ensure that all activities and financial management are carried out in compliance with Donor Council decisions and CEPF operational guidelines. The secretariat is responsible for preparing and updating the Operational Manual to ensure that grant selection and implementation is consistent with GEF Policies and the World Bank Safeguard policies and procurement procedures. The Secretariat is also responsible for fundraising, financial management, donor coordination, and global information management and outreach, including website management, newsletter and publication production, and development and implementation of a program-wide replication and dissemination strategy for lessons learned and good practice. Through a joint work program with the World Bank, the CEPF Secretariat would assess the impact and value of small grants programs in achieving biodiversity conservation. 41

52 Annex 5: Project Costs GLOBAL: Second Critical Ecosystem Partnership Fund Project Costs are indicative only and will be further refined at appraisal. Components: Number and Title 1 A 1B 1 C Total Cost in us I $1,000 I Source of Financing I GEP - I Other - _--_- I I 1 I Strengthening protection and sustainable management of globally significant biodiversity Protection of key biodiversity areas 26,000 7,000 19,000 Community and Indigenous Initiatives 16,100 4,220 11,880 Innovative financial mechanisms for sustainabilitv 8,500 1,700 6,800 1D Multi-regional priorities 1, ,200 ComDonent 1: Total ,880 2 Increasing local and national capacity to integrate biodiversity conservation into development and landscape planning Mainstreaming biodiversity conservation 23,900 I 6,780 I 17,120 Component 2: Total I 23,900 6,780 17, A 3B Effective monitoring and knowledge sharing Strengthening monitoring and evaluation, including 3,720 3,720 systematic analysis and documentation of CEPF results and experiences Expanding information sharing and learning opportunities within hotspots ComDonent 3: Total Ecosystem profile development and project execution 4A Ecosystem profile development 2,600 I 2,600 4B I Regional Implementation Teams I I I 4,600 4C I CEPF Secretariat 12,300 12,300 Component 4: Total Total 19,500 19, ,000 20,000 80,000 42

53 Annex 6: Implementation Arrangements GLOBAL: Second Critical Ecosystem Partnership Fund Project 1. The CEPF implementation arrangements are designed to build on lessons learned during the first phase, to enable continued expeditious, efficient support to diverse civil society groups, and to establish a clear and effective chain of accountability for results. 2. Under CEPF-2, the partnership would retain the overall structure of a Donor Council, Secretariat and Working Group. CI will continue to administer and execute the project on behalf of the CEPF partners. This includes hosting the CEPF Secretariat, including the CEPF Grant Management Unit and Regional Grant Directors, and ensuring that all funds are managed with due diligence and efficiency. The CEPF Secretariat is responsible for strategic and financial oversight of the global program, overall information management, and global outreach and communications. The Secretariat would supervise the profiling process, the RITs and the performance of the overall program to ensure that all activities and financial management are carried out in compliance with Donor Council decisions and the Operational Manual, including GEF Policies, the World Bank Safeguard Policies, and Bank guidelines on Procurement. 3. The Donor Council, comprised of senior representatives from each CEPF donor institution, reviews and approves each ecosystem profile as well as annual spending plans. The Council also approves any amendment to the CEPF Operational Manual, which contains the specific operating policies and procedures of the Fund. In addition, the Council creates and approves the conditions under which new donors may be invited to take part in the Fund and approves additional members of the Donor Council. The Donor Council is currently chaired by the World Bank. 4. The Working Group, comprised of technical experts from each donor institution, provides guidance to the Secretariat on strategy development, monitoring, and other aspects of implementation. The members also act as advisors to their respective Donor Council representatives and as CEPF focal points for their broader institutions. Guests, including civil society groups that lead the ecosystem profiling processes, grant recipients and other stakeholders, will be invited to inform relevant topics of discussions. 5. The Regional Implementation Teams (RITs), comprised of locally-based civil society groups, will lead implementation within the hotspots. The selection of the RITs will be based on a competitive process, with the Working Group making the selection to be approved by the CEPF Donor Council. The RITs will be responsible for the strategic implementation of the ecosystem profiles and building a broad constituency of civil society groups working across institutional and geographic boundaries toward achieving shared conservation goals. As recommended by the independent evaluation, RIT responsibilities have been standardized and expanded to devolve further responsibilities to these teams. TORS for RITs have been approved by the Donor Council. 43

54 6. All funds provided from the proceeds of the GEF Grant would be utilized for ecosystem grants. Such grants would be awarded to civil society grantees in accordance with the procedures outlined in the Operational Manual. Government owned enterprises or institutions may participate only if they can establish i) that the enterprise or institution has a legal personality independent of any government agency or actor ii) that the enterprise or institution has the authority to apply for and receive private funds and iii) that the enterprise or institution may not assert a claim of sovereign immunity. 7. Once a Grant proposal is approved, a grant agreement will be signed between CI and the Grantee for grants above $20,000, and between the RIT and the Grantee for sub-grants of $20,000 and less, based on a standard CEPF Grant Agreement outlined in the Operational Manual. The maximum size of any grant would be less than US$l.O million dollars and would typically finance direct, approved costs, such as salaries, management fees, travel, consumables and other operating expenses. Such funds cannot be used for purchase of land or the physical relocation of people. The procurement procedures to be followed by the grantees are also outlined in the CEPF Operational Manual and CEPF Grant Agreement and follow commercial practices. CI will also enter into written agreements with RITs, describing the Framework under which RITs will issue sub-grants. GEF funds will be used for these sub-grants but not for directly funding RITs. 8. RITs will provide guidance and assistance to the grantees to ensure that all procurements are carried out in accordance with the CEPF Grant Agreement. They will have direct decision-making authority for all grants of $20,000 or less, and jointly with the CEPF Secretariat will decide on all other applications. Grants above $250,000 would be subject to additional external technical review, including Bank regional staff as appropriate. In addition, the CI Secretariat shall carry out prior review and approval of all procurement requests estimated to cost US$5,000 or more. The RITs will carry out this review and approval for the sub-grants they award. All other procurements may be awarded by the Grantees without prior review, but shall be subject to post-review on a sample basis. 9. All grants will be awarded on a competitive basis. Additional review for international organizations will include the following steps:. The existing programs and potential role of international organizations in each hotspot will be documented as part of the ecosystem profiling process.. All international groups, including CI, will be required to demonstrate a comparative advantage in their grant application. Proposals designed and implemented with a local partner or incorporating strong capacity building would be given preference.. The RIT and/or advisory committee in each hotspot will review the proposal and, where appropriate, formally write a justification for sole source approval. 44

55 10. The project incorporates specific steps to ensure further transparency and effective decision-making, particularly in regard to the award of CEPF grant funds to CI programs and other international organizations. C I would not be eligible for a set share of CEPF funds but would compete for CEPF grant funding alongside other groups through the steps detailed above. In addition, the individual groups that comprise the RITs, as well as other offices and programs of those organizations, would not be eligible for additional grants within that particular hotspot. Applications from formal partners of those organizations that have an independent operating board of directors will be accepted, but subject to additional external review. All proposed grant awards over $20,000 to Conservation International will require approval on a time-bound no objection basis by the CEPF Working Group; grants up to $20,000 will be awarded by the Regional Implementation Teams. Summary of Core Roles and Responsibilities Activity Grant Directors (GD) CEPF Secretariat Grants Unit Management (G,) Regional Imdementation Teams WTs) START UP Ecosystem profile Supervise the Support GD as needed NIA development development of profiles and related documents required for approval by the CEPF Donor Council, including negotiating and monitoring technical contracts Engage relevant NIA regional donor representatives, other IAS and CEPF Working Group in process; acquire GEF focal point approvals; and assist External Affairs in finalizing documents for Donor Council approval RIT selection and Coordinate selection of Ensure region is fully NIA award process RITs for approved incorporated into CEPF profiles, including grants management analysis of proposals system and all other against RIT Terms of grant-making tools to Reference and Selection enable receipt and Criteria. processing of applications; support 45

56 Activity Grant Directors (GD) CEPF Secretariat Grants Management Unit (GMU) Regional Implementation Teams OUTS) Lead development and negotiation of GD in competitive selection process as consulting agreement needed with the selected RIT based on Donor Council Contracting - risk Participate in direction assessment processing, negotiations, complete agreement preparation, any additional steps to Train RIT staff on CEPF legal review finalize agreement strategic approach and coordination, etc key elements of project design process (outcomes focus, etc) Train RIT in CEPF Receive training on grant-making and safeguards, Operational reporting systems, Manual, harmonize processes and standards, report systems. including procurement and safeguard policies Launch CEPF Participate in launch Support RIT as needed, Lead launch preparation program national-level website and activities in announcements consultation with CEPF External Affairs I GRANT MAKING Grants up to $20,000 selection and awarding Supervision of RIT Coordinate with RIT on Lead review and overall performance to financial management decision-making for all include post-review of and reporting proposals, develop sampling of awarded documentation and grants agreements, and directly award grants. Support RIT as needed Assist civil society groups in designing, implementing and replicating successful projects Grant above $20,000 Jointly lead decisions on Contracting - risk Jointly lead decisions on selection and awarding all proposals with RIT* assessment processing, all proposals with GD* agreement preparation, Conduct final technical legal review Prepare justification for review and sign off for coordination, etc approval and all compliance and risk to CI and CEPF prior to presentation to CEPF ED for signature required assessments Review all grant 46

57 Activity Grant Directors (GD) Support RIT in coordinating review process as needed CEPF Secretariat Grants Unit Management (GMU) Regional ImDlementation Team! (RIW applications and lead external reviews with technical experts and advisory committees MONITORING?roject level Assist civil society partners in designing, implementing and replicating successful projects Support RIT with advice Guidance and support to Lead monitoring and related to performance, GD and RIT as needed evaluation of all finances, and safeguard projects, including compliance of grantees reviewing reports and conducting site visits Monitor overall RIT performance against Final review of financial Maintain all required reports for grants above reports; manage funding TOR, including $20,000; payment for grants under $20,00C sampling of award of processing and recommend grants less than $20,000 approval of payments to GMU for all others 'ortfolio level Lead development of Support GD and RIT as Support GD in preparing annual hotspot portfolio needed annual portfolio overviews. Recommend overviews, including refinement of profile organizing a andor logical participatory assessment framework targets as needed at the mid-term and supporting final evaluation as needed Monitor RIT performance, and overall portfolio development. Regularly report on implementation of projects and progress against RIT Terms of Reference and indicators in the profile logical framework 47

58 Activity Grant Directors (GD) Manage portfolio budget and recommend adapting Strategic Direction allocations and strategy approaches as needed to meet the profile objectives CEPF Secretariat Grants Management Unit (GMU) Regional Implementation Teams WTs) Support GD as needed PARTNERSHIP DEVELOPMENT rhroughout Support RIT as needed Support RIT and GD as Coordinate with mplementation needed regional programs of CEPF donors and GEF implementing agencies, government officials, and other donors in the hotspot for effective profile implementation kgrants above $20,000 proposed for award to CI, its branch offices, or affiliates would require the approval of the CEPF Working Group. 48

59 Annex 7: Financial Management and Disbursement Arrangements GLOBAL: Second Critical Ecosystem Partnership Fund Project EXECUTIVE SUMMARY 1. A Financial Management Assessment of the Conservation International Foundation (CI) was undertaken in March 2007 with the objective of determining whether it has in place adequate financial management arrangements that satisfy the Bank s OPBP with regards to the Proposed Grant from the Global Environment Facility (GEF) Trust Fund to the Critical Ecosystem Partnership Fund (CEPF). Under OPBP 10.02, financial management arrangements are the budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements of the entity and entities responsible for implementing Bank-supported operations. For each operation supported by Bank administered financing, the Bank requires the recipient to maintain financial management arrangements that provide assurance that the proceeds of the financing are used for the purposes for which the financing was granted The assessment was carried out in accordance with the Bank s guidelines under Financial Management Practices in World Bank-Financed Investment Operations dated November 3, Financial management risk is the risk that grant proceeds will not be used for the purposes intended and is a combination of risk factors. Taking into account the risk mitigation measures proposed, the financial management risk rating for this project is assessed as moderate. CI s financial management system meets the Bank s minimum requirements and the proposed accounting and internal control systems for the CEPF will ensure proper reporting of use of the funds for the conservation of the ecosystems that are approved annually. The project can also use the existing financial management system to produce Interim un-audited Financial Reports (IFR) that can be used as a basis for disbursement. Founded in 2000, CEPF is ajoint initiative of the World Bank, Global Environment Facility (GEF), the Government of Japan (GoJ), the John D. and Catherine T. MacArthur Foundation (MacArthur) and CI. L Agence Franqaise de DCveloppement joined in As one of the founding partners, CI administers the initiative, hosts the CEPF Secretariat and ensures that all funds are managed properly. Each of the original five donors committed to providing $25 million to the first phase of the program for a total of US$125 million in grant funding. Funding from the Bank and GEF will end in early To date over 900 civil society groups received grants under the first phase of the program. The proposed project aims to support a second phase of the global CEPF program, or CEPF-2. The total proposed cost for CEPF-2 amounts to US$lOO million of which the GEF contribution will be US$20 million. CEPF-2 would focus on critical ecosystems within at least 14 biodiversity hotspots eligible for CEFP investment. As part of the first phase of CEPF, investment strategies for three new hotspots have already been developed and would be the first priorities for implementation under CEPF-2, namely: Polynesia- Micronesia, Indo-Burma (Indochina region) and the Western Ghats and Sri Lanka. Other 49

60 ecosystems for investment would be chosen based on biodiversity status and threats, conservation needs, social and political environment, and current or planned investment by other donors. The total investment level per hotspot will vary depending on conservation needs and local capacity. Resources for the part of the program to be administered by the Bank will come from a GEF grant The proposed project has four interlinked components, of which GEF resources are proposed to contribute to only components 1 and 2 through Ecosystem Grants: (a) Strengthening protection and management of globally significant biodiversity. (b) Increasing local and national capacity to integrate biodiversity conservation into development and landscape planning. (c) Monitoring and knowledge sharing. (d) Ecosystem profile development and project execution. The CEPF-2 implementation arrangements are designed to build upon the lessons learned from phase 1. Under CEPF-2, the partnership would retain the overall structure of a Donor Council, Secretariat and Working Group. The administration and execution of the program will still rest with CI through the CEPF Secretariat, on behalf of the CEPF donors. CI has suitably qualified staff to carry out this function. One of the lessons learned from the first phase of CEPF and highlighted in the independent evaluation is that the coordination units, CEPF's representatives and grant managers on the ground, were one of the key strengths of CEPF. Hence CEPF has expanded the roles and responsibilities of the coordination units now referred to as Regional Implementation Teams (RITs) to include more responsibilities in grant-making decisions, capacity building of local partners and monitoring of individual projects at the regional level. Advance method is used for disbursement of the proceeds from the GEF Grant. Advances will be made into the CI CEPF fund account, and the uses of the advances will be tracked through the CI accounting system. The ledger account used for monitoring the receipt and use of the advances under the CEPF fund account is considered as the designated account (DA) for advances. The ceiling for this designated account will be variable, and determined on the basis of cash projections against the Annual Spending Plans approved by the CEPF Donor Council. CI will be directly responsible for the management, monitoring, maintenance and reconciliation of the DA of the program. The project will be disbursing using the report based disbursements. Proceeds of the GEF grant will be disbursed against the Ecosystem Grants expenditure category. The disbursement rates will be based on cash projections against the annual spending plans approved by the CEPF Donor Council. 10. Under the first phase, advances were made into the CEPF Fund Account based on cash projections included in the PMRs. These advances were then accounted for in the subsequent PMRs. This would therefore be referred to as "accountable" advances. 50

61 1 1. The project would be required to submit quarterly Interim un-audited Financial Reports (IFR), annual spending plan and financial report and annual CEPF Audit. The proposed project will use IFR prepared by CI as supporting documents for disbursement. IFR will be produced by CI on a quarterly basis, using the same IFR template as under the first phase of the CEPF program. FINANCIAL MANAGEMENT ASSESSMENT The Country Issue 12. The geographical dispersion and expansion of hot spots add to the complexity of the project. 13. There may be weak overall FM capacity in the targeted regions but the capacity of the RITs is likely to be relatively strong, since having an acceptable financial management capacity and FM systems is a selection criterion for the RITs. However, the FM capacities of the local grantees are likely to be weak and may lack well qualified staff. Clear and adequate FM guidelines and good supervision by the RITs should address this problem. The Sector Issue: 14. Investments have targeted specific regions. Although in the first phase this has been shown to be highly effective, there are still critical conservation needs in the original 14 hotspots and in other critical ecosystems that have not yet benefited under the program. In addition, CI revised the number of hotspots up from 25 to 34 in 2005, though only 30 are eligible for Bank and GEF support. Strengthening of the program in existing hotspots and expanding to other activities like marine ecosystems and new hotspots would maximize the overall impact of the project. This project may inspire and help direct other donor investments to the hotspots. RISK ASSESSMENT AND MITIGATION 15. The overall fiduciary risk is assessed to be moderate. CI receives grants from various other donors and is subject to special reporting requirements which it has always met. However, it is important to note that CI could be in a position that would constitute a conflict of interest as it will be allowed to compete for the position of RIT, in a competitive process. The organization fulfilling the position of RIT in a region, whether CI or another organization, is not allowed to receive grants in that region- see Annex 6 on Institutional Arrangements which addresses conflict of interest issue. In regions where CI is not the RIT it is allowed to apply for grants. In the case CI applies for the position of RIT, the CI representative in both Working Group and Donor Council will recuse himself from participating in the decision to approve the selection of the RIT. In regions where another organization serves as the RIT, all decisions in regard to grants to CI below $20,000 will be made by the RIT in accordance with the ecosystem investment profile. For CI applications for grants above $20,000, the CEPF Secretariat would devolve review and decision-making to the CEPF Working Group, with input from the RIT, local advisory group and external review as appropriate. The CI member of the Working Group would recuse himself from this process. 51

