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TRANSFORMING TO UNLOCK CLIMATE ACTION IN THE Application Title

Country/ Region , , St Lucia

Accredited Entity Caribbean Development Bank

Approval Date 20/09/2020

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Request for Support from the Project Preparation Facility (PPF)

Application Title Transforming Finance to Unlock Climate Action in the Caribbean

Country(ies) Belize, Jamaica, St Lucia

Accredited Entity Caribbean Development Bank

Date of first submission/ June 8, 2020 V.1 Version number

Date of current submission/ 27, 2020 V.2 version number

Please submit the completed form to [email protected], using the following naming convention in the subject line and the file name: “PPF-[Accredited Entity]- [Country]-yyyymmdd” 2017

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Notes • The PPF supports the development of projects and programmes and enhance their quality at entry into the Fund’s pipeline. With a view to enhancing the balance and diversity of the project pipeline, the PPF is designed to especially support Direct Access Entities for projects in the micro-to-small size category. International Accredited Entities seeking project preparation support from the PPF are encouraged to do so especially for LDCs, SIDS and African countries where no Direct Access Entity is accredited. All Accredited Entities are encouraged to articulate counterpart support for project preparation within their requests for support from the PPF. • A PPF submission should include below documents: 1. PPF request (this form) 2. PPF No-Objection letter1 3. Concept Note • Please copy the National Designated Authority (ies) when submitting this PPF request. • Requests for support from the PPF should be submitted at the same time or following submission of a GCF Concept Note for a project or programme. • Further information on GCF PPF can be found on GCF website Project Preparation Facility Guidelines.

1 Please note that the PPF No-Objection Letter is different from the Funding Proposal No-Objection Letter. PPF No-Objection Letter template can be downloaded from here.

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A. Executive Summary Daniel Best Director, Projects Department [email protected] Accredited Entity +1 (246) 539-1710 (AE) Caribbean Development Bank P.O. Box 408 Wildey, St. Michael Has a Concept Note Yes ☒ No ☐ Yes ☒ No ☐ been submitted in Transforming Finance to Unlock Has a No-Objection association with Climate Action in the Caribbean Letter been submitted this request for for this request for support from the support from the PPF? PPF?

Total Cost [This information has been withdrawn for confidentiality purposes]

Anticipated Number of months to implement the Project Preparation activities: 12 months Duration 1. Through this application, the Caribbean Development Bank (CDB) is requesting financial resources from the GCF Project Preparation Facility (PPF) to develop a full funding proposal for the Transforming Finance to Unlock Climate Action in the Caribbean programme (hereafter referred to as “the programme”). The programme aims to unlock the private sector investment needed to transform Caribbean productive sectors and energy systems by catalysing a transformation of finance. The programme will accomplish this by blending GCF and CDB resources to extend concessional lines of credit to Development Finance Institutions (DFIs), who in turn will on-lend to MSMEs and homeowners for climate action investments.2 The programme will simultaneously deliver technical assistance to facilitate programme lending and support the transformation toward climate-informed lending by Caribbean DFIs. In delivering this support, the programme aims to: • Achieve tangible results during its implementation period, both with regards to (a) increasing lending and investment as well as (b) reducing/avoiding and enhancing resilience to the incremental risks/challenges associated Summary of the with ; and request for Project • Equip Caribbean financial service providers and local private sector actors with the Preparation support knowledge and capacity needed to enable the continued of financing for climate action investments after programme closure.

2. To develop a complete funding proposal (and associated annexes) for the programme, CDB is requesting GCF PPF resources to support the following:

ACTIVITY DELIVERABLES 1) Assess relevant baseline conditions in • Sub-project project eligibility criteria. each partner country, define programme- • Consolidated feasibility study, including eligible support, and develop the country profiles and indicative lists of eligible programme eligibility criteria and a technologies/practices. consolidated feasibility study. 2) Develop an Environmental and Social • Consolidated ESMS report, including a Management System (ESMS) for the stakeholder engagement plan, programme- programme. specific grievance redress mechanism, and records of in-country consultations.

2 Each portfolio of programme-supported sub-loans managed by a particular DFI will hereafter be referred to as a “project”. Each project/investment financed by a particular MSME or homeowner through a sub-loan from a DFI that is itself financed through a CDB line of credit (and thus part of a project) will hereafter be referred to as a “sub-project”.

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3) Develop a gender assessment and • Consolidated gender assessment and Gender Gender Action Plan (GAP) for the Action Plan (GAP), including records of in- programme. country consultations. 4) Develop an integrated financial model • Initial programme costing/budget. to help structure the programme and • Impact potential estimates. assess its benefits. • Financial analysis with sensitivity analysis. • Economic analysis with sensitivity analysis. 5) Formulate the programme funding • Funding Proposal. proposal and operations manual, building • Programme Operations Manual. on all deliverables produced under • Detailed programme budget (using GCF Activities 1-4. template). • Procurement plan. • Timetable of programme implementation. • Term Sheet.

