LIFE financial instruments: Natural Capital Financing Facility

Under the Natural Capital Financing Facility (NCFF), the European Investment Bank (EIB) will provide loans and investments in funds to support projects which promote the preservation of natural capital, including adaptation to climate change, in the Member States. The total budget for the Investment Facility amounts to € 100 – 125 million for 2014-2017. The European Commission contributes € 50 million as a guarantee for the investments and finances a € 10 million support facility.

What are the objectives of the NCFF?

Halting the loss of biodiversity and adapting to climate change requires increasing investment in natural capital that complements the more traditional grant-based funding. The main aim of the NCFF is to demonstrate that natural capital projects can generate revenues or save costs, whilst delivering on biodiversity and climate adaptation objectives. The NCFF is to establish a pipeline of replicable, bankable operations that will serve as a "proof of concept" and that will demonstrate to potential investors the attractiveness of such operations. The available funding under the NCFF is expected to allow financing some 9-12 projects over the 2015-2017 period. The investments will be spread in a balanced way across EU Member States and the four below-mentioned project categories.

What does the NCFF do?

The NCFF will support projects working on the following themes:

• Payments for Ecosystem Services: projects involving payments for the flows of benefits resulting from natural capital. They are based on the beneficiary pays principle: the beneficiary of an ecosystem service pays the provider for securing that service.
• Green Infrastructure: projects generating revenues or saving costs based on the provision of goods and services such as water management, air quality, forestry, recreation, pollination and increased resilience to the consequences of climate change. Examples are green roofs, green walls, ecosystem-based rainwater collection / water reuse systems, flood protection and erosion control. Consult the European Commission’s webpage on Green Infrastructure for more information.
• Innovative pro-biodiversity and adaptation investments: projects involving the supply of goods and services, mostly by SMEs, which aim to protect biodiversity or increase the resilience of communities and other business sectors. Innovation may relate to new approaches to ecological restoration and/or conservation or innovative business models such as harnessing ethical investments and adding value to goods and services through certification and standards schemes.
• Biodiversity offsets: are conservation actions intended to compensate for the residual, unavoidable harm to biodiversity caused by development projects. They are based on the polluter pays principle, whereby offsets are undertaken for compliance or to mitigate reputational risks. The support provided under the NCFF shall not reduce the costs of compliance with legal obligations to deliver offsets that are to be borne by entities that are under a legal obligation to deliver such offsets.

The NCFF may support projects involving Natura 2000 sites under all the above themes, except for projects falling under the Biodiversity offset category which aim at compensating damage to Natura 2000 sites according to Article 6.4 of the Habitats Directive. These projects are not eligible for financing under the NCFF. The measures in Natura 2000 sites compensating for environmental damage elsewhere are eligible to receive NCFF financing.

Which funding mechanisms are available?

The NCFF intends to provide finance to project developers both directly as well as indirectly through financial intermediaries. The financing will typically range from € 5 million and € 15 million per project. It may cover up to 75% of the total project costs. The funding will typically be granted for up to 10 years with possibility of a five year extension. The NCFF may also invest in equity funds, matching other contributions to the maximum share of 33%.

What are the eligibility criteria?

To be eligible for the NCFF financing, a project must meet the following criteria:

• Promote one or both of the following objectives:
• Conserve, restore, manage and enhance ecosystems, including through ecosystem-based solutions; and
• Apply ecosystem-based approaches that enable businesses and communities to address identified risks associated with current and projected impacts of climate change, including through urban, rural, and coastal green infrastructure projects.
• Demonstrate financial and economic benefits, including the ability to generate revenues or save costs, with overall benefits exceeding costs;
• Contribute to the objectives of the EU LIFE programme for nature and biodiversity, and/or climate adaptation; and
• Meet the standard criteria set by the EIB for its investments.

Who can benefit from the NCFF?

Recipients of the NCFF financing can be public and private entities, including public authorities, land owners and businesses as well as private non-commercial organisations such as Non-Governmental Organisations. Financial institutions can also benefit from the NCFF as investors, providing match funding for the NCFF financing or as financial intermediaries helping the EIB to invest its funds. Both beneficiaries and financial intermediaries will need to demonstrate that they have the necessary technical, operational, and financial competence and skills to implement the proposed operation.

Further information for financial institutions (intermediate debt financers, equity fund managers and co-financers) that would like to get involved in the implementation of the NCFF is provided in this leaflet.

Representatives of financial institutions interested in investing with the NCFF are invited to contact the EIB at: NCF_Instrument@eib.org

What is the role of the NCFF Support Facility?

The NCFF includes a Support Facility of € 10 million for financing capacity building measures aimed at creating a healthy pipeline of eligible projects. The Support Facility will be used to pay for the specialist support in the development of technical and financial capacity of potential NCFF projects.

Support and capacity-building will be provided only to projects that are likely to meet the NCFF eligibility criteria. Maximum support will be limited to € 1 million per operation.

The Support Facility will consist of external advice and consultancy services to potential NCFF recipients. External experts will be selected by the EIB based on needs assessment developed in cooperation with project developers. Depending on this assessment, this service may cover technical, business and financial advice, training, assessment of social, economic and environmental aspects of individual projects or monitoring and reporting impacts on environment and ecosystems.

Financial intermediaries (including funds) may benefit from the Support Facility for the identification, screening and assessment of innovative projects in line with the project eligibility criteria set for the NCFF. This support should not, however, substitute normal operating costs.

How to apply?

Potential project holders can contact the EIB at any time to express their interest in the NCFF co-financing and to present their project idea that should be in line with the above outlined NCFF eligibility criteria.
At an early stage, the EIB will submit the preliminary project proposal to the Commission for checking compliance with the eligibility criteria. If eligibility is confirmed, the applicant and the EIB will further develop the project. On the basis of a full due diligence the EIB will decide on NCFF funding within the constraints of the available budget. The criteria for selecting projects include, inter alia:

• The capacity, experience and resources of the candidate;
• The strength and coherence of the business model;
• The structure of the investment;
• The contribution to the biodiversity and climate adaptation objectives;
• The potential for demonstration effect, replicability and transferability;
• The ability of the project to leverage additional project funding; and
• The creation and safeguarding of employment.

More information on the application process for the NCFF co-financing will soon be provided in a dedicated leaflet. An introduction to the EIB project cycle is provided on their website.

Potential project developers are invited to contact the EIB at: NCF_Instrument@eib.org.   
They may also be interested to contact the LIFE National Contact Points, who are particularly well placed to strengthen the coherence of potential projects with other (potential) LIFE projects, connect to suitable partners and generally help the development of projects.