62 16. The Operational Manual will be revised to outline the procedures to be followed where CI is a potential grantee to address the issue of conflicts of interest. Adoption of the revised Operational Manual is a condition of proj ect effectiveness. The table below summarizes the risk analysis. With the appropriate risk mitigation measures as outlined the overall risk assessment is moderate. Risk Risk Rating Comment Condition of Negotiations, Effectiveness Mitigation Residual Risk Inherent Risk Country Level Entity Level M H Although the 14 hotspots are yet to be determined, it is inevitable that in the targeted regions, a risk exists of weak capacity and poor control environment. The FM capacity o f the EUTs is likely to be relatively strong, since having an acceptable FM capacity is one of the criteria for RIT selection. The capacity o f the local grantees is likely be weak. New grantees might lack experience in the implementation of a project. N N I The CEPF Secretariat and the RITs are responsible for monitoring and supervising the grantees. The amended OM is intended to improve procedures for monitoring and implementation. M Program Level M H The program will be implemented through civil society partnership. A high number of community groups involved in sub-grant implementation, with varying degree o f capacity and skills. Therefore, ensuring adequate supervision and compliance is difficult. N Y, Draft amended OM is ready before negotiation and adoption of OM is condition of effectiveness. Training on compliance with the Operational Manual needs to be provided to all RITs. The internal audit will ensure compliance with the OM. Bank supervision will also be intensified. M M Control Risk 52

63 Budgeting Spending plans prepared annually - Donor Council will only approve spending plan consistent with resources available. Accounting Internal Control Delay on approval of Annual Spending documents may delay implementation, yet no such delays have taken place during first phase o f CEPF. CI uses the Oracle Financials software for its computerized accounting system. The Oracle s financial management package is a robust system for reporting purposes in CI HQ and field offices. CI has formally established an internal audit function with a reporting line to the Audit Committee of CI s Board of Directors. The Audit Committee approved the internal audit function and internal audit plan in March, The function has been outsourced to Falletti Weber Consulting. N Y, TOR for internal audit plan for CEPF program has to be reviewed and acceptable to the Bank by effectiveness. To ensure adequacy o f scope and resources for internal audit function, the TOR, audit plan and the arrangement have to be acceptable to the Bank. M The CEPF Operational Manual describes policy and internal control procedures. CI conducts risk assessment of projects before grants are awarded (Refer OM.4.2.5). Level of risk determines follow-up actions including field visits. Disbursement of grant funds can only commence after clearance by Directors and approval of the Executive Director. Y, Draft amended OM will be ready before negotiation. Amended Manual will be adopted, including clear rules related to conflict of interest. Funds Flow A program audit of CEPF-2 focusing on economy, efficiency, and effectiveness will be conducted within 24 months from effectiveness Based on the successful experience from phase 1, there is a low risk o f Y, TOR for program audit reviewed and acceptable to the Bank within 12 months of effectiveness. N 53

64 7 Auditing grantees not receiving funds in timely manner. See Above comment on Accounting No qualification has been provided by the external auditors during the audits o f fust phase o f CEPF, but the scope o f audit did not cover internal control and compliance in the last two years. A separate audit opinion on CEPF fund (as an accompanying fimds accountability statement) is part of the Bank s audit requirements. N Y, TOR for external audit to be reviewed and acceptable to the Bank within 4 months from effectiveness. H - High S- Substantial M - Moderate L - Low The TOR is expected to also cover a review of internal controls, including administrative, supervision, monitoring and oversight arrangement at the RITs and grantee levels over the use o f CEPF funds. The audit report is to be submitted to the Bank within five months after close o f financial year. M STRENGTHS AND WEAKNESSES 17. The project has several strengths and weaknesses. A 2005 independent evaluation of the CEPF has been very positive which suggests that the overall strengths of empowering NGOs, community groups and other civil society groups at local and provincial level approach outweigh the weaknesses. However, among the recommendations of the report are issues such as the need to strengthen performance monitoring and to better address conflict of interest and allocation of financial resources for grant making. Accordingly strengthened institutional arrangements have been put in place for CEPF-2 - see Annex 6 (Implementation Arrangements). 18. The overall development objective of the project emphasizes the need for better engagement of local civil society groups, including NGOs. Strengths include: Region-specific investment strategies (ecosystem profiles) are developed together with a wide range of stakeholders, to ensure that regional priorities are identified and agreed. Community and civil society groups have stronger ownership of project which may build national and local capacity. Communities receive the finds directly in their bank account and manage implementation of project, minimizing the number of intermediate transactions. CEPF has the potential to complement conservation efforts in those Bank client countries with modest conservation finding. CEPF promotes good environmental governance. CEPF outlines guidelines for grant-making and implementation under an Operational Manual, to be revised and updated for CEPF-2. RITs have been very effective in linking with smaller grassroots activities and also with governments. The capacity of RITs to supervise and assist the community 54

65 groups is likely to be relatively strong. Both adequate supervision and assistance capacity are selection criteria for the RITs. 19. Some weaknesses noted in the 2005 Independent Evaluation, as well as in the FM assessment, are as follows:. Capacity of small community organizations and NGOs to manage and implement the sub-grants may be weak.... The perception of CI s dual role/conflict of interest. CI is not only the CEPF Secretariat but it may also be eligible to be a RIT or a grantee in specific hotspots (cannot be both in same hotspot). The multi-region grants may overlap with other projects which may create risk of double counting. Highly automated financial system and online reporting disadvantaged the small regions with no access to internet. 20. These weaknesses may create some risks in the project implementation. The perception of CI s dual role is the main issue that may stand out from the rest of the noted weaknesses. However, CEPF has strengthened its institutional arrangements to reduce potential conflict of interest. This means that any RIT, whether CI or another organization, will not be eligible to apply for grants within the hotspot they manage. FINANCIAL MANAGEMENT ARRANGEMENTS Following are the FM Arrangements for the Project: 1. Implementing entity and Staffing 21. The program will be implemented by CI which is currently hosting the CEPF Secretariat on behalf of the CEPF donors. CI was incorporated in the State of California on January 26, 1987 as a nonprofit charitable organization. CI s mission is to conserve the Earth s living heritage, the global diversity, and demonstrate that human societies are able to live harmoniously with nature. CI works with nationals of each country in which it operates to develop management capacity for biodiversity conservation, including management of protected areas and more sustainable resource management. C I is overseen by a Board of Directors. It has total staff strength of about 1000 worldwide and is represented in 40 countries of which 24 have field offices. 22. The Finance division of CI which handles all financial responsibilities for CI meets the minimum requirements of the Bank. It is responsible for financial reports on CEPF. The CEPF Executive Director, the CI Senior Vice President, is the head of the CEPF Secretariat, which includes 16 staff members. 23. The program will be maintained by both CI at Headquarters and also from their field offices therefore ensuring reconciliation and counterchecking controls are in place. The Oracle s Financials feature for development projects will provide the necessary information needed to prepare reports for the program. Signed grant commitments and disbursements are maintained in Oracle and reconciled on a quarterly basis. Cash is 55

66 disbursed to grantees based on acceptance of quarterly financial reports and cash projections for the following term 30 days after the end of the quarter. The CEPF Secretariat will review the financial reports. The IFR is prepared based on financial information from Oracle that includes signed grant agreements and cash payment to date and send to the Bank 45 days after the end of the quarter. 2. Budgeting 24. The project will be using CI s budgeting system which is linked and interfaced to its FM system - Oracle Financials. CI shall prepare an annual budget (Annual Spending Plan) for review and approval by the Donor Council taking into account the fimding levels of the proposed spending categories for the Fund during the next calendar year. The Annual Spending Plan will include four categories: (a) the finding levels for each approved Ecosystem Profile, together with a description of the types of projects and activities to be financed at the programmatic level, based on the funding strategy in the Ecosystem Profile; (b) a Preparation Budget for new Ecosystem Profiles to be prepared during the calendar year; (c) the Operational Budget; and (d) a management fee for the category (c) above calculated on the basis of CI s audited annual rates (indirect costs) for the previous year. 3. Accounting 25. CI uses Oracle Financials as its accounting and human resources software. CI field offices also maintain their financial records in Oracle and submit files monthly for review and consolidation. As per CI s Record Maintenance Policy, records associated with these transactions are kept at CI headquarters and in the field offices for no less than three full years after the transaction. CI undergoes annual financial and federal compliance audits conducted by an independent audit firm. Currently this is done by Price Waterhouse Coopers. 4. Internal Control 26. The project will be implemented in the same way as all other donor financed projects at CI and will be subject to the same control mechanisms. 27. CI conducts risk assessments of sub-projects before grants are awarded. The risk assessment model is only intended to be used for projects with a proposed grant to recipients of more than $20,000. Grants below $20,000 are awarded by the RITs. The risk assessment is divided into two separate parts which is programmatic risk and financial risk. The programmatic risk is performed by the RIT, and the financial risk will be 56

67 conducted by a finance staff member from CI. The assessments are by way of questionnaires as per OM The CEPF Operational Manual clearly defines administrative and accounting procedures hence CI should continue to use this as an effective method of ensuring internal controls are in place and are followed. 5. Fund Flow and Disbursement arrangements 29. The fund flow for the GEF funds would be from the GEF Trust Account maintained by the World Bank to the Designated Account. CI will disburse funds directly from the Designated Account to external grantees. Subject to the RITs grant-making authority for grants of $20,000 and less, CI will also disburse funds from the Designated Account to grantees contracted by the RITs. CI will link grant disbursements to estimated expenses, so that excess cash is not in grantees bank accounts. Counterpart funds will also follow the same flow. The table below summarizes the proposed disbursement arrangement: Disbursement Category Amount of the GEF Grant in USD Expenditures To Be Financed I Ecosystem Grants I $20,000,000 I 26.3% I 1 TOTAL 1 $20,000,000 1 I 30. Disbursement mechanism for sub-grants Ecosystem Grants. The GEF funds will be disbursed from CI to the grantees against the sub-grant agreements, which specify the number of installments, and conditions for each payment. The payments made to the grantees in accordance with the sub-grant agreements are considered as eligible expenditures for disbursement purposes. Any un-used funds received by the grantees will be refunded to the CI fund account, and subtracted from the reported eligible expenditures. These funds are then available for other grants in the approved region. 6. Financial Reporting 3 1. The project shall be required to submit the quarterly Interim un-audited Financial Report (IFR) which consists of at least: 1. Quarterly Sources and Uses of Funds; 2. Project Cash Forecast; and 3. Designated Account Activity Statement 7. Audit Arrangements 32. Internal Audit (IA). There is no formal independent Internal Audit unit for this project. However, CI is in the process of formally establishing an internal audit function for CI 57

68 with a reporting line to the Audit Committee of CI s Board of Directors. The Audit Committee approved the internal audit function and internal audit plan at their meeting in March, The function has been outsourced to Falletti Weber Consulting firm, and the program has already been launched. 33. Program Audit. In lieu of a regular internal audit of CEPF-2, a program audit of CEPF-2 will be conducted within 24 months from the date of effectiveness in accordance with a TOR acceptable to the Bank, including review of economy, efficiency and effectiveness in relation to the objectives of the CEPF program. A copy of the report will be furnished to the Bank. In addition there will be regular monitoring of projects by CEPF Secretariat, supervision visits from the Bank and the annual external audits. 34. External Audit. The consolidated annual audit of CI is being carried out by an external auditor, currently Price Water House Coopers, LLD. The audit is being presented on the accrual basis of accounting. CEPF has its records, accounts and financial statements audited annually, in accordance with appropriate auditing principles consistently applied, by an independent auditor (currently Price Waterhouse Coopers). In addition, CEPF s risk assessment procedures require that all grantees receiving over $100,000 and all high risk grantees over $20,000 provide annual independent audits to CEPF. 35. A separate audit opinion on the CEPF annual fund accountability statement will be conducted in accordance with the TOR acceptable to the Bank and submitted to the Bank as part of the Bank s audit requirements. The CEPF audit report will be submitted within five months after the end of the financial year. 8. Action Plan 36. Following is the mitigating FM action plan: Action Plan., Revised OM to include procedures to be followed by all implementing units of the project. This should include all financial management and disbursement procedures for this project at all level of implementation of the project, covering operations for phase 11, including procedures for (a) conflict of interest, (b) financial management and disbursement, particularly related to advances and their accountability procedures), (c) project cycle management, (d) grant management, including grant agreement and reporting templates, and (e) the terms of reference and selection process for Regional Implementation Teams, (9 IFR formats, (g) CI and RIT s supervision on project implementation by local grantees, and (h) internal audit arrangements. Expected Output I DueDate Final draft OM for review by the Bank Adoption of final OM acceptable to the Bank as evidenced through a Letter of No-Objection. BY Negotiations (Completed) BY Effectiveness 58

69 B. Training Training for RITs staff who will require the necessary slulls to carry out respective duties as described in the OM C. Internal Audit 1. Establishment o f internal audit function for CI with adequate TOR, work program, and reporting line to the audit committee consistent with international best practices. 2. Agreement on TOR for program audit to assess economy, efficiency and effectiveness in relation to achieving the CEPF objectives. 3. Completion of a program audit of CEPF 2 in accordance with thetor acceptable to the Bank D. Annual Audit 1. Adoption of a time bound action plan to address outstanding audit recommendations arising from 2006 audit. 2. Satisfactory implementation of outstanding external audit recommendations. 3. Arrangement of the project annual audit in accordance with a specific TOR acceptable to the Bank. The TOR is expected to also cover a review of internal control, including administrative, supervision and monitoring arrangements at the RITs and sub-grantee levels, over the use o f the grants. The audit expected to be conducted by independent auditors acceptable to the Bank and the audit report expected to be submitted to the Bank within five months after the closing of the financial year. E. Donor Council Clarifying the role and responsibility of the Donor Council, particularly with respect to oversight o f audit, including approvinglendorsing scope o f external and internal audit plans. Any deviation from the agreed scopes must be concurredendorsed by the Donor Council. OM training -Internal audit function established (in case that the function is outsourced, the TOR, audit plan and the arrangement have to be acceptable to the Bank). Adoption of final Operational Manual, acceptable to the Bank. -A comprehensive program audit of CEPF. CI audit recommendation action plan acceptable to the Bank. Confinnation from the auditor on the completion of all audit recommendation. TOR for external audit acceptable to the Bank. Adoption of fial OM acceptable to the Bank as evidenced through a letter o f noobjection. Training will be conducted to individual RITs witlun 90 days o f appointment. - BY Effectiveness. - BY Effectiveness. Within 12 months from effectiveness. Within 24 months from effectiveness Completed Annual Basis Within 120 days form effectiveness. BY effectiveness 59

70 Effectiveness Conditions: This Agreement shall become effective on the date that evidence in form and substance satisfactory to the IBRD shall have been furnished to the IBRD demonstrating that: a. b. C. d. e. the Donor Council has approved the fund-raising strategy referred to in Section 5.01 of the Financing Agreement; the Donor Council has approved an indicative list of Biodiversity Hotspots selected for investment under the Fund; the Donor Council has approved the revised Operational Manual; CI has established an internal audit function, with staffing, resources and functions based on terms of reference satisfactory to IBRD; and Execution and delivery of the Agreement on behalf of CI has been duly authorized by all necessary corporate action and, upon execution and delivery, the Agreement shall constitute the legal, valid, binding and enforceable obligation of each Party hereto. Dated Covenant: a. Adoption of TOR for external audit acceptable to the Bank, within 120 days of project effectiveness. b. Agreement on TOR for program audit to assess economy, efficiency and effectiveness in relation to achieving the CEPF objectives, within 12 months of project effectiveness. c. Completion of a program audit of CEPF by the internal auditor within 24 months of project effectiveness. 9. Supervision Plan 37. The program that is ending did not include Bank Financial Management Specialist in its supervision missions. Therefore it is critical for this proposed program to include a FMS in the supervision mission so as to ensure that the grant proceeds are used for the purposes for which it was granted with due regard to economy, efficiency and the achievement of the program s objectives and the FM risk of the project. 38. The nature of this review would include a review of a sample of completed projects including their validation with comparison to the corresponding cost and funds spend on them. Reasonableness of the funding should be checked. An overall review of program contracts as well as the physical accomplishments and funds disbursed should be made. The supervision should address the total project financial arrangements. 39. The overall risk rating for the project is Moderate and it is envisaged that FM monitoringhupervision missions would be required at most on a semi-annual basis. The supervision should be conducted by at least a qualified FMS. 60

