To meet its climate change commitments, the international community has set ambitious targets to mobilise $100bn a year in climate finance. But if this is to have an impact, funding must be matched to effective investment projects which deliver on our commitments to reduce greenhouse gas emissions and support people to adapt to the effects of climate change.
A key challenge for development finance institutions (DFIs) in achieving this impact is to identify a pipeline of high quality projects that not only have a positive environmental and social impact, but also generate a positive risk-adjusted financial return for stakeholders (i.e. are ‘bankable’).
Introducing the Dutch Fund for Climate and Development
To meet this challenge, the Dutch Government set up the Dutch Fund for Climate and Development (DFCD) in 2019. It is managed by a consortium of Climate Fund Managers (CFM), World Wide Fund for Nature Netherlands (WWF-NL) and SNV Netherlands Development Organisation, and led by the Dutch Entrepreneurial Development Bank, FMO.
The fund aims to catalyse at least €500 million in private finance over its lifetime, with at least 50% of this being focused on adaptation and 25% channelled to projects in least developed countries.
The Fund has adopted a ‘landscape approach’ to help identify a pipeline of high quality, bankable, synergistic projects which have the potential to build climate resilience and deliver development objectives for communities.
DFCD defines the landscape approach as: ‘a way of managing the landscape by long-term collaboration among multiple stakeholders, with the purpose of achieving sustainable landscapes. It involves convening key stakeholders to build consensus about landscape management and decision making’.
For the DFCD, the landscape approach has both conceptual and literal connotations; the Fund uses the approach as a conceptual framework to help facilitate sustained collaboration with stakeholders, while strengthening its ability to identify suitable projects to achieve a positive impact on ecological landscapes.
The landscape approach is not in itself a unique tool for managing activities within an ecological landscape and has been used for some time by a wide range of development actors. However, DFCD’s use of the framework is innovative in the context of climate finance, particularly in the way it encourages consortium parties to actively source and develop private sector investment opportunities for other consortium parties in-and-around, as well as downstream from, their own investment activities.
The landscape approach lends itself to supporting the DFCD to develop an improved understanding of environmental risks in its priority landscapes and the likely impacts of those risks on vulnerable groups, as well as associated climate adaptation solutions.
How is the approach working in practice?
From 2020-21, Itad worked with the DFCD to evaluate its set up and implementation to-date, and identify opportunities for the Fund to strengthen its work.
Overall, our evaluation found that the DFCD has made good progress in identifying and supporting potentially bankable projects that would not otherwise have been developed.
We found that the landscape approach has positively supported the Fund’s identification of projects and project owners, while also enhancing the broader relevance of the Fund and potential for aggregate impact. The approach has potential to help DFCD identify and align its projects to the longer-term goals of climate adaptation, ecosystem resilience and the participation of vulnerable groups in the countries it works in.
Challenges and opportunities
Due to the multi-faceted, large-scale and long-term nature of the landscape approach, there is a recognition within the DFCD that it can be challenging and time-consuming to implement. We found evidence that the approach is not evenly applied across the DFCD consortium: some partners have a preference for a more in-depth stakeholder-centric version of the approach, while others have been pursuing a lighter-touch, project-oriented approach.
This uneven ‘two-track’ landscape approach has been useful in affording the Fund a degree of flexibility in implementation. However, to strengthen its use of the approach our evaluation recommended that DFCD applies the same set of minimum values within both versions. To maximise impact, ideally a landscape approach should incorporate five basic elements:
- Establishing a multi-stakeholder platform
- Building shared understanding
- Collaborative planning
- Effective implementation
- Monitoring for adaptive management and accountability.
In addition, in the context of green finance, our findings suggest that a landscape approach is best deployed through a blended finance model and where a pipeline of projects is developed in parallel with the landscape scoping.
The recommendations from our evaluation were positively received by DFCD. Aart Mulder, from the DFCD said: “Itad’s evaluation of the DFCD’s set up and utilisation of the landscape approach led to worthwhile insights. Several Itad-led co-creation workshops increased the quality of the study. During these sessions, the DFCD partners collectively strengthened their planned actions as a consortium. Next to this, Itad provided separate recommendations for areas of improvement. Both served the main objective of learning.”
Where next for the landscape approach?
The landscape approach offers an innovative solution to the challenge of identifying potentially bankable projects which build climate resilience.
As recommended, the DFCD consortium agreed to update the landscape approach to apply the same set of minimum values identified for the landscape approach to both stakeholder centric and project centric assessments.
The update also elaborated on further engagement with multi-stakeholder platforms through the stakeholder centric approach, as our study emphasized the importance of projects being nested within a facilitating policy and institutional framework for project success. Projects in the Investment Facilities now include involvement of WWF and or SNV, which engage with local stakeholders to confirm landscape applicability.
A key outcome of the evaluation was that Itad showcased how different the DFCD consortium’s approaches are and highlighted different interpretations of, for example, how to implement the landscape approach. The DFCD’s Aart Mulder said, “ What was very valuable is that Itad did not see these different approaches as a negative, but rather as strength of the consortium’s approach, highlighting opportunities for both learning and – where warranted – alignment”.
The landscape approach is a fundamental, long-term strategy. The more investments there are, the more the impact on a landscape. The DFCD consortium has suggested the following next steps:
- Monitor impact at project level over time
- Where there are multiple projects (two to three) in a landscape, monitor combined landscape impact
- Deliver joint narratives (as a consortium).
DFCD partners will continue their collective learning efforts on applying an integrated landscape approach to investment decision-making and project support, with a specific purpose to originate impactful projects, manage risks, guarantee inclusiveness, and have a positive impact on ecosystems and the lives of vulnerable communities.
We look forward to learning more from their pioneering use of the landscape approach as they continue their implementation journey.
Special thanks to FMO’s Christiaan Broekman for his contributions to this blog, to Charles Michaelis as evaluation Team Leader, and to Itad’s Claire Stott as evaluator and project manager.