B. Description of Project Preparation Activities Month Outputs and Activities 1-3 4 5 6 7 8 9 10 11 12 13 Procure services for Activities 1-5. X Activity and deliverable 1: Assess relevant baseline conditions in each partner country, define programme- eligible support, and develop the programme eligibility criteria and a consolidated feasibility study. PPF activity : Pre-feasibility, feasibility studies and project design

Activity: Under this Activity, the selected firm will lead the process of designing and formulating the core technical elements of the programme, and those of the projects and sub-projects it will finance. To accomplish this, the selected firm will: (i) work with partner DFIs to identify and prioritize ‘focus sectors/areas’ for each project; (ii) define key climate change challenges/opportunities in the ‘focus sectors/areas’ in each country; (iii) collect baseline information on the ‘focus sectors/areas’ in each country; (iv) identify priority X technologies/practices to be promoted/supported through the programme; (v) assess the supply and demand for financing within the ‘focus sectors/areas’ in each country; (vi) define the implementation arrangements and flow of funds for the programme, and assess its operational feasibility; (vii) develop the sub-project eligibility criteria for the programme; (viii) assess prospects for developing an initial pipeline of sub-projects; and (ix) develop the consolidated feasibility study for the programme.

Deliverables: (i) a set of sub-project eligibility criteria, including all relevant guidance, methods and tools; and (ii) a consolidated feasibility study, including a detailed ‘country profile’ for each country, as well as an indicative list of eligible technologies/practices and a list of excluded technologies/practices.

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Activity and deliverable 2: Develop an Environmental and Social Management System (ESMS) for the programme. PPF activity area: Environmental, social and gender studies

Activity: Under this Activity, the selected firm will lead the process of defining how the programme will ensure appropriate environmental and social (E&S) safeguards are adhered to in all projects and sub-projects. The selected firm will: (i) identify an initial list of E&S risks that may arise during sub-project implementation, as well as define appropriate risk mitigation and management X measures (including through in-country consultations); (ii) design a system (the ESMS) for ensuring E&S risks are properly screened and mitigated/managed within all projects and sub- projects; (iii) identify any/all capacity-building support the DFIs will require to adhere to the ESMS; and (iv) draft a report that captures all of this information.

Deliverables: a consolidated ESMS report, including all information described in sub-activity 2(d) of these TORs.

Activity and deliverable 3: Develop a gender assessment and Gender Action Plan (GAP) for the programme. PPF activity area: Environmental, social and gender studies

Activity: Under this Activity, the selected firm will lead the process of defining how the programme will ensure that gender considerations are properly mainstreamed in all projects and sub- projects. The selected firm will: (i) conduct an X assessment of gender dynamics and gender- specific challenges/barriers in the partner countries and the targeted sectors/areas; and (ii) develop a Gender Action Plan (GAP) through which the identified challenges/barriers will be addressed during programme implementation.

Deliverable: A consolidated gender assessment and GAP, including gender-responsive targets and records of all in-country consultations.

Activity and deliverable 4: Develop an integrated financial model to help structure the programme and assess its benefits. PPF activity area: Advisory services and/or other services to financially structure a proposed activity X

Activity: The selected firm will work with the partner DFIs and CDB staff to develop an integrated financial model for the programme. This will include the development of an initial programme costing/budget, and the development

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of programme impact estimates that build on the initial costing/budget. The selected firm will subsequently use these elements to develop, inter alia: (i) financial analysis of the programme, its projects and ‘typical’ sub-projects to assess envisaged cash flows and thus the financial viability of the programme, as well as demonstrate its financial benefits; and (ii) economic analysis of the programme to assess its costs and benefits, and demonstrate the incremental net economic benefits that are expected due to its implementation.

Deliverable: An integrated financial model, including: (i) an initial programme costing/budget (in Excel format using the GCF template); (ii) impact estimates; (iii) financial analysis w/ sensitivity analysis (in Excel format, with written description of assumptions and results); and (iv) economic analysis w/ sensitivity analysis (in Excel format, with written description of assumptions and results).

Activity and deliverable 5: Formulate the programme funding proposal and operations manual, building on all deliverables produced under Activities 1- 4. PPF activity area: Pre-feasibility, feasibility studies and project design

Activity: The selected firm will develop a high quality funding proposal for the programme, ensuring it is developed in a manner that is consistent with (and draws/builds on) the deliverables from PPF Activities 1-4. While preparing the funding proposal, the selected firm will also produce the following deliverables and ensure they are coherent and consistent with the funding proposal and all other elements of the programme package: (i) a Programme X Operations Manual (building in part on the results of PPF Activities 2-4); (ii) a detailed programme budget (building in particular on the costing done under PPF Activity 4); (iii) a procurement plan; (iv) a timetable of programme implementation; and (v) a term sheet for the programme.

Deliverables: (i) a completed funding proposal using the GCF template; (ii) a comprehensive Programme Operations Manual; (iii) the detailed programme budget (using the GCF template); (iv) a procurement plan covering the first 18 months of programme implementation; (v) a timetable of programme implementation (in Excel format using GCF template); and (vi) a term sheet for the programme.

Estimated time for submission of the full Funding Proposal to the GCF X

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C. Justification of the Project Preparation Request The pronounced need for climate action in the Caribbean

3. Even if climate change only increases global mean surface by 2 degrees Celsius relative to pre- industrial averages – the goal set out in the Paris Agreement, but which the international community is currently not on track to achieve – many countries in the Caribbean region could experience (relative to a 1971-2000 baseline)3: a. further warming of 1.0-2.5 degrees Celsius; b. decreases in average annual rainfall, with the entire region becoming drier (-15% to -20%) and maximum drying in the south eastern Caribbean; c. further increases