71 Annex 8: Procurement Arrangements GLOBAL: Second Critical Ecosystem Partnership Fund Project Since the GEF funds will be disbursed as Ecosystems Grants, the procurement arrangements are outlined in the Annex 6: Implementation Arrangements. 61

72 Annex 9: Economic and Financial Analysis GLOBAL: Second Critical Ecosystem Partnership Fund Project This annex is not required for this project. 62

73 Annex 10A: Safeguard Policy Issues GLOBAL: Second Critical Ecosystem Partnership Fund Project 1. The project falls under the World Bank environmental category C classification. Of the World Bank s ten safeguard policies, OPBP 4.01 on Environmental Assessment, OP/BP 4.12 on Involuntary Resettlement, OP/BP 4.10 on Indigenous Peoples, and OP/BP 4.36 on Forests are triggered. Although OP/BP 4.04 on Natural Habitats and OP/BP on Physical and Cultural Resources are not triggered by this project, they are included here for completeness. A process framework (PF) for involuntary restrictions and an Indigenous Peoples Planning Framework (IPPF) have been prepared. An Operational Manual provides guidance and criteria for evaluation, management and implementation of the grants under CEPF-2, including compliance with the Bank s safeguard policies. 2. CI s Board of Directors adopted an Indigenous Peoples policy in All CEPF operations are guided by the Operational Manual and relevant safeguard policies are incorporated into project development and monitoring processes. 3. Environmental assessment (OP 4.01). The project will address priority conservation objectives and is thus expected to have a highly positive environmental impact. If implemented as planned, the project would have no significant adverse environmental effects. Project activities will be selected on a competitive basis according to criteria that will ensure that resources are directed to the most important biodiversity issues while ensuring minimum adverse environmental effects. Current screening criteria outlined in the operational manual will identify projects with potential adverse impacts at the grant proposal stage. 4. Natural Habitats (OP 4.04) and Forests (OP 4.36). This project is fully consistent with the Bank s Natural Habitats and Forest policies. It would not cause, nor facilitate, any significant loss or degradation of forests or other natural habitats. By design, CEPF would finance activities that promote conservation of natural habitats and threatened species. The project is intended to prevent, or reduce, habitat loss or degradation by providing strategic assistance to engage NGOs, community groups, and other civil society partners in conservation in biodiversity hotspots. 5. Project activities will focus on conservation and more sustainable management of forests and other natural habitats and all project activities will be consistent with conservation priorities. Projects are expected to promote positive environmental benefits and conservation of biodiversity through creation of new protected areas, strengthening of protected area management, promoting sustainable use and management of natural resources and creation of conservation partnerships for more effective management both within protected areas and important biological corridors. It is expected that any activity funded by CEPF would be consistent with existing protected area management plans or other resource management strategies are applicable to local situations. Beyond the selection criteria for identifying project activities, it is not anticipated that any additional measures will be required under this policy. 63

74 6. Socioeconomic impacts. The first phase of the CEPF program awarded grants to more than 570 civil society partners in 15 regions, ranging from international and national NGOs to local communities, indigenous groups and the private sector. CEPF-2 would replicate this successful implementation model in at least 14 hotspots. In order to give explicit attention to social safeguards issues, a desk review was undertaken on current CEPF projects with the objectives to assess their potential social impacts, to consider measures to address such impacts and to consider eligibility criteria for the screening process for CEPF-2. Eighteen projects were reviewed along with the Operational Manual and Five Year Assessments and other project documents. This review informed a set of recommendations for revisions to the Operational Manual to address the requirements of the World Bank s social safeguard policies, particularly the Indigenous Peoples Policy (OP 4.10) and the Involuntary Resettlement Policy (OP 4.12). 7. Many of the projects under CEPF-2 are expected to be small-scale and provide positive impacts for local communities, including greater empowerment of local civil society groups to participate in active conservation and natural resource management. Direct positive impacts include creating employment opportunities, promoting community management of natural resources, development of ecotourism and capacity building. However, some projects may have the potential for adverse impacts on the livelihoods of local populations, particularly in the short term prior to implementation of more sustainable management practices. These include projects that result in some form of restrictions of access to natural resources, projects that induce changes in livelihood and natural resource practices, and projects that affect Indigenous Peoples. 8. Involuntary Resettlement (OP/BP 4.12). This policy covers both impacts from activities that require resettlement or land acquisition, and projects that result in restrictions of access to legally designated parks and protected areas. Activities involving resettlement or land acquisition are not allowed under the CEPF program. Restrictions of access to resources are addressed through preparation of a Process Framework that describes the process and principles for determining restrictions and mitigation measures with the participation of affected persons. All project applications will be assessed for potential to reduce access to resources. The process for preparation of an Involuntary Restriction Framework, with appropriate off-set management or compensation measures is outlined in the revised Operational Manual - see Annex 1OC. 9. Indigenous Peoples (OP/BP 4.10). Many of the world s remaining areas of high biodiversity overlap with lands occupied and utilized by Indigenous Peoples. Final selection of CEPF hotspots is dependent on Donor Council decisions but CEPF-fbnded activities could impact indigenous communities in several potential hotspots. Individual project activities would be selected at the ecosystem level but it is expected that Indigenous Peoples, as well as other civil society actors, will particip te in identifying conservation priorities and have access to CEPF grants. The project would explicitly encourage proposals that support Indigenous peoples and other local communities in community-based conservation and activities that enhance local communities tenure and sustainable resource management. Additionally, all projects proposed for CEPF funding 64

75 would demonstrate that they have made provisions for evaluating the potential impacts on indigenous communities and site-specific action plans may be required. 10. Physical Cultural Resources (OP 4.11). CEPF-2 project proposals are unlikely to have any adverse impacts on physical cultural resources (defined as movable or immovable objects, sites, structures, and natural features and landscapes that have archeological, paleontological, historical, architectural, religious, aesthetic, or other cultural significance). These may, however, be present in project areas and measures should be in place to ensure that they are identified and adverse effects avoided. This is particularly relevant for projects which support development of management plans and other land and natural resource use planning, projects that support alternative livelihoods, and projects that include infrastructure construction, however minor (e.g. park shelters, boundary markers). These requirements are described in the Operational Manual. 11. Based on review of lessons from the CEPF program to date, explicit guidance and clarity on the application of safeguard policies have been prepared for CEPF-2, including an Indigenous Peoples Planning Framework (IPPF) and Process Framework for Involuntary Restrictions. These frameworks include the requirement for Regional Implementation Teams (RITs) to consider alternatives to minimize adverse safeguard-related impact in their decision on grant applications. The IPPF and Process Framework for the overall CEPF-2 project and for individual ecosystem profiles and sub-projects will be disclosed at the Bank s Infoshop. As needed, specific instruments will be developed for sub-projects funded by CEPF Clear requirements and guidelines for projects affecting resource use and Indigenous peoples have been incorporated into the revised Operational Manual. Specific revisions include greater emphasis on consultation and participation. Ecosystem Profiles would include descriptions of local communities and other key stakeholders, land tenure and customary use rights issues. To further strengthen openness and transparency, there will be full disclosure of ecosystem profiles and protected area projects with all affected communities. Under CEPF-2 there will also be a greater emphasis on stakeholder participation in formulating indicators and monitoring and evaluation of proj ect outputs and outcomes. 13. Procedures to address safeguards issues in individual projects are outlined in the Operational Manual. Grant applicants would first assess whether their projects may pose safeguard issues with additional screening by CEPF RITs and Grant Directors as part of proposal review, with mitigation measures put in place as needed. Grant application forms have been revised as have the sections dealing with decision making and risk analysis. CEPF staff will also monitor for potential safeguard issues during implementation. As part of start up operations, safeguard training will be provided by Bank staff to key CEPF secretariat staff including regional Grant Directors and the head of the Grants Management Unit, who routinely monitor compliance with CEPF policies and procedures. Training will also be provided on safeguards issues for the Regional Implementation Teams in each selected ecosystem. 65

76 Annex 10B: Summary Indigenous Peoples Planning Framework GLOBAL: Second Critical Ecosystem Partnership Fund Project Many biodiversity hotspots overlap with lands or territories traditionally owned, customarily used or occupied by Indigenous Peoples. During the first phase of CEPF individual projects have provided positive impact on indigenous communities, e.g. support to community based management of protected areas or indigenous territories. It is expected that Indigenous Peoples, as well as other civil society actors, will participate in identifying conservation priorities and have access to CEPF grants during CEPF-2. However, as CEPF aims to protect critical ecosystems, the possibility remains that some project activities might affect the current livelihoods of Indigenous Peoples. These include projects that adversely affect Indigenous Peoples particular rights (formal and/or customary) to the land and natural resources, and projects that induce change in livelihood and natural resource use practices. Key requirements of the Indigenous Peoples Policy include: (i) a social assessment; (ii) a process of free, prior and informed consultation with the affected Indigenous Peoples communities to fully identify their views and to obtain their broad community support to the project; (iii) the preparation of an Indigenous Peoples Plan or an Indigenous Peoples Planning Framework; and (iv) disclosure of the Indigenous Peoples Plan or Planning Framework. The Planning Framework outlines the key guiding principles, criteria and procedures which the project will follow in such cases, to ensure that eligible, affected persons are assisted in their efforts to restore or improve their livelihoods in a manner which maintains the environmental sustainability and territorial integrity of the relevant protected areas. These requirements are described below and should be read together with the Operational Manual as well as the Process Framework for Involuntary Restrictions. Screening for Indigenous Peoples 4. CEPF applicants are required to screen for the presence of Indigenous Peoples early on in project preparation. This could be done when preparing the Letter of Inquiry, but should otherwise be done as preparation of a project proposal application begins. The characteristics of Indigenous Peoples mentioned in OP 4.10 will be used. If it is uncertain whether local communities can be considered as Indigenous Peoples, applicants should consult with the communities, local NGOs, knowledgeable experts and government representatives as appropriate. In situations of disagreement or controversy they may seek guidance from CEPF staff, who may seek guidance from the World Bank as needed. Social assessment 5. Where Indigenous Peoples are present in the project area, the Applicant assesses the particular circumstances of affected indigenous communities. The social assessment includes the project s potential positive and adverse impacts, and is used to inform project preparation to ensure that project activities are culturally appropriate, will enhance benefits 66

77 to target groups and are likely to succeed in the given socio-economic and cultural context. The level of detail of the social assessment depends on project activities and their impacts on local communities and should be agreed between the Applicant and CEPF staff before proceeding with the project application. If the project is small and has no or few adverse impacts, this assessment is done as part of early project preparation by the Applicant, mainly based on secondary sources and the Applicant s own experience working in the area. In larger and more complex projects, the assessment may be a separate exercise done by the Applicant or contracted experts as appropriate and may include primary research. 6. The findings of the social assessment are described in a separate report and reflected in the project proposal application. For small scale projects with no direct impacts on indigenous communities, the report is short and includes a brief overview of the indigenous communities, project activities as they relate to the local communities, how project implementation will address the particular circumstances of Indigenous Peoples, and how they will participate and be consulted during implementation. For more complex projects a more elaborate report i s required, which should include the following elements: a description of the legal and institutional framework applicable; baseline information on the demographic, social, cultural and political characteristics of the affected indigenous communities, and the territories and natural resources on which they depend and which they traditionally own, use or occupy; a description of key project stakeholders and an elaboration of a culturally appropriate process for consultation and participation during project implementation; and the conclusions of the free, prior and informed consultation with the affected indigenous communities. Free, prior and informed consultation. The Applicant undertakes a process of free, prior and informed consultation with the affected Indigenous Peoples communities during project preparation. In most cases, this process is best done as part of the social assessment although consultations are likely to continue after completion of this assessment. The extent of consultations depends on the project activities and the circumstances of affected Indigenous Peoples. For projects with no impacts or direct interventions with the indigenous communities, indigenous communities are informed about the project, asked for their views, and assured that they will not be affected during project implementation. For projects affecting indigenous communities, whether positively or adversely, a more elaborate consultation process is required. This may include, as appropriate: information about project objectives and activities; discussion of possible adverse impacts and ways to avoid or mitigate them; discussion of potential project benefits and how these can be enhanced; assessment of land and natural resource use and how management may be enhanced; identifying customary rights to land and natural resource use; identifying and discussing (potential) conflicts with other communities and how these might be avoided; ways to elicit and incorporate Indigenous Knowledge into project design; facilitating the affected communities broad support to the project; developing a strategy for indigenous participation and consultation during project implementation, including monitoring and evaluation. 67

78 8. All project information provided to Indigenous Peoples should be in a form appropriate to local needs. Local languages should usually be used and efforts should be made to include all community members, including women and members of different generations and social groups (e.g. clans and socio-economic background). Indigenous Peoples Plan 9. Based on the consultation and social assessment processes, project design is refined and particular measures and instruments are prepared to address issues pertaining to Indigenous Peoples. This may be done in combination with instruments addressing involuntary restrictions on access to natural resources (a Process Framework) in accordance with OP 4.12 on Involuntary Resettlement. The documents are prepared with the participation of affected indigenous communities during the consultation process. 10. The instrument to address the concerns and needs of Indigenous Peoples is usually an Indigenous Peoples Plan (IPP). In the case of a project such as CEPF-2, with multiple subprojects not identified during preparation, an Indigenous Peoples Planning Framework (IPPF) describes the planning and implementation process. Where Indigenous Peoples are sole or the overwhelming majority of direct project beneficiaries, the elements of an IPP should be included in project design. In this case a separate IPP is not required but the project application provides details on how Indigenous Peoples issues will be addressed during implementation The contents of the IPP depend on the project activities and impacts on Indigenous Peoples. It may be appropriate to include a process of further social analysis and consultations during project implementation to determine specific activities. At minimum the IPP should include a description of the Indigenous Peoples affected by the project; summary of the proposed project; detailed description of the participation and consultation process during implementation; description of how the project will ensure culturally appropriate benefits and avoid or mitigate adverse impacts; budget; mechanism for complaints and conflict resolution; and the monitoring and evaluation system that includes monitoring of particular issues and measures concerning indigenous communities. The following elements and principles may be included in the IPP, as appropriate:. Specific measures for implementation, with clear timetables of action and financing... Formal agreements reached during the free, prior and informed consultation during project preparation. Clear output and outcome indicators developed with affected Indigenous Peoples. Project design should draw upon the strengths of Indigenous Peoples Organizations and the affected communities and take into account their languages, cultural and livelihood practices, social organization and religious beliefs. It should avoid introducing changes that are considered undesirable or unacceptable to the Indigenous Peoples themselves. 68

79 Efforts should be made wherever possible and appropriate to incorporate, Indigenous Knowledge and local resource management arrangements into project design, including special measures for the recognition and support of customary rights as appropriate. Special measures concerning women and marginalized generational groups. Capacity building activities for the indigenous communities to enhance their participation in project activities may be usehl or necessary; this may include general literacy courses. Grievance mechanism taking into account local dispute resolution practices and norms. Participatory monitoring and evaluation adapted to the local context and capacity. Disclosure 12. Before finalizing an IPP (or IPPF) a draft should be disclosed together with the social assessment report (or its key findings) in a culturally appropriate manner to the affected Indigenous Peoples. Language is critical and the IPP should be disseminated in local languages or other forms easily understandable to affected communities, including oral communication. 13. After the CEPF Secretariat has reviewed and approved the IPP and proposed project for hnding, the Grantee shares the final IPP (or IPPF) again with affected communities. The final IPP (or IPPF) is also disclosed at the CEPF website. Roles and Responsibilities 14. Applicants, and subsequently Grantees, are responsible for following the requirements of the World Bank s Indigenous Peoples Policy as described in this IPPF. They will ensure that Indigenous Peoples are consulted and benefit in culturally appropriate ways. They will avoid adverse impacts on indigenous communities, or, where this is not possible, develop with the affected communities measures to mitigate and compensate for such impacts. Grantees are responsible for reporting to both affected indigenous communities and the CEPF Secretariat on project progress and any unexpected and unintended events affecting Indigenous Peoples. 15. The CEPF Secretariat has the overall responsibility for the implementation of the IPPF to ensure that CEPF-2 grants encourage the participation of Indigenous Peoples in project activities in culturally appropriate ways. The specific responsibilities of the Secretariat and Grantees are described in the CEPF-2 Operational Manual. Budget, Monitoring and Evaluation 16. Grantees are responsible for ensuring adequate budgets for implementing IPPs and other measures concerning Indigenous Peoples. 69

80 17. The CEPF Secretariat is responsible for setting aside sufficient fbnds for implementing this IPPF. This includes costs for providing information about the IPPF, reviewing and monitoring of CEPF-2 projects, and costs for consulting Indigenous Peoples on the Ecosystem Profiles. Grievance Mechanism 18. Indigenous Peoples and other local communities and stakeholders should be able to complain at all times to Applicants / Grantees and the CEPF Secretariat about any issues covered in this IPPF and the application of the World Bank s policy on Indigenous Peoples. Affected communities should be informed about this possibility and contact information of the respective organizations at relevant levels should be made available. 19. As a first stage grievances should be made to the Applicant / Grantee. The Applicant / Grantee is required to respond to grievances in writing (supported by other forms of communication as needed) within fifteen working days o f receipt; claims should be filed, included in project monitoring, and a copy of the grievance should be provided to the CEPF Secretariat. If the claimant is not satisfied with the response, the grievance may be submitted to the CEPF Secretariat. The Secretariat is required to respond within fifteen working days of receipt; claims should be filed and included in project monitoring. 70

81 Annex 1OC: Summary Process Framework for Involuntary Restrictions GLOBAL: Second Critical Ecosystem Partnership Fund Project Many projects under CEPF-2 would be relatively small in scale and may benefit local communities through support for community-based conservation. Nevertheless potential adverse social impacts could arise from projects that restrict access to natural resources, projects that induce changes in livelihoods and resource use, and projects that affect Indigenous Peoples. CEPF projects triggering the World Bank s policy on Involuntary Resettlement include projects that introduce involuntary restrictions of access to legally designated parks and protected areas or support efforts to improve enforcement of existing restrictions. This may involve restriction to resources such as wildlife, non-timber forest products (NTFPs) and production areas (including rotational (swidden) agricultural plots in active use or temporarily fallow). The Framework does not apply to projects that provide incentives to change livelihood and natural resource use practices on a voluntary basis. However if alternative livelihoods do not materialize or are inadequate to maintain the same level of livelihood, local communities may be adversely affected. In some cases it would be useful to develop a Process Framework. In any case, adverse social impacts on local communities should be avoided or appropriately mitigated. The requirements of the World Bank s policy include (1) the development of a projectspecific Process Framework during project preparation which describes the project and implementation process, and (2) the development of a Plan of Action during project implementation which describes the agreed restrictions, management schemes, measures to assist the displaced persons and the arrangements for their implementation. Process Framework 5. Participation of affected communities is the key element of the Process Framework, as stressed in the World Bank s policy OP Affected communities have the right to participate in deciding the nature and scope o f restrictions and the mitigation measures, and should participate in the drafting of the Process Framework. The CEPF Secretariat will provide guidance as appropriate to Grantees during the process and will review and approve the final Framework prior to approving the final project proposal application. 6. The level of detail of the Process Framework may vary depending on project activities, characteristics of restrictions and their impacts, and the number of persons affected, and should be agreed between the Applicant and CEPF staff during the project preparation process. In some cases a simple Framework can be prepared by the Applicant with input from local communities. In more complex or larger projects, the preparation of the Framework may be supported by social analysis or surveys during preparation to assess the local context, particularly land and natural resource use practices and management 71

82 7. systems. Input from other organizations and experts knowledgeable about the communities may be useful. The Process Framework will describe the project and how restrictions of access to natural resources and measures to assist affected communities will be determined with the participation of affected communities. The Process Framework should include the following elements: A. 8. B. 9. Project Background The Framework will briefly describe the project and local context, how the project was prepared, including the consultations with local communities and other stakeholders, and the findings of any social analysis or surveys that informed project design. It will describe project activities and potential impacts from these. Participatory Implementation This section will detail the participatory planning process for determining restrictions, management arrangements and measures to address impacts on local communities. The roles and responsibilities of various stakeholders and the methods of participation and decision-making should be described; decision-making may include the establishment of representative local structures, the use of open meetings, and involvement of existing local institutions. Methods of consultation and participation should be in a form appropriate to local needs, including local languages, and efforts should be made to include all community members, including women and members of different generations and social groups. 10. Any decisions should be made based on well-founded understandings of the biological and socio-economic contexts. It is common to include some form of participatory social assessment to inform the decision-making process to develop a more in-depth understanding of (a) the cultural, social, economic and geographic setting of the communities in the project areas; (b) the types and extent of community use of natural resources, and the existing de jure and de facto rules and institutions for the use and management of natural resources; (c) identification of village territories and customary use rights; (d) local and indigenous knowledge of biodiversity and natural resource use; (e) threats to biodiversity from various activities in the area, including those of local communities; (f) the potential livelihood impacts of new or more strictly enforced restrictions on use of resources in the area; (g) communities suggestions and/or views on possible mitigation measures; (h) potential conflicts over the use of natural resources, and methods for solving such conflicts; and (i) strategies for local participation and consultation during implementation, including monitoring and evaluation It is important to pay particular attention to land tenure issues, including traditional land rights and obligations and use of natural resources by different local communities. Areas used to collect non-timber forest products (NTFP) and for shifting cultivation should not be exposed to restrictions unless this is necessary for the conservation of important 72

83 biodiversity and appropriate agreements with local communities can be made. Biological assessments and threat analysis are useful tools to ensure that restrictions will be informed by real threats rather than assumptions about the impacts from local communities natural resource use practices. C. Criteria for eligibility of affected persons 12. The Framework describes how the local communities will participate in establishing criteria for eligibility for assistance to mitigate adverse impacts or otherwise improve livelihoods. In cases with significant consultations and social analysis during preparation these criteria may be included in the Framework, but in most cases they will be developed, or at least refined, during implementation as part of a participatory social assessment process. 13. The eligibility criteria would determine which groups and persons are eligible for assistance and mitigation measures. The criteria may exclude certain persons or groups from assistance because their activities are clearly illegal, unsustainable and destructive (e.g. wildlife poachers, dynamite fishers). The criteria may also distinguish between persons utilizing resources opportunistically and persons using resources for their livelihoods, and between groups with customary rights and non-residents or immigrants. 14. The Framework should identify vulnerable groups, including forest dwellers, Indigenous Peoples, and groups or households highly dependent on natural resources, and describe special measures to ensure that these groups will participate in, and benefit from, project activities. D. Measures to assist the affected persons 15. The Framework should describe how groups or communities will be involved in determining measures that will assist affected persons in managing and coping with impacts from agreed restrictions. The common objective is to improve or restore, in real terms, to pre-displacement levels, their livelihoods while maintaining the sustainability of the protected area. In some circumstances affected communities may agree to restrictions without identifying one-for-one mitigation measures as they may see the long term benefits of improved natural resource management. Possible measures to offset losses may include, inter alia: special measures for the recognition and support of customary rights to land and natural resources; transparent, equitable and fair ways of more sustainable sharing of the resources; access to alternative resources or functional substitutes; alternative livelihood activities; health and education benefits; obtaining employment, e.g. as park rangers or eco-tourist guides; and technical assistance to improve land and natural resource use. These measures should be in place before restrictions are enforced, although they may be implemented as restrictions are being enforced. The Plan of Action should be approved by the CEPF Secretariat before being implemented. 73

84 E. Conflict resolution and complaint mechanism 16. The Framework should describe how conflicts involving affected persons will be resolved, and the processes for addressing grievances raised by affected communities, households or individual regarding the agreed restrictions, criteria for eligibility, mitigation measures and the implementation of these elements of the Process Framework. The procedures should take into account local dispute resolution practices and norms. F. Implementation Arrangements 17. The Framework should describe the implementation arrangements for the project and roles and responsibilities of different stakeholders, including the Grantee, affected communities and other relevant agencies, including those agencies involved in the implementation of mitigation measures, delivery of services and land tenure, as appropriate and to the extent that these are known at the time of project preparation. 18. Monitoring and evaluation arrangements will also be described in the Framework, with more specific details for the Plan of Action designed during implementation. The Framework should include a budget for its implementation. It would also be appropriate to identify sources of funding for mitigation measures identified during preparation of the action plan Plan of Action 19. During implementation, a Plan of Action is developed together with affected communities to describe the agreed restrictions, management schemes, measures to assist the displaced persons and the arrangements for their implementation. The action plan may simply describe the agreed restrictions, persons affected, measures to mitigate impacts from these restrictions, and monitoring and evaluation arrangements or it may take the form of a broader natural resources or protected areas management plan The following elements may be included in the plan, as appropriate: project background and how the plan was prepared, including consultations with local communities and other stakeholders; socio-economic circumstances of local communities; the nature and scope of restrictions, their timing as well as administrative and legal procedures to protect affected communities interests if agreements are superseded or rendered ineffective; the anticipated social and economic impacts of the restrictions; the communities or persons eligible for assistance; specific measures to assist these people, along with clear timetables of action, and financing sources; protected area boundaries and use zones; implementation arrangements, roles and responsibilities of various stakeholders; arrangements for monitoring and enforcement of restrictions and natural resource management agreements; clear output and outcome indicators developed in participation with affected communities; special measures concerning women and vulnerable groups; capacity building of the Grantee or other implementing agencies; capacity building activities for the affected communities to enhance their participation in project activities; grievance mechanism and conflict resolution ; and participatory monitoring and evaluation exercises adapted to local 74

85 context, indicators and capacity. Monitoring will include the extent and significance of adverse impacts as well as the outcome of mitigation measures. Disclosure 21. A draft Process Framework is shared with (potential) affected communities to inform them about the project and get their input to project design and the Framework. Once the project, with the Process Framework, has been approved, the final Framework is again disclosed locally as well as at the CEPF website. 22. The Plan of Action is prepared with the participation of affected communities. A draft should be disclosed, in a culturally appropriate and understandable manner and local language, together with the findings of any social analysis to the persons affected by the project. 23. After the CEPF Secretariat has reviewed and approved the Plan of Action, the Grantee discloses the final plan to affected communities and other stakeholders. The final Plan of Action is also disclosed at the CEPF website. Roles and Responsibilities 24. Applicants, and subsequently Grantees, are responsible for following the requirements of the World Bank s Involuntary Resettlement policy as described in this Framework. Applicants and Grantees will ensure that local communities are consulted and participate during preparation and implementation of frameworks and action plans. They will avoid adverse impacts on affected communities, or where this is not possible develop with informed community participation measures to mitigate such impacts. Finally, they are responsible for reporting to both affected communities and the CEPF Secretariat on project progress and any unexpected and unintended events affecting local communities. 25. The CEPF Secretariat is responsible for the implementation of this Framework. The Secretariat s responsibilities include: informing Applicants and other stakeholders, including local communities and organizations, of the Process Framework and policy requirements; assisting Applicants, and subsequently Grantees, in the implementation of the Process Framework and policy requirements; screening for projects which may affect local communities through restrictions of access to natural resources; reviewing and approving project proposals, ensuring that they adequately apply the World Bank s Involuntary Resettlement policy; assessing the adequacy of the assessment of impacts and proposed measures to address such impacts, including social risks, circumstances of the affected communities, and the capacity of the Applicant to implement the measures; assessing the adequacy of the consultation process;and reviewing and approving project specific action plans prepared during project implementation. 26. Grantees are responsible for ensuring adequate budgets for implementing the planning process, including implementation of the Plan of Action and any compensation and/or development measures this plan may entail. They will include appropriate monitoring and 75

86 evaluation of proj ect implementation, including of adverse impacts on local communities and the effectiveness of mitigation measures. Monitoring and evaluation exercises should be designed to allow the participation of affected communities. 27. The CEPF Secretariat is responsible for setting aside sufficient funds for implementing this Process Framework. This includes costs for reviewing and monitoring required action plans during implementation of approved projects. The Secretariat will monitor and describe the application of this Framework and lessons learned in progress and monitoring reports. Grievance Mechanism 28. Local communities and other stakeholders should be able to complain at all times to Applicants / Grantees and the CEPF Secretariat about any issues covered in this Framework and the application of the World Bank s policy on Involuntary Resettlement. Arrangements should be described in the project specific frameworks and action plans, with contact information of the respective organizations. 29. As a first stage grievances should be made to the Applicant / Grantee. The Applicant / Grantee is required to respond to grievances in writing (supported by other forms of communication as needed) within fifteen working days of receipt; claims should be filed, included in project monitoring, and a copy of the grievance should be provided to the CEPF Secretariat. If the claimant is not satisfied with the response, the grievance may be submitted to the CEPF Secretariat. The Secretariat is required to respond within fifteen working days of receipt; claims should be filed and included in project monitoring. 76

87 Annex 11: Project Preparation and Supervision GLOBAL: Second Critical Ecosystem Partnership Fund Project Planned Actual PCN review March 13,2006 March 13,2006 Initial PID to PIC March 20,2006 March 20,2006 Initial ISDS to PIC March 20,2006 March 20,2006 Appr ai s a1 June, 2007 June 12,2006 Negotiations June, 2007 June 29,2007 BoardRVP approval December 18,2007 Planned date of effectiveness Planned date of mid-term review Planned closing date February, 2007 June, 2010 December, 2012 Key institutions responsible for preparation of the project: Conservation International (CEPF Secretariat) and World Bank. Bank staff and consultants who worked on the project included: Name Title Unit Kathy MacKinnon Lead Biodiversity Specialist ENV Susan Shen Albert0 Ninio Charles Di Leva Tony Whitten Nurul Alam Behdad M. H. Nowroozi Novira Kusdarti Asra Junxue Chu Svend Jensby Katharina Gamharter Marieke van der Zon Nina Queen Lead Ecologist Lead Counsel Chief Counsel Senior Biodiversity Specialist Senior Procurement Specialist Senior Financial Management Specialist Financial Management Specialist Finance Officer Social Scientist Legal associate/counsel Junior Professional Associate Procurement Assistant EASRE LEGEN LEGEN EASRE EAPCO EAPCO EAPCO LOAGl EASES LEGEN ENV EASRE Grace Aguilar Program Assistant ENV Bank funds expended to date on project preparation: 1. Bank resources: $ 75, Trust funds: $ 20, Total: $ 97,860 Estimated Approval and Supervision costs: 2. Remaining costs to approval: $30, Estimated annual supervision cost: $ 80,000 77

88 Annex 12: Documents in the Project File GLOBAL: Second Critical Ecosystem Partnership Fund Project 1. Project Concept Note 2. Project Concept Note Data Sheet 3, Project Appraisal Document (Concept Stage) 4. Project Information Document (Concept Stage) 5. Concept Review Package 6. CEPF2 concept review - initial safeguards screening 7. CEPF2 concept review comments received 8. CEPF2 concept review - response to comments 9. Request for Comments on the Concept Stage ISDS 10. Social safeguards consultancy for CEPF 1 1. PCN Safeguards Meeting Minutes 12. Updated milestones 13, Work Program Entry GEF SEC review 14. Project Appraisal Document Data Sheet 15. Work program entry UNEP comments 16. Minutes of Concept Review 17. Integrated Safeguards Data Sheet (Appraisal Stage) 18. Process Framework for Involuntary Restrictions 19. Indigenous Peoples Planning Framework 20. GEF Council Comments 21. GEF approval to work program 22. Quality Enhancement Review package 23. Quality Enhancement Review meeting minutes A. Bank Staff Assessments - PCN - March Pre-appraisal mission: Aide-Memoire dated May Decision meeting Minutes dated June Appraisal mission: Aide-Memoire dated June Minutes of Negotiations dated June B. Other - Social safeguards reports - Ecosystem profiles for IndoBurma (Indochina region), Western Ghats and Sri Lanka (W Ghats region) and Polynesia-Micronesia - ICR for GEF Grant for first phase of CEPF, June

89 Annex 13: Statement of Loans and Credits GLOBAL: Second Critical Ecosystem Partnership Fund Project Original Amount in US$ Millions Difference between expected and actual disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Fm. Rev d PO Africa Stockpiles Programme - Project PO Critical Ecosystem Partnership Fund Total: WORLD STATEMENT OF IFC s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic AIM-ACCION OO BANQUE BELGOLAIS BTC Pipeline CIF EF IV Centerra FIM Bank Global MEF IFC Index Fund Melrose Resource Novica OrientExp Hotels Pimco Debt Fund Planet Finance Procredit World ProCredit World Procredit World ShoreCap Intl Small Cap Fund TCW GEM VI Totaluortfilio:

90 ~ Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic GTFP GWRF InfraCo Global MEF Ascent Fund PlaNet Bank IntesaBci EM ACCION Facility ISCH Total pending committment:

91 Annex 14: Country at a Glance GLOBAL: Second Critical Ecosystem Partnership Fund Project Not applicable. 81

92

93 Annex 15: Incremental Cost Analysis GLOBAL: Second Critical Ecosystem Partnership Fund Project Background The Millennium Ecosystem Assessment showed that over the past 50 years, human activities have changed ecosystems more rapidly and extensively than at any comparable period of time in human history. These changes have contributed too many net gains in human wellbeing and economic development but have been achieved at growing environmental costs, biodiversity loss and the exacerbation of poverty for some groups of people. The degradation of ecosystem services could grow significantly worse during the first half of this century and is a barrier to achieving the Millennium Development Goals (MDGs). Unless addressed, these problems will substantially diminish future options and the ecosystem goods and services available to future generations. The Earth s biologically richest ecosystems, the 34 biodiversity hotspots, are also some of the most threatened. Together, these biodiversity hotspots harbor more than 75 percent of the most threatened mammals, birds, and amphibians yet they have already lost 86 percent of their original habitat. These critical areas for conservation are also home to millions of people who are impoverished and highly dependent on healthy ecosystems for their survival. Protection of the Earth s biological diversity is one of the topmost priorities for global wellbeing. In response to the growing threats to species and habitats, the Critical Ecosystem Partnership Fund (CEPF) was launched in 2000 to provide strategic assistance to engage non-governmental organizations (NGOs), community groups, and other civil society partners in conserving Earth s biodiversity hotspots. CEPF is a partnership between Conservation International (CI), the Global Environment Facility (GEF), the World Bank (Development Grant Facility), the Government of Japan, and the John D. and Catherine T. MacArthur Foundation, with each organization committed to provide $25 million to the program for a total of US$125 million in grant funding. Current CEPF funding from the World Bank and GEF will finish in early The first phase of CEPF supported 15 grant programs within 14 of the original 25 hotspots. By the end of 2006, nine of these grant programs closed after five years of implementation. A 2005 independent evaluation of the CEPF global program was highly positive and recommended that the donors seek further expansion opportunities. Although the CEPF program has been shown to be highly effective, there are still significant conservation needs, both in the original 14 hotspots and in other critical ecosystems that have not yet benefited under the program. Of the 34 hotspots identified by CI, 30 include countries eligible for Bank and GEF support. The proposed CEPF-2 project would replicate and expand successful civil society implementation models for biodiversity conservation within at least 14 biodiversity hotspots. It would build on the lessons learned under the first phase of CEPF as well as recommendations from the independent evaluation to further strengthen the program within 82

94 existing hotspots by expanding activities to new sub-regions and marine ecosystems. CEPF- 2 would also expand civil society support and capacity building to additional hotspots. It would complement government-led conservation efforts, by providing a streamlined, agile, mechanism for capacity building and engagement of a wide range of local civil society actors, including local community groups, NGOs and the private sector, many of whom are outside the reach of traditional funding mechanisms. With its tight geographical focus on a small number of the most valuable and critical ecosystems the project would maximize overall impact. 6. Recent estimates have suggested that investment of as much as $160 million per hotspot per year may be necessary to strengthen protection and management of key biodiversity areas and to close shortfalls in existing protected area budgets. Funding and capacity needs vary considerably between individual countries and hotspots. As the exact ecosystems for investment are not yet known, this analysis focuses on the baseline scenario for the global project and the GEF Alternative that would enable CEPF to a) consolidate activities within some of the current target hotspots by expanding programs into new regions and key conservation corridors, including trans-national initiatives, b) expand conservation funding to new hotspots and marine ecosystems within target hotspots for a more holistic approach to conservation and c) strengthen local civil society capacity within the hotspots for more effective Conservation efforts and sustainability of conservation outcomes. Baseline Scenario 7. The first phase of CEPF supported grant programs in 15 regions within 14 hotspots. For smooth and effective implementation, preparation of ecosystem profiles and grant-making programs have been staggered with activities started in three hotspots in year 1, six hotspots in year 2, 1 hotspot in year 3,2 hotspots and one additional region with another hotspot in year 4, and an additional two hotspots in year 5. Within the larger hotspots, grant programs have focused on specific geographic sub-regions, landscapes or just a few countries for more targeted and effective conservation efforts. Thus within the Sundaland Hotspot the first phase of CEPF focused only on the island of Sumatra, with the expectation that later initiatives would target conservation needs in other high priority regions within the hotspot, such as Borneo. 8. All ecosystem programs are designed to cover a five-year period of grant making. The first three grant programs approved in December 2001 (Guinean Forests of West Africa, Madagascar, and the Tropical Andes) have already come to the end of their active investment period and another six closed in December 2006 (Atlantic Forest (Brazil), Cape Floristic Region, the Philippines, Southern Mesoamerica; Sundaland (Sumatra), and Tumbes-Choc6-Magdalena). Other hotspots with active CEPF programs (Northern MesoAmerica, Succulent Karoo, Caucasus, Himalayas, Southwest China and Eastern Arc Mountains and Coastal Forests of East Africa) will graduate to this phase of implementation in subsequent years. CEPF has also been successful in leveraging some other additional resources for specific interventions. Thus a $1 million donation to CEPF from the Government of Australia has enabled some limited start-up operations in Polynesia- Micronesia for activities targeted towards invasive alien species. CEPF management will 83

95 continue to facilitate these sorts of synergistic opportunities. Nevertheless, without additional GEF and other donor support through a CEPF-2 project, it is expected that the CEPF grant-making program would be completed by From the end of 2006 CEPF operations would begin to wind down, with declining input to civil society groups as well as CEPF management and monitoring, both at the global and local levels. 9, 10. Biodiversity in all hotspots will remain under pressure from a variety of threats that include habitat loss and fragmentation, overexploitation, invasive alien species, pollution (especially aquatic systems) and expanding infrastructure and development - see Annex 1. Under the Baseline Scenario, it is expected that national governments, donors and NGOs, including CI, would maintain commitments to protected areas and biodiversity conservation, including support through GEF programs implemented under the new Resource Allocation Framework (RAF). Under this scenario, it is expected that there would be substantial biodiversity investments, including GEF investments, in a few high biodiversity countries but less access to external conservation funding for many other countries, including many of the smaller and least developed countries with greatest capacity needs. Overall, there could be a leveling-off or reduction in biodiversity spending with much of the funding focused on government-led initiatives and a few key protected areas. Some countries that would be eligible for CEPF funds may also benefit under the UNDP Small Grants Program but that program does not focus exclusively on biodiversity. Overall there are expected to be fewer opportunities and financing for local civil society groups to participate in, and influence, biodiversity conservation, especially where such groups fall outside the reach of traditional financing mechanisms. Incremental costs analyses were prepared for each of the 15 critical ecosystems targeted in the 14 hotspots during the first phase. The total baseline investment across these 15 regions was $4.2 billion (including a $3 billion government project in China alone), but an extremely small percentage of this is for civil society. The incremental CEPF cost was $100 million. While it is clear that there will be limited resources for national and local civil society engagement in conservation in the future, it is almost impossible to determine a baseline cost for biodiversity investments for the CEPF-2 project at this time, especially since only 3 of the target hotspots have been selected. For each critical ecosystem targeted for CEPF-2 investment, incremental costs analyses will also be conducted as an integral part of the ecosystem profiling process. GEF Alternative 11. The CEPF-2 project would support civil society conservation efforts in at least 14 of the 30 revised hotspots (see Annex 1). These 30 hotpots include more than 90 countries eligible for GEF and Bank assistance, ranging from species-rich megadiversity countries to small island states (SIDs) and centers of endemism. Under CEPF-2, choice of new hotspot, and region, investments will be based on biodiversity status, conservation needs, social and political enabling environments and complementarity and added value to other donor efforts. Thus CEPF-2 has the potential to complement conservation efforts in those countries with high biodiversity but modest conservation funds, to fill in gaps, and particularly to focus resources to civil society and private sector conservation efforts that may not otherwise be 84

96 supported. The CEPF ecosystem approach also provides the opportunity for international collaboration in support of multi-country transboundary conservation efforts, often neglected in national plans. 12. The CEPF-2 project would expand civil society activities to new hotspots, new regions within existing hotspots and new habitats, including marine ecosystems, within hotpots where conservation interventions targeting both land and aquatic systems would increase overall effectiveness. Ecosystem profiles have already been prepared for 3 new regions (the Polynesia-Micronesia Hotspot; the Indochina region of the Indo-Burma Hotspot; and the Western Ghats region of the Western Ghats and Sri Lanka Hotspot). Implementation of these ecosystem profiles is dependent upon approval of a second phase of the CEPF; once funding is available grant programs would be initiated in these hotspots. Expansion into new critical ecosystems such as the Polynesia-Micronesia Hotspot will expand the opportunities to small island developing states. 3. As part of the assessment process in completed ecosystem programs, the CEPF Secretariat and Working Group will develop explicit criteria for exit andor re-entry strategies into hotspots which have already received five years of CEPF investments. Future investments would be based on conservation needs, likelihood of success and complementarity, with specific targeting to civil society initiatives in high biodiversity sub-regions and ecosystems (e.g. marine) that have not yet benefited from CEPF investments. Investments would build on and supplement activities undertaken in the first phase of CEPF with explicit activities to replicate best practice and cross-learning within, and across, hotspots. 14. The GEF Alternative provides an opportunity to build on existing governmental and donor efforts in critical ecosystems by identifying a strategic and complementary role for civil society involvement through targeted conservation investments. Each CEPF investment strategy developed together with stakeholders and approved by the CEPF Donor Council will also be endorsed by the relevant GEF focal point to ensure consistency with country biodiversity priorities, as outlined in national Biodiversity Action Plans and country programmatic frameworks. By focusing at the ecosystem rather than country level, the project will be able to support a landscape approach to conservation including support for international trans-boundary initiatives. GEF funding would also enable the program to broaden partnerships and further strengthen devolution of roles and responsibilities to national and local levels, to increase transparency, strengthen capacity and build greater ownership and sustainability of conservation efforts The CEPF-2 program would contribute to strengthened involvement of civil society in strengthened protection, management and support for key biodiversity sites and thereby contribute to achievement of the 2010 targets of the Convention on Biological Diversity. Specific activities would be selected on a competitive basis at both the global and ecosystem-profile level but are expected to include the following components and expected global benefits. 85

97 Component 1: Strengthening protection and sustainable management of globally significant biodiversity 16. CEPF-2 would support civil society projects that focus on key biodiversity areas and address threats to biodiversity across broad landscapes that include a matrix of land uses, including protected areas, biological corridors and high value conservation sites in production landscapes. CEPF-2 will contribute to the strengthened protection, and management of more than 20 million hectares of key biodiversity areas, including at least 8 million hectares of new conservation areas, including legally designated protected areas, indigenous reserves, and community and private lands managed for conservation. The GEF Alternative will also support more effective community stewardship programs with local communities and indigenous groups, including land-use planning for conservation and sustainable use. Special focus will be placed on ensuring the long-term sustainability of these initiatives through capacity building, technical assistance, awareness raising and innovative management and financial mechanisms. The incremental cost of this component compared to CEPF baseline expenditures and investments in strengthening protection and sustainable management of globally significant biodiversity is $52.1 million, of which GEF would contribute $13.22 million. Component 2: Increasing local and national capacity to integrate biodiversity conservation into development and landscape planning. CEPF-2 will build upon lessons learned to further build local and national capacity to act in favor of biodiversity conservation, particularly to influence local and national governments and other sectors in integrating biodiversity conservation into development and landscape planning. CEPF will consolidate support to some current civil society partners and expand support to hundreds of others within critical ecosystems to increase local and national capacity to integrate biodiversity conservation into development and landscape planning. The GEF Alternative will support consolidation of biological corridors and mainstream conservation into production landscapes through support for more effective land-use planning, collaboration with the private sector and landscape-scale management efforts, including trans-boundary coordination. Activities will support integration of biodiversity conservation into production systems and sectors, including enabling civil society groups to plan, implement, and influence biodiversity outcomes as effective partners in sustainable development. Such participation will build on local knowledge and technical expertise, and leverage social capital to bring innovative ideas to solving local problems. The focal approach would be to strengthen protection of critical biological corridors that link key biodiversity areas within a multiple use landscape. The project would support promotion of supportive policy and legislative frameworks; more sustainable resource management linked to livelihoods; and measures to control and manage invasive alien species in regions where these are a particular threat. Support for capacity building, partnerships and advocacy and outreach will strengthen local ownership and significantly increase the scale of potential impact and sustainability. 86

98 The incremental cost of this component compared to CEPF baseline expenditures and investments in increasing local and national capacity to integrate biodiversity conservation into development and landscape planning is $23.9 million, of which GEF would contribute $6.78 million. Component 3: Effective monitoring and knowledge sharing, including systematic analysis and documentation of CEPF results and experiences. 19. The GEF Alternative includes building upon the current CEPF participatory monitoring and hotspot-level implementation programs to support improved learning, replication and scaling up of promising models and approaches from components 1 and 2. GEF support will enable a strengthened monitoring system, particularly at the hotspot level as well as more effective analysis and documentation and dissemination of experiences, best practices and lessons learned to enhance the project s potential to act as a conservation mechanism for the conservation community as a whole. These activities are expected to lead to further generation, adoption, and application of best practices to conserve critical ecosystems and strengthen civil society s essential role within them. The incremental cost of this component compared to CEPF baseline expenditures and investments in monitoring and learning is $4.5 million, with no GEF contribution. Component 4: Ecosystem profile development and project execution. 20. This component would support development of the ecosystem profiles by civil society groups as strategic business planning and implementation documents for the partnership and wider conservation community; the grant-making responsibilities of the Regional Implementation Teams at the hotspot level; and also overall execution and administration of the global program by CI. Activities would include developing the ecosystem profiles as shared strategies together with stakeholders in each hotspot. This component also includes a subcomponent covering CI s administration and execution of the global program, including hosting the CEPF Secretariat, employing CEPF Secretariat staff, and ensuring that all funds are managed with due diligence and efficiency. The incremental cost of this component compared to CEPF baseline expenditures and investments in monitoring and learning is $19.5 million, with no GEF contribution. 21. Cost. The total costs of the GEF Alternative is estimated over a five year period at the level of at least $100 million with a CEPF-2 program targeting civil society interventions to supplement national government and other donor efforts. GEF is requested to contribute $20 million that will leverage funds from other donors. It is expected that support from GEF during the second phase of CEPF would leverage additional funding from among the original partners as well as from other MDBs, bilateral agencies, and foundations. Conservation International has committed to providing another $25 million for a second phase of CEPF as co-funding for the GEF grant. AFD will also contribute $25 million to enable a seamless transition to the second phase. The MacArthur Foundation is expected to contribute $15 million. Other donor partners are expected to review continued support as 87

99 their current contributions end. The World Bank is considering options for support to a second phase, after completion of the current round of DGF funding. The GEF funds will be deposited to the CEPF account, but a separate ledger account will be maintained to track the receiving and uses of the funds. 22. Expected global benefits will arise in at least 14 biodiversity hotspots from the increased national and local civil society capacity to manage and deliver small conservation initiatives in an efficient and effective manner under agreed strategic frameworks to better integrate biodiversity conservation into development and landscape planning. These interventions are expected to lead to a strong civil society constituency for biodiversity conservation within the hotspots as well as generation, adoption, adaptation, and application of lessons for improved biodiversity conservation outcomes, relevant both to CEPF and the broader Bank and GEF biodiversity portfolios as well as to other small- and medium-size grant programs and donor community-driven development initiatives. The Baseline Scenario, GEF Alternative and incremental costs, as well as corresponding local, national and global benefits are displayed in summary form in the following table. Component 1. Strengthening protection and management of globally significant biodiversity cost Category Baseline GEF Alternative USD Million Baseline to be determined at hotspot level x 14 hotspots Baseline Domestic Benefit National programs supported at current levels. Additional civil society activities to provide greater protection and management o f important biodiversity area, including protected areas and production landscapes. Enhanced empowerment and capacity o f local and national civil society. Global Benefit Funds targeted to a few globally important biodiversity sites, especially protected areas, dependent on funding availability. Strengthened protection and management o f globally significant habitats in eligible countries in 14 hotspots, including protected areas, key biodiversity corridors and production landscapes. Greater sustainability of conservation outcomes due to more effective civil society involvement and ownership in conservation initiatives. 2. Increasing local and national capacity to integrate biodiversity conservation into development and landscape planning Total Incremental I 52.1 Some limited participation of civil society in conservation and mainstreaming o f biodiversity, within scope o f existing resources. Limited local and national civil society mobilization for conservation and sustainable resource use. 88

100 GEF Alternative Baseline Strengthened national and local capacity to design, implement and monitor conservation activities and to influence development and planning decisions. More effective civil society conservation within globally important areas in 14 hotspots, especially among small NGOs, local communities, indigenous groups and private sector. Effective alliances for advocacy, influence and ownership contribute to sustainability of conservation impacts. 3. Effective monitoring and knowledge sharing Total Incremental Baseline GEF Alternative 23.9 Baseline to be determined at hotspot level x 14 hotspots Baseline Limited monitoring andexchangeof experiences. Enhanced information and capacity at national level, including engagement of civil society. Limited awareness and implementation of lessons learned and good practices Strengthening monitoring and evaluation, leading to more targeted and adaptive management to best meet conservation needs within high biodiversity areas. Systematic analysis and documentation and dissemination o f CEPF results and experiences for effective replication and enhanced conservation within and across hotspots. Total Incremental Ecosystem profile development and project execution Baseline Baseline to be determined at hotspot level x 14 hotspots 89

101 GEP Baseline + Alternative Ecosystem 2.6 profiles FUTS grantmaking 4.6 Development of management tools, assessments and business plans for strategic, cost effective and targeted interventions to support conservation and biodiversity management in global hotspots CEPF Secretariat 12.3 Effective and well coordinated global program, to bring strategic and complementary conservation resources to globally important biodiversity sites in 14 global hotspots. Totals Total Incremental Baseline GEF Alternative Incremental I 19.5 Baseline to be determined at hotspot level x 14 hotspots Baseline (+80.0)

102 Annex 16: STAP Roster Review GLOBAL: Second Critical Ecosystem Partnership Fund Project A. Key Issues: 1. Assessment of scientific and technical soundness of the project. 1. General assessment. During its first phase ( ), the Critical Ecosystem Partnership Fund (CEPF) has proven to be a highly important mechanism for fbnding of strategic biodiversity programs and projects in biodiversity hotspots, providing assistance to NGOs, community groups and civil society partners that otherwise have limited access to resources. The approach has recently (late 2005) been subject to a thorough independent evaluation that concluded that CEPF was highly successful, and that support should be continued. The present proposal is aimed at just that: continuation of CEPF in a second phase. 2. The focus on biodiversity hotspots. is a well-founded approach. Such sites harbor the world s greatest concentrations of globally significant biodiversity, while at the same time they are often also regions where poverty reigns. Investments in biodiversity will help curb environmental degradation that may otherwise worsen poverty levels, while poverty alleviation programs may also support environmental sustainability. During phase 1, the CEPF targeted 15 regions in 14 of the original 25 biodiversity hotspots. The latter have recently been expanded to 34, of which 30 are eligible for GEF and World Bank support. During the second phase, CEPF will focus on investments in critical ecosystems in at least 14 biodiversity hotspots in World Bank countries that have ratified the CBD. What is not clear is which proportion of these 14 in CEPF-2 will be new, i.e. not having received funding under CEPF-l? The proposal states that choice (of hotspot regions) will be based on biodiversity status and threats, assessment of CEPF progress in current hotspots targeted, and current or planned investments by other donors. The proposal should provide an indication of where the priorities are likely to be, and the 16 new hotspots not funded under CEPF-1 should be prioritized according to biodiversity and degree of threat. Incidentally, the CEPF website states that the fund has up to now operated in 16 biodiversity hotspots and not 14 as stated in the proposal. 3. Co-financingl During CEPF phase 1, GEF co-financing was provided by World Bank, MacArthur Foundation, Conservation International and the Government of Japan, in equal shares of US$25 million each. CEPF-2 co-financing will be provided again by Conservation International and MacArthur Foundation, now together with the Government of France (via the bilateral agency AFD), with each again contributing US$25 million. Why is there no World Bank co-financing for CEPF-2? This is unusual, given that the World Bank President (or his designee) chairs the CEPF Council, and should be explained. The Table on p. 14 (ExSum) states that the status of MacArthur Foundation co-financing is To be considered at March Board meeting. This appears uncertain - what will happen if the Board decides against co-financing, or decides to delay it until 2008? 91

103 4. Position of Conservation International. One point of criticism (e.g. in the 2005 independent evaluation) on CEPF-1 has been the position of CI, and potential conflict of interest. CEPF is managed from within CI, whose Board of Directors has fiduciary responsibility for the program. Also, in nine of the 15 regions in which CEPF-1 operated, the local Coordination Unit (renamed Regional Implementation Team in CEPF-2) was provided by CI. According to the 2005 independent evaluation, there initially was considerable pressure on CEPF staff to support funding for relatively large C I proposals. In response to criticism, a more balanced approach was taken, and the share of CEPF grants to CI fell from 50% to a cumulative 35% by mid The evaluation team recommended that a global limit be set for CI grants that is lower than the current limit of 50%. However, this has not been addressed in the proposal for CEPF-2, and should be taken up. The proponents should also bear in mind that proposed funding for the RITs also amount to $10 million or 10% of CEPF-2 funding (see g), below), which is in addition to the grants provided. 5. Peer review of proposals. Related to point d), the 2005 evaluation team recommended that all grant proposals submitted by CI should be submitted to peer review, including Coordination Units (RIT) grants. The proposal for CEPF-2 states (para. 48 of the Executive Summary): The Regional Implementation Team or advisory committee in each hotspot will review the proposal and, where appropriate, formally write a justification for approval. As recommended by the independent evaluation, this step would ensure more systematic and independent peer reviews of all proposals from CI and other international organizations and more systematic use of advisory committees to advise on international proposals. CI proposals reviewed by the RIT can hardly be regarded as an independent peer review, as the RITs are recruited by, and answerable to CI. 6. Incremental Cost Analysis. CEPF grants are to (co-)finance as yet undetermined biodiversity projects in at least 14 of the 30 targeted biodiversity hotspots. Under such circumstances, conducting an ICA for CEPF-2 is a theoretical exercise, as baselines remain unknown until the second phase of the fund becomes operational and proposals are submitted and selected. This places an extra responsibility on the CEPF Council, who are to ensure that these funds do not replace other funding sources, and only cover incremental costs associated with conservation of globally significant biodiversity. Paragraph 10 in the ICA (Annex A of Executive Summary) states Total incremental costs of this proposed proj ect-the difference between the baseline scenario and the GEF alternative-are calculated to be $100 million, of which $25 million is being requested from the GEF. This calculation is unlikely, as the baseline could not have been calculated - it is largely unknown. 7. Management costs. The independent evaluation mentions (p.2 of executive summary) that CEPF portfolios typically consist of a few relatively large grants for program coordination and leadership, several medium-sized grants to relatively capable national and international NGOs for strategic, high-priority projects, and a larger number of smaller grants (many under $20,000) to emerging civil society organizations carrying out an impressive range of grassroots activities, some of which are thematically clustered. This observation by the 2005 evaluation team suggests that a significant percentage of CEPF 92

104 funds are going to CI and the RITs (formerly the CUs) for coordination purposes. The current breakdown of the budget (ExSum p.9, PAD Annex 5, p.32) does not specify management and overhead costs, but states that RIT costs are included in 2A, 3A and 3B to a total of almost $10 million, or about 10% of the total costs. While $10 million is a large sum, 10% does not seem an extraordinary proportion for management. 8. Minor points:. ExSum, p. 4, point 7/PAD p.2: Resource Allocation Framework. Should mention that the RAF is a program of the GEF.. ExSum.p. 4, point 1 O/PAD p. 5 point3/pad Annex 3 Results Framework & Monitoring; CEPF-2 will focus on at least 14 biodiversity hotspots. How many of these will be new hotspots? CEPF-1 focused on 14 of the 30, and in theory CEPF- 2 could continue in the same 14 and still meet the requirement. Need to specify how many of these 14 will be in addition to the original 14 under CEPF-1.. ExSum p4. point 1 l/pad ; In each hotspot, disbursement of grants will be guided by ecosystem profiles based on a stakeholder-driven prioritization process to identify conservation targets, major threats, socioeconomic factors, current threats and conservation investments. Given that 35% of the cumulative CEPF-1 funds have up to now been granted to CI proposals, one may question the stakeholderdrivenness.. ExSum p.8, point 18; CEPF resources are targeted within critical ecosystems...in World Bank client countries that have ratified the CBD. Do the MacArthur Foundation and the French AFD have focal countries as well? If so, shouldn t this be given consideration as well?. ExSum p. 11, point 24/PAD p. 3; US$ 1 million pledged from Australian government - this may be small compared to other inputs, but should be included in list of co-financing sources. ExSum, p. 12, point 30; Monitoring of conservation targets is currently being implemented in about half of the current CEPF investment regions, but this will be expanded to all investment regions in the future. A date should be set by which these are to be included.. Need to provide full text of some abbreviations: e.g. CAS and PRSPs (p. 14 of ExSum), MDBs (ExSum p. 27); this may not been needed for some widely used abbreviations (such as TOR, NGO and CBD).. ExSum p. 15, point 45: it is mentioned here that the Coordination Units of CEPF-1 are the same as the Regional Implementation Teams, already mentioned on p.6. This should be mentioned on p.6 as well, to avoid confusion. 93

105 . ExSum p. 32, point 5: GEF Biodiversity Tracking Tool. It is proposed here that the GEF SP1 tracking tool be used for monitoring Component 1. Why not use the SP2 tracking tool for Component 2? This would seem both logical and useful.. ExSum p. 33/PAD p. 24 Arrangements for results monitoring. Under outcome 1, the first outcome indicator reads At least 12 critical ecosystems receive support for strengthening protected areas systems to ensure long-term sustainability. Shouldn t this figure be 14, i.e. the same as the number of critical ecosystems receiving support from CEPF? Evaluation of the identification of global environmental benefits and/or drawbacks and risks of the project 9. As under CEPF-1, the second phase of CEPF is envisaged to have significant global environmental benefits for the targeted biodiversity hotspots. There are no apparent environmental drawbacks or added global environmental risks because of the CEPF, although the CEPF Council is to remain vigilant to ensure that CEPF hnds do not end up simply replacing or displacing other funds. Evaluation of the project s compliance or fulfillment of the goals of GEF 10. The CEPF targets various Operational Programs of the Biodiversity Focal Area, including OP1 Arid & Semi-arid Zone Ecosystems, OP2: Coastal & Freshwater ecosystems; OP3: Forest Ecosystems and OP4: Mountain Ecosystems. The Project will contribute to the GEF Business Plan and three of the four Biodiversity Strategic Priorities: Catalyzing Sustainability of protected Areas (SP-1); Mainstreaming Biodiversity in Production Landscapes and Sectors (SP-2) and Generation and Dissemination of Best Practices for Addressing Current and Emerging Biodiversity Issues (SP-4). Assessment of how the project fits within its regional context 1 1. CEPF focuses on biodiversity hotspots and takes an overwhelmingly regional approach in its strategies. In each hotspot, CEPF uses an Ecosystem Profile methodology to analyze threats and opportunities, identify the ecological baseline for measuring progress, and provide clear strategic directions to guide grant making. These Ecosystem Profiles are developed together with a wide range of stakeholders, which ensures that regional priorities are flagged, and ultimately addressed. In each hotspot wherein it operates, CEPF is organized via so-called Regional Implementation Teams (formerly known as Coordination Units), and as the name implies, these take a broader view than one that is site or location based. Evaluation of the replicability of the project 12. Component three Effective monitoring, knowledge sharing and outreach of CEPF focus on monitoring, learning, replication and scaling up of promising models from Components 1 and 2. Replication is therefore firmly embedded in the project, as in addition to promotion 94

106 of ideas, CEPF can provide grants for implementation of proposals for replication. CEPF contributes to the GEFs Strategic Priority SP-4 Generation and Dissemination of Best Practices for Addressing Current and Emerging Biodiversity Issues through an explicit replication strategy to promote cross-learning and uptake of best practice at both the hotspot and overall program level. Evaluation of the sustainability of the project 13. CEPF aims at achieving sustainability at various levels, including ecological, social and financial. sustainability: Ecological sustainability. The fundamental premise of CEPF is that large-scale actions to protect biodiversity are more likely to succeed if they are both influenced and supported by civil society. Through its capacity building program it therefore aims at building an effective and aligned civil society sector to mainstream biodiversity, building strategic and effective alliances to increase impact and sustainability. CEPF contributes to the sustainability of PA networks and landscapes by also supporting landscape-level conservation outcomes and cross-. border initiatives. Social sustainability. Through its grants and the work of its staff and locally based Regional Implementation Teams, CEPF-2 will empower a wide variety of civil society actors to directly assist in biodiversity conservation, acquire a positive stake in sustainable development programs, and become sources of improved design, support and durability for those efforts. Financial sustainability. Sub-component 1 d focuses specifically on developing and identifying Innovativefinancial mechanisms for sustainability. Under consideration are the introduction and use of conservation financing tools such as payments for environmental services and economic incentives for conservation. CEPF-2 will further strength joint efforts with governmental partners, the private sector and other funding mechanisms. B. Secondary issues: 2. Evaluation of linkages to other focal areas (international waters, climate change, etc...) 14. The. following linkages to the other GEF focal areas exist: Prevention or reduction of further loss of forested ecosystems in the biodiversity hotspot areas - one of the main aims of CEPF - will directly contribute to the Climate Change focal area. There is a strong link with the Land Degradation focal area, not only though prevention of loss of forests (as mentioned above), but because CEPF also aims to achieve greater sustainability of production landscapes and prevent further decline in biodiversity in such areas. The program aims to achieve this through strengthened civil 95

107 society capacity, and by working with the private sector and other civil society actors to influence regional and national development programs and policies.. CEPF-1 primarily targeted terrestrial ecosystems, but CEPF-2 will also invest in marine ecosystems within and adjoining hotspots, and as such may contribute to the International Waters focal area, where these are of a transboundary nature.. There is a weak link with the Persistent Organic Pesticides (POPS) focal area, as CEPF aims to increase agricultural sustainability - agriculture is seen as one of the main threats in many of the hotspot regions. Although not specifically stated, one of the strategies may be reduction of pesticides use. Overall, the impact of the project in this focal area is expected to be modest. Evaluation of linkages to other programs and action plans at the regional and subregional level 15. As recommended by the independent evaluation, CEPF-2 will strengthen operational collaboration with the donor partners (GEF and World Bank are both represented on the CEPF Donor Council and Working Group) as an explicit priority during implementation. Activities are to include engaging regional and national representatives of the partners and implementing agencies at a much greater level in the participatory planning process for each ecosystem, and developing mechanisms for regular sharing of information and exploration of collaboration opportunities. Cooperation with the regional operations of the World Bank will focus on strategic opportunities identified during a series of regional meetings in 2005, to improve collaboration between CEPF and the World Bank at the country and hotspot level. 16. As during CEPF-1, a wide variety of grantees will become recipients of CEPF-2 fhds; these grantee agencies will create operational linkages within their own programs and with CEPF donor partner institutions and implementing agencies nationally and across the hotspot, as well as with governments and other sectors in the hotspots. The RITs will serve to build linkages with relevant programs, strategies and actions plans across the hotspot. Assessment of other beneficial or damaging environmental effects 17. The CEPF is envisaged to have very significant environmental benefits across a wide range of ecosystems and regions, both for biodiversity and the environment in general (e.g. by promoting sustainable land use). Additionally, CEPF aims at replication, among others by building capacities in civil society and with NGOs, so the positive effects are likely to be felt over an even wider area in the recipient countries. 18. Damaging environmental effects due to the implementation of the CEPF are not anticipated, Most projects carried out under CEPF focus on capacity building and empowering stakeholders, and the few projects that might potentially have (some) negative impacts will be subject to World Bank (and national) regulations for environmental 96

108 assessment and management. These are to be summarized in Annex 10 of the PAD, on Safeguard Policy Issues (not present in documents submitted to STAP reviewer). Evaluation of the degree of involvement of stakeholders in the project 19. The PAD does not include a stakeholder involvement plan, but it is clear from the project documents that key stakeholder involvement on the CEPF is by means of their intensive participation in the design of the Ecosystem Profile and the investment strategy. The strategy development process is led by CI or other civil society groups, who promote wide participation and transparency among stakeholders to reach consensus on the highest priorities for conservation and the CEPF investment strategy. The process enables key communities, including indigenous and ethnic groups within the focal areas, to take part in determining priority actions. Civil society groups, including NGOs, community groups, the private sector and other civil society institutions, will also be the direct beneficiaries of all CEPF grants. CEPF will build on pilot models where local groups directly manage small grants programs to address specific strategic directions within an ecosystem profiles. At the ecosystem level, civil society groups and other partners will be directly involved in monitoring and assessing progress, and refining the investment approach during implementation in individual hotspots Assessment of the capacity building aspects 20. CEPF is largely a capacity building program, as the three components all have a major (component 1) or explicit capacity building focus (components 2 & 3). Component 1 on Strengthening protection and management of globally signipcant biodiversity supports civil society efforts to catalyze improved management and expansion of existing PAS (1 a), support civil society activities to strengthen protection of critical biological corridors (lb), assist communities and other partners in management and stewardship of biologically-rich lands (1 c), and achieving financial sustainability for biodiversity conservation (1 d). All of these sub-components will have a major capacity building focus. Component 2 Increasing local and national capacity to integrate biodiversity conservation into development and landscape planning and Component 3 Effective monitoring, knowledge sharing and outreach focus entirely on capacity building, training, creating awareness, education and outreach. Innovativeness of the project 2 1. The CEPF is a highly innovative program within the GEF, being the only major grantlending program within the GEF that specifically targets biodiversity hotspots, and provides small-sized grants in support of biodiversity conservation to a wide range of actors within each hotspot, aimed at a common, hotspot-wide strategy developed by a wide range of stakeholders. 97

109 CONCLUDING REMARKS 22. CEPF-2, like its predecessor CEPF-1, provides an excellent and timely opportunity for effective conservation of highly threatened, globally significant biodiversity in the world s major hotspots. The grant-lending approach based on regionally developed strategies and coordinated via decentralized Regional Implementation Teams, is innovative and has proven to be high effective during phase one. There are no obvious reasons for changing the general modus operandi, as the model appears to be sound and successful. No major risks or problems are envisaged, and the issues outlined above (see la-lg) can easily be addressed. Wim Giesen Ulft, 8th March 2006 Task Team Response to the STAP Reviewer 23. The Task Team found the STAP review very helpful and highly supportive of the CEPF-2 project. The team has prepared the following clarifications and responses to the STAP review and ensured that the project document includes these points. Selection of Hotspots to be funded under CEPF The first phase of CEPF funded 15 regions in 14 of the original 25 hotspots identified by Conservation International. In 2005 based on new research, CI revised hotspot boundaries and increased the number of hotspots to 34; the website reflects these revisions i.e. investments were made within 16 of the new 34 hotspots. For example, the original Eastern Arc Mountains and Coastal Forests of Tanzania and Kenya Hotspot have now become two hotspots: the Coastal Forests of Eastern Africa and Eastern Afromontane hotspots. 25. At least four of the 14 critical ecosystems to be targeted during a second phase will be new (see text in the introduction to the section on components). Investment strategies have already been developed for PolynesiaMicronesia, Indochina, Sri Lanka, and Western Ghats and would be implemented under phase 2 of the CEPF program. Implementation will begin as soon as funding is available; the AFD funding is expected to provide a seamless transition into second phase hotspots. Other critical ecosystems for investment will be chosen based on criteria such as biodiversity status, conservation needs, social and political enabling environment and availability of other conservation funding. Hotspots and focal regions within hotspots would be chosen to complement government and other donor fbnding, including GEF investments under the new Resource Allocation Framework * 98

110 Cofinancing 26. A letter of commitment for second phase cofinancing has already been received from CI. Letters are expected from AFD and the MacArthur Foundation prior to CEO Endorsement. The World Bank is considering options for renewed Bank support after the current DGF grant closes in FY07. The CEPF Secretariat will continue to seek additional co-funding and opportunities to leverage parallel fbnding to support the next phase of the CEPF program. Investments in hotspots will be staggered in line with fbnding availability and sequencing and implementation capacity. 27. The $ lm grant from the Government of Australia (Natural Heritage Program) has already been provided to CEPF for specific activities and would not be co-financing for CEPF-2. However, in providing this finding, the Australian government does hope to catalyze fbll implementation of the ecosystem profile for the Polynesia-Micronesia Hotspot under the second phase of the CEPF program. 28. Under the second phase of the CEPF program, the Donor Council may also decide to establish new hnding windows outside the WB/GEF CEPF-2 Project to accommodate the strategic interests of specific donors. Funds available to CI and potential conflict of interest 29. The first phase of CEPF had a 50% cap on global grants available to CI although the evaluation found that approximately 35% went to CI and 59% to international organizations overall. During the preparation of CEPF-2, the team took note of the views and recommendations of the independent evaluation team in regard to need for greater transparency to avoid perceptions of conflict of interest. The team considered a cap on the amount of global grant finding available to CI and/or other international organizations but this option was rejected as there i s weak local capacity for conservation in some hotspots and international NGOs, including CI, may still need to take a lead role. Instead, the project design incorporates specific steps to ensure further transparency, devolution and effective decision-making as well as additional steps to avoid potential conflict of interest. For example, the Regional Implementation Teams, whether international NGOs or other locally-based organizations, will play a much greater role in decisions with regard to grant making within their specific ecosystem but neither the RITs, nor other offices and programs of those organizations, would be eligible for additional grants within that particular hotspot. 30. See section 5, Alternatives considered and reasons for rejection, and section C on Implementation. Peer review of proposals 3 1. All proposals by international organizations, including CI, will be subject to peer review. Additional steps have also been included to ensure effective decision-making as well as to avoid potential conflict of interest. See section C on Implementation. 99

111 32. All grants will be awarded on a competitive basis. Specific steps related to grants to international organizations will also include: rn The existing programs and potential role of international organizations in each hotspot will be documented as part of the ecosystem profiling process.. All international groups, including CI, will be required to demonstrate a comparative advantage in their grant application. Proposals designed and implemented with a local partner or incorporating strong capacity building would be given preference. rn The Regional Implementation Team or advisory committee in each hotspot will review the proposal and, where appropriate, formally write a justification for sole source approval. Incremental cost analysis 33. The STAP reviewer queries the calculation of $1 OOm as incremental cost as unlikely, as the baseline could not have been calculated - it is largely unknown. The Task Team agrees that it is extremely difficult to calculate baseline finding and incremental costs on such a global project, especially when target hotspots are still to be finalized. Nevertheless, incremental costs analyses were prepared for each of the 15 critical ecosystems targeted in the 14 hotspots during the first phase and these costs are detailed in the Incremental Cost section. In addition, incremental cost analyses will be prepared for each critical ecosystem as an integral part of the ecosystem profiling process during the CEPF-2 project... Global estimates suggest that finding levels much higher than currently available are needed to strengthen biodiversity conservation and management. It seems fair to suggest that all of the $100 million to be mobilized by this project to support civil society conservation activities would be incremental. The GEF is requested to provide $20 million, which will leverage at least another $80m of other donor co-funding. Management costs 34. Management and overhead costs are now directly reflected in Component 4c, Secretariat of the Project Costs detailed in Annex 5. Stakeholder drivenness 35. The CEPF-2 project design includes specific activities to enable locally-based civil society groups, including national and local groups, to play a greater role in decision making during project design and implementation. Efforts will be strengthened to encourage even greater participation of all relevant stakeholders, including local communities and indigenous groups, to participate in the development of the ecosystem profiles and strategies. All grants would be awarded on a competitive basis, with more decision-making devolved to Regional Implementation Teams and local advisory committees. Regional 100

112 Implementation Teams would be selected on a competitive basis and could not compete for additional grants within their hotspots - see Implementation Arrangements. Monitoring 36. Specific conservation targets and related indicators will be developed as an integral part of the ecosystem profiling process for each ecosystem. Progress at the ecosystem/ hotspot will be monitored by the Regional Implementation Teams and measured against these expected outcomes and results frameworks. Individual projects that focus on protected areas and/or mainstreaming biodiversity in production landscapes will apply the GEF SP1 and SP2 tracking tools. 101

113 Annex 17: Independent Evaluation Executive Summary GLOBAL: Second Critical Ecosystem Partnership Fund Project Background 1. The Critical Ecosystem Partnership Fund (CEPF) is a joint initiative of Conservation International (CI), the Global Environment Facility (GEF), the Government of Japan, the John D. and Catherine T. MacArthur Foundation and the World Bank. Each of these donor partners committed to a $25 million investment over 5 years: CI, GEF and the World Bank from 2000, the MacArthur Foundation from 2001 and the Government of Japan from CEPF was conceived as a model to demonstrate the effectiveness of mobilizing innovative alliances among NGOs to achieve conservation objectives. The objective of CEPF is to provide strategic assistance to nongovernmental organizations (NGOs), community groups and other civil society partners to help safeguard Earth s biodiversity hotspots, i.e., the biologically richest yet most threatened ecosystems. CEPF had progressively established active grant making programs in 15 regions covering 34 countries within 16 hotspots by June 30,2005. CEPF had committed grants of $68 million by this date, of which $47 million had been disbursed from an overall grant making budget of $100 million. 3. CEPF is managed as a semi-autonomous unit within CI, whose Board of Directors has fiduciary responsibility for the program. CEPF is supervised by a Donor Council, representing each of the donor partners, supported by a CEPF Working Group comprising CEPF management and technical staff from the donor partners. CEPF has selected one or more NGOs as a Coordination Unit in most of the active hotspot regions, to represent the program and to manage grant making. CI is CEPF s single largest grantee, providing a variety of coordination, implementation, scientific and administrative services at both headquarters and field levels. 4. Even though CEPF has completed five years of operations, the program is still developing. Slightly less than half of the available grant funds had been received by grantees when this evaluation began, while projects amounting to slightly less than $20 million or 20% of the total grant funds had actually been completed. Of the 15 active grant making programs, three had been active for 4.5 years, seven for 3-4 years and five for less than 2.5 years. 5. The CEPF donor partners initiated an independent evaluation of CEPF which began on August 15,2005 and focused on grant making through June 30,2005. The Evaluation 6. The evaluation terms of reference (TOR) are explicit on the approach to be followed, stating that the emphasis should be on the initiative as a whole, not on the effectiveness of respective field programs. The TOR also specifies that the evaluation should not assess the effectiveness of independent projects but rather the strategic orientation of the portfolios vis-& vis the larger strategic mission of CEPF. The evaluation was carried out by a team of three independent consultants, the authors of this report. The needed tasks were planned and 102

114 implemented on an accelerated schedule in order to provide timely inputs to the donors considering imminent refinancing of CEPF. 7. The evaluation focused on ten of the 15 active funding regions. Each was visited during September-October 2005, generally for 7-10 days, following guidelines developed by the evaluation team. The visits included field visits to selected projects, extensive interactions with local coordination mechanism staff, interviews and workshops with grantees and other key stakeholders, and discussions with CEPF s regional Grant Directors. Outstanding cooperation was received from all CEPF staff, grantees and partners in facilitating these visits at short notice. Overall Findings 8. CEPF has made strong progress overall during its first five years. While achieving gains in biodiversity conservation within hotspot regions is a long-term challenge, a solid foundation has been laid for the future. The overall performance from a global perspective has been excellent, even though there is some variation in the performance of individual hotspot programs. 9. Particularly significant progress has been made in the following areas:. A coherent planning process to guide grant making at the hotspot level has been developed and applied. The Ecosystem Profile methodology has improved significantly over the life of CEPF after a variable start, with strong scientific support from CI. The more recent Profiles have included thorough analyses of threats and opportunities, identified the key elements of an ecological baseline for measuring progress, and provided clear strategic directions to guide grant making. The later Profiles have been strengthened by broader and more effective stakeholder consultations. In some cases the Profiles have been used successfully to encourage the participation of other donors and coordinate the resulting additional investments.. The hotspot grant portfolios are well aligned with the strategic priorities set out in the Ecosystem Profiles, most of which are expressed in fairly general terms. The portfolios typically consist of a few relatively large grants for program coordination and leadership, several medium-sized grants to relatively capable national and international NGOs for strategic, high-priority projects, and a larger number of smaller grants (many under $20,000) to emerging civil society organizations carrying out an impressive range of grassroots activities, some of which are thematically clustered. While the aggregate early gains from such diverse initiatives are difficult to assess, the overall picture that emerges is that the projects fit together in a coherent way and that most of the hotspot portfolios are well integrated and of significant strategic value for biodiversity conservation. While individual projects were not a primary focus of the evaluation, design and implementation generally appears to be sound.. The characteristics and capacity of the civil society constituency being supported by CEPF vary significantly between the hotspot regions, with the result that the term civil society embraces a very broad range of organizations. The evaluation field visits 103

115 provided ample evidence that the CEPF model is sufficiently flexible to effectively identify and support a range of civil society organizations of different types in varying contexts. Few of these grantees, particularly the less experienced emerging organizations, have access to alternative sources of funding. The most significant direct impacts from grant making to civil society have been: (i) capacity building among local and national conservation NGOs; (ii) contributions to extending and strengthening protected area networks: (iii) broadening environmental awareness through effective communications; (iv) enabling local, national and international partnerships to support biodiversity conservation; (v) effective advocacy by grantee organizations in connection with infrastructure and other development projects; and (vi) contributions to sustainable financing for conservation. The portfolios also contain a significant number of projects that combine community development and livelihood opportunities with biodiversity conservation, thereby contributing to poverty mitigation. Significant indirect impacts should also result from grants, notably when a particular approach tested or demonstrated successfully by a CEPF project is replicated or scaled up. Other indirect impacts can be expected to include: (i) policy changes by governments or new approaches by donors inspired by grantees; (ii) NGO grantees going on to more influential activities as a result of capacity building and experience gained during a CEPF project; (iii) local communities initiating new environmentally-friendly activities or obtaining services or action from government as a result of increased self reliance and organizational skills acquired during a CEPF project; (iv) institutional project partners such as research institutions, local governments and national environmental funds adopting CEPF approaches and introducing them to larger communities. Some of these benefits may not become evident until several years after the activity that stimulated them and are difficult, if not impossible to measure. That does not diminish their value,. however. The Coordination Units, CEPF s representatives and grant managers on the ground, have provided high quality local program implementation services. The Coordination Units have effectively identified and supported emerging civil society organizations, especially those with little previous proposal development or project management experience, many of which are scattered widely in remote locations. CI provides the Coordination Unit at 9 of the 15 hotspot programs, although 4 of the last 5 programs activated have drawn on other NGOs in an impressively diverse range of local institutional arrangements. Although these arrangements have not been problem free, they have worked very well overall. With roles that go well beyond grant program administration, the Coordination Units have emerged as one of the key strengths of CEPF. With support from CEPF in Washington, especially the respective Grant Directors, these Units have been particularly effective in linking smaller grassroots activities, larger projects, policy initiatives, international collaboration, sustainable financing and other key elements of comprehensive, vertically-integrated conservation portfolios. The CUs have been 104

116 particularly adept at pursuing constructive partnerships with governments - in some cases multiple governments - while simultaneously supporting civil society organizations which sometimes have uneasy relations with their governments as a result of their conservation advocacy activities. The label of Coordination Unit does not do justice to the contribution of these key strategic partners. Performance Measurement 10. The approach to performance monitoring has evolved and improved since CEPF was launched in 2000 and it is a continuing work in process. CEPF is addressing large scale issues with its partners and has a budget that is only generous by previous NGO conservation standards. Expectations on what can be achieved at the hotspot level within short time periods should therefore be kept within modest bounds, despite the relentlessly success-driven discourse of the conservation and development communities. 11. It is extremely difficult to determine how specific investments or projects of CEPF affect long term conservation outcomes in a corridor, protected area, nation or region because such outcomes are usually the result of efforts of numerous government agencies, communities, NGOs and donors over an extended period and are not easily attributed to a specific short-term investment by one program. An overemphasis on generating short-term (e.g., less than 10 year) conservation successes on a broad front can be hazardous insofar it tends to constrain risk and innovation, and restrict the freedom needed to explore more risky undertakings or those requiring more time. 12. CEPF does not regularly assess or report progress at a hotspot level against either the conservation outcomes or the other goals identified in the log frames within each of the ecosystem profiles. While the CUs have done very good work, they have not focused on analyzing the overall performance of their hotspot grant portfolios. Exceptional work has been done in communications, but the overall impacts of the portfolios and progress towards the conservation outcomes had not been systematically compiled and assessed. CEPF does plan to compile a formal report on progress against the log fi-ames for each funding region at the close of the initial five-year funding period, starting early in Most conservation outcomes are unattainable within a five year period. Effective management of protected areas and especially large corridors must continue indefinitely as there will always be new threats and conflicts. Active civil society involvement in governance is essential for equitable and transparent decision-making and accountability, even though conservation outcomes may not be these organizations immediate or major priority. Therefore, to improve performance and evaluation, targeted conservation outcomes require an explicit subset of short-term benchmarks and targets that can track progress towards the species, site and corridors outcomes. While aiming for these long-term conservation outcomes, the process and implementation of CEPF grants generates considerable socio-economic, governance, livelihood and related impacts that are not effectively captured in the current performance and evaluation framework. 14. Monitoring in the form of site visits by the CUs appears inconsistent across the hotspots. The CUs do not perceive their performance monitoring roles clearly, mainly emphasizing 105

117 conservation actions and management of grant funds. The overall responsibility for project monitoring as a support function as well as monitoring of progress towards outcomes requires further clarification. While CEPF has developed impressive grant management and grant application software, there is no comparable system for monitoring and evaluation, and no automatic or other compilation of project site visit observations or the progress reported by individual projects against the targeted outputs at the portfolio level. The viability of developing and introducing an integrated monitoring and evaluation system should be assessed. Care needs to be taken, however, not to impose a monitoring structure that is so rigid as to inhibit the vital innovation needed to push the boundaries of current approaches. Relationship with Conservation International 15. The relationship with CI provides substantial benefits to CEPF. C I co-initiated, launched and manages CEPF, its Board of Directors has fiduciary responsibility for CEPF, its Center for Applied Biodiversity Science provides technical services, and several of its regional programs and Centers for Biodiversity Conservation are local coordinators for CEPF. C I also provides a range of management, administrative and information technology services in addition to having committed $25 million to CEPF as an initial investment. Two CI funds, the Global Conservation Fund and Verde Ventures, as well as CI country programs have provided funding for grant applicants that CEPF was unable to support and have co-financed certain CEPF grants. CI therefore has an extremely close relationship with CEPF on several different fronts. Start-up Phase 16. CI s dual role as manager of the grants program and as a potential grantee presents a potential conflict of interest. CI is the largest grantee of CEPF and by June 2005 had received a total of $29 million in hotspot coordination grants, project implementation grants and management fees. Recognizing this issue, CEPF s Financing Agreement limits grants to CI to 50% of the total available, with specific Donor Council approval, and the CEPF Operations Manual requires all grant proposals, whether from CI or from external groups, to be subject to the same decision-making process. 17. As originally required by the CEPF Donor Council, the initial CEPF Spending Plan attached to the Financing Agreement in 2000 included grants to CI that equaled 50% of the available resources of $1 1.6 million allocated to the first three hotspots, without the projects concerned having been specified or developed in detail. Subsequently, there was considerable pressure on CEPF staff to support funding for relatively large CI proposals, particularly during the first few years of CEPF. Although the pre-allocation requirement was subsequently changed by the Donor Council in 2001 at the request of CEPF management, these factors contributed to a widely-held perception that CI was being awarded significant CEPF grants without other options or considerations being fully explored, to the detriment of the overall program. 18. From CI s perspective, they were successfdly engaging a range of new donors in supporting valuable conservation initiatives with an exciting new focus on civil society. CEPF had made a strategic decision to begin work in areas where CI already had a strong presence and existing relationships to build upon, so it was not surprising that their country and regional programs would lead the initial CEPF effort. However, this interpretation was not shared widely among 106

118 the technical staff of donor partners, many external stakeholders or the broader conservation community. 19. These issues have received continual attention from the Donor Council, the CEPF Working Group and CEPF management, who have all worked hard to overcome the negative impacts of these early developments. Recent Developments 20. Subsequent developments related to these issues were examined closely during the evaluation and some important trends became clear:. The share of CEPF grants to CI fell from the initial 50% level to a cumulative 35% by June 30, 2005, and continues to decline. This trend is largely explained by CEPF expanding into new areas where CI does not have experience or a comparative advantage, and the consequent need to engage with and support new partners and Coordination Units. 9 The evaluation team has concluded that CI has generally done an excellent job with the funds it has received from CEPF. The coordination and project implementation services from CI regional programs and Centers for Biodiversity Conservation, the scientific and technical support from the Center for Applied Biodiversity Science, as well as the administrative, management and information technology services from CI s headquarters have all been of high quality and have provided essential support to CEPF s civil society grant making.. All transactions and financial flows with CI appear to have been transparently reported, even though some of these are relatively complex.. The pressure on CEPF staff to support CI grant proposals as well as the expectation among C I staff that they should have priority access to CEPF funds has clearly reduced over time, although it has not been eliminated.. While CI has generally done an excellent job with the grant funds it has received, it would be hard to argue convincingly that CI has been treated like any other potential grantee, as required by the CEPF Operational Manual.. In some hotspots it is difficult to assess whether certain program activities carried out by CI staff with CEPF grant support should have been paid for by CI or by CEPF, with viable arguments on both sides.. CI itself has recently committed to shifting towards a strategy of re-granting substantial proportions of its revenues to support strategic partnerships, rather than trying to do it all with their own field offices and personnel. This style of operating is much closer to the CEPF model, which gave C I one of its first experiences of an explicit focus on making grants to civil society with an emphasis on partnerships and alliances. 107

119 21. Despite these generally very positive developments, external perceptions continue to be negatively shaped by the earlier events. Furthermore, the rules and disclosure requirements governing CEPF grants to CI have not so far overcome the potential conflict of interest when a grantee is competing with other organizations for grants from a fund which it manages. Our conclusion is that a reorientation of the CEPF-CI relationship is needed, to set further limits and to further improve transparency. The result should be to strengthen the credibility of the arrangement in both reality and perception. 22. Major realignments in the CI-CEPF relationship were considered by the evaluation team, including making CEPF independent of CI or making CI ineligible for CEPF grants. However, such extreme measures do not appear necessary and it is evident that such changes would have an enormous negative impact on CEPF s capacity to operate effectively and to continue developing the highly promising model that has emerged. Instead, the Donor Council may wish to consider the following elements:. A global limit for CI grants that is lower than the current 50%. More systematic and independent peer reviews of all grant proposals from CI, including Coordination Unit grants (this should apply to all international NGO proposals).. More consistent use of local independent advisory committees to advise on grant proposals (this should apply to all international NGO proposals).. The Executive Director of CEPF to report to the Chairman and CEO of CI, who represents CI on the CEPF Donor Council. Governance Donor Council 23. The Donor Council has played an active role in accordance with its assigned responsibilities. The guidance and oversight provided by the Donor Council with the support of the Working Group appears to have been effective and timely, and the Donor Council has made important contributions to fundraising. CEPF Working Group 24. The Working Group has played an active role in several of the improvements to CEPF and provided useful input and guidance to the CEPF on important issues. Continuing efforts to catalyze or facilitate operational collaboration between their own organizations and CEPF need to be strengthened, as described below. CEPF Management 25. CEPF management has faced a challenging set of strategic and operational issues during the first five years. Most of these challenges have been met with great skill and there is clear evidence of management s capacity to learn from experience and adapt to new situations, notably in the selection and management of local coordination units. CEPF is clearly a 108

120 responsive organization that appears to operate efficiently. During the evaluation management and staff demonstrated an exceptional capacity to respond to a myriad of requests for data and to rapidly generate products for review. The people engaged as staff, partners and grantees are, almost without exception, capable and impressive. 26. CEPF communications is exceptionally strong, particularly at a global level. For example, during the 12 months to June 30,2005 visitors to the CEPF Web site downloaded over 65,000 copies of final project reports, probably drawn by the marketing of these reports in the CEPF newsletter. These visitors came from at least 130 countries and in total downloaded more than 41 8,000 CEPF documents and reports. Engagement with Donors 27. As an investment, CEPF provides all of its donors with a relatively agile, flexible and fastmoving funding mechanism that supports civil society organizations in areas of global biodiversity significance by disbursing funds in smaller amounts than these organizations generally deal with. CEPF s emphasis on employing good science, engaging stakeholders, building local capacities, mainstreaming biodiversity and harmonizing donor investments in biodiversity is also of considerable strategic value to these organizations, while the capacity to support regional environmental collaboration involving multiple countries provides an important contrast to the more prevalent single country donor model. 28. CEPF s activities are consistent with and supportive of the poverty mitigation focus of the World Bank and the Government of Japan as well as the sustainable development focus of GEF. There appears to be a strong overlap between the CEPF hotspots and concentrations of rural poverty, suggesting that those projects supporting alternative livelihoods are likely to be benefiting the poorest of the poor, many of whom depend directly on the services provided by the same ecosystems that CEPF is helping to conserve. It seems evident that conservation programs such as CEPF are considerably more cost-effective than the massive investments that would be needed to restore such ecosystems if they were to become degraded and lose the ability to provide essential services to the poor (e.g., water, fuelwood, fodder, and flood protection, etc.). World Bank 29. The potential for operational collaboration with the World Bank was originally highlighted as one of the key opportunities provided by CEPF s innovative donor partnership. The potential for such collaboration has not diminished, and appears even greater now that CEPF has implemented a series of convincing field programs and can share knowledge and lessons learned. Potential aside, however, there has so far been little effective operational collaboration between the World Bank and CEPF at the field level. CEPF is perceived a CI program and not part of the Bank s country programs. Consequently, some important opportunities to build linkages and to broaden CEPF s impact are being missed, although there are signs that this may be starting to change. Global Environment Facility 30. GEF has two funding windows providing resources directly to NGOs for biodiversity conservation: the GEF Small Grants Program (SGP) and the GEF Medium-Sized Projects 109

121 (MSPs). So far there have been surprisingly few interactions between CEPF and SGP. There are some important complements in the operational models of CEPF and SGP which could provide the basis for productive collaboration and cross learning. The MSPs have represented an important opportunity for NGOs to access GEF resources and there may be opportunities to scale up promising CEPF projects through MSPs GEF s recent adoption of the Resource Allocation Framework is expected to significantly change the nature of GEF operations. There may be a reduction in GEF funding to NGOs as well as fewer opportunities for MSPs to be developed. This suggests that CEPF is unlikely to decline in terms of its relative importance to GEF as an NGO funding delivery mechanism, and may represent an increasingly valuable opportunity to support civil society with an approach that complements but certainly does not duplicate SGP. MacArthur Foundation 32. Grants made by the Foundation and by CEPF tend to be broadly complementary. In a few cases, earlier grants from MacArthur have been consolidated by subsequent CEPF grants. While there may some similarities and overlaps, redundancies are not apparent. There are some key differences in grant making. For example, the Foundation does not have an on-the-ground presence corresponding to CEPF s coordination units. Also, the Foundation has gradually moved towards larger grants, and currently supports few projects corresponding to CEPF s smaller grants. At present, there is limited information flow between the Foundation and CEPF, although Foundation staff have provided valuable inputs to Ecosystem Profile drafts. Opportunities for improved information sharing should continue to be assessed and Foundation staff should be encouraged to participate where appropriate once collaboration between the World Bank and CEPF starts to take off. Government of Japan 33. The Government of Japan appears to value its investment in CEPF for many of the same reasons as the World Bank and GEF. The Japanese Ministry of Finance has also been particularly concerned that CEPF grant programs demonstrate a positive contribution to poverty mitigation. As CEPF analyses have suggested and the findings of this evaluation have confirmed, CEPF is supporting long-term poverty mitigation efforts on several fronts. Program Priorities 34. The CEPF model of support to civil society for biodiversity conservation in hotspots has made a very promising start and the experience to date does not suggest any need for radical changes in strategy or approach. Assuming that CEPF receives further financial resources to continue beyond the five year start-up period, priorities do need to be determined for the next phase. 35. The evaluation findings suggest a cautious approach. While the progress made in CEPF s first few years has been very positive, it is still too early to assess the sustainability of impacts. CEPF s ambitious long-term goals cannot be met in one or even a few five-year periods. Even though CEPF works mainly with and through civil society, many of the challenges being addressed by CEPF programs will ultimately require major changes in policies and behavior by 110

122 governments and other actors, none of which can be brought about rapidly or without continued attention. 36. This suggests that consolidation and gradual expansion should be the strategic priorities for the next phase, to ensure that: (i) the benefits gained so far are nurtured and sustained; (ii) lessons from experience to date are identified and reflected in continuing operations; (iii) the tools and methodologies for monitoring performance are developed further; (iv) the relationship with CI is optimized and (v) operational collaboration with donor partners is strengthened. Recommendations Allocation of Resources 37. Broad decisions will need to be made on how and where new financial resources for grant making are to be allocated across the global program. Key decisions will include: (i) whether to reinvest in the initial CEPF funding regions, (ii) whether to expand the number of active hotspots and by how many; (iii) the level of resources to be allocated to individual hotspots; (iv) whether to expand the scope of CEPF to include new geographic areas or land use designations beyond the current focus on terrestrial hotspots Following the proposed principle of consolidation and gradual expansion, considerable care should be taken not to dilute the clear and transparent mission of CEPF, which is relatively easy to communicate and provides clear direction and inspiration to staff, partners and grantees. 39. Discontinuing support for any region does not seem warranted at this early stage in the development of CEPF, particularly as many of the conservation outcomes have an anticipated time frame of considerably more than five years. As this report has emphasized, significant, long-term progress towards these outcomes requires sustained investments. 40. The evaluation team was asked to consider the option of concentrating significantly more financial resources in individual hotspots with the aim of achieving greater impacts. While such decisions should be made on a case-by-case basis, we have concluded that there are some disadvantages to such an approach: CEPF s ability to use resources effectively is limited by the absorptive capacity of local civil society grantees. In the hotspots visited, even though some grant funds appeared to be oversubscribed after their initial call for proposals, there seemed to be a reasonably good fit between the available CEPF grants resources and the viable project concepts being put forward by local civil society organizations.. CEPF s influence appears to owe more to its excellent people, astute decision making, leverage and flexibility rather than the sheer amount of financial resources that it can bring to bear. A significant increase in grant resources would require more staff and a greater management effort from the Coordination Units to maintain the current high levels of technical support provided to grantees - one of the clear strengths of the program. While the CUs are proving very capable in their current role, to significantly 111

123 41 and suddenly upgrade their grant management capacity could place excessive demands on these organizations.. Increasing the duration of the program, i.e., going well beyond five year periods, would appear a more productive investment and one more consistent with the time frame likely to be needed to generate sustainable gains at a significant scale. Conversely, an alternative approach which spreads resources over more regions than at present also has drawbacks. It is evident that CEPF senior management spends a considerable amount of time refining strategies, making critically-important decisions and providing other inputs to each hotspot region, especially during the start-up phase. Senior management also invests considerable effort in seeking new donor partners, negotiating global grants, securing cofinancing and supporting new trust funds. This level of effort per hotspot seems related to the number of hotspots and the diversity of institutional and management challenges they represent rather than the level of financial resources available for grant making. In other words, a significant element of fixed management costs are incurred by operating at each hotspot site. It can therefore be anticipated that a rapid and significant expansion in the number of hotspots would require at least a proportional expansion in CEPF s senior management capacity. Performance Monitoring 42. A priority for the next phase of operations will be to strengthen performance monitoring at a hotspot level in two specific directions. First, both the Grant Directors and CUs need to be more involved in portfolio performance reporting on a regular basis. Second, the use of conservation outcomes as long-term operational targets should be complemented by the development and adoption of socio-economic, political and civil society measures and indicators that will provide more feedback on CEPF s interim progress towards these outcomes. 43. The performance assessments of each of the hotspots that are planned to start in 2006 represent an important opportunity that will probably require considerable resources, and this needs to be planned and implemented with considerable care if it is to prove of significant value to the program. A strategic and programmatic approach is needed to these assessments, that should constitute a major activity of the second five years for CEPF. Some of the key issues that should be taken into account are: (i) connecting these assessments to updates of the Ecosystem Profiles for programs that are to be refinanced; (ii) linking these reviews with the development and testing of new performance monitoring methodologies and systems, including indicators to reflect the nature of and changes induced in civil society to complement the conservation outcomes; (iii) ensuring that portfolio-level lessons are identified and disseminated; (iv) ensuring the reviews are participatory by involving grantees and other partners; and (v) exploring opportunities for cross-learning between portfolios to help achieve global program synergies. Ecosystem Profiles 44. The Ecosystem Profiles have proven to be an effective tool for planning and guiding grant making, and have improved over time as lessons from the earlier experiences have been applied. The Profiles are reviewed carefully by the CEPF Working Group and eventually 112

124 approved by the Donor Council, thereby providing these bodies with their most important opportunity to influence site level grant making. 45. The completed Ecosystem Profiles have strategic priorities expressed in fairly general terms. This has so far proved to be an advantage, by providing the flexibility to make decisions on the ground as local grant making knowledge and experience accumulates and the capacity of each Coordination Unit grows. Now that the existing CUs have greater capacity and an enhanced understanding of local civil society grant making, consideration should be given as to whether strategic priorities should: (i) become more specific and targeted based on a better understanding of the local grant making opportunities; or (ii) remain more general to encourage decentralized decision making. Site-specific, case-by-case solutions will probably be required, based on a clear appreciation of the capacities of both the CU and local civil society organizations. 46. Updated Ecosystem Profiles and revised strategic directions and investment priorities may indicate the need for grant portfolios to be realigned in funding regions to be refinanced. Future Ecosystem Profile preparation processes should include consideration of poverty issues, payments for ecosystem services and the value of ecosystem services, reflecting the findings of the Millennium Ecosystem Assessment and consistent with the U.N. Millennium Project. Coordination Units 47. The CUs have been highlighted as a major strength of CEPF, demonstrating the viability of an innovative range of institutional arrangements and providing services that go well beyond grant program administration. The role and functions of the CUs could still be defined more explicitly, however, including their responsibilities for project monitoring and portfolio performance reporting. The C U selection process should be opened up further to consider more national organizations, and consideration should be given to the use of more open bidding processes for new coordination grants. The coordination arrangements in the first three funding regions (Guinean Forests, Madagascar and Tropical Andes) should be reassessed as their initial five year funding cycle is completed in 2006 and, in the case of Tropical Andes, should be reestablished. 48. It will become increasingly important to consider the long-term future of the CUs once they emerge successfully from the early phases of grant making. There is a clear need to develop the capacities of local and national NGOs, as CEPF is already doing, and to seek opportunities to delegate increasing authority and responsibility to these organizations to increase the local ownership of conservation programs. On the other hand, a too-rapid wind down by the C U can jeopardize the sustainability of the gains made to that point. Integration with Donor Partners 49. Strengthening the operational collaboration with donor partners should be an explicit and early priority of the next phase of CEPF. In order to be effective, this will require considerable efforts on behalf of both CEPF and the donor partner organizations. 113

125 Grants to International NGOs 50. Within the current portfolio, international NGOs have made important contributions not only as CUs but also by implementing strategic projects and managing small grant funds as intermediaries between the CUs and some of the smaller and more scattered or remote grantees. In total international NGOs had received 59% of CEPF s grants through June 30, 2005 (including CI s 35% share). CEPF management and some of the donor partners have expressed the importance of gradually reducing the proportion of grants going to international rather than local and national NGOs. Having studied the grants data, the evaluation team concurs. However, this issue has some complex aspects and care needs to be taken before imposing arbitrary limits on CEPF grant making to international NGOs. The international conservation NGOs often have significant capacities and experience in organizational management, communications, fundraising and negotiating transboundary issues. In some contexts, they can also negotiate more effectively with governments and large private sector firms than national organizations. While we strongly support further decentralization of decision making within CEPF as the capacities of local and national organizations grow, there are clear conservation benefits to be derived from the participation of the international NGOs. Such decisions should again be made on a case-by-case basis. Sharing Knowledge and Lessons 5 1. Although excellent work has been done in developing and disseminating communication materials for non-technical and non-specialist audiences, more attention needs to be given to the systematic analysis and documentation of CEPF results and experiences. Lessons learned are not emerging at the portfolio level yet, probably because of the general lack of emphasis on portfolio-level performance reporting at this early stage in the majority of portfolios and because of reluctance to acknowledge or document problems and difficulties, even if these eventually became important learning experiences that have led to a stronger program. 52. While CEPF is exceptionally strong in communications, it has not found it easy to identify and disseminate lessons. While CEPF has clearly adapted its approach and learned from experience, this has taken place as a result of informal information sharing within the organization combined with skillfully adaptive management. Either through C I or independently, CEPF should enhance its capacity to conduct more balanced analyses of its experiences that is distinct from communicating conservation successes. Operational Recommendations 53. Certain operational areas have been identified where improvements can be made: In some hotspots there is some duplication of effort between the tasks carried out by the local Coordination Units and those of CEPF s US-based Grant Directors, most of which could be addressed by further decentralization of decision making to the local level. In general, there appear to be good opportunities for decision making to be further decentralized once hotspot grant programs have demonstrated their capabilities by successfully progressing beyond their start-up phase, although such delegation of authority and responsibility should be approached cautiously on a case-by-case basis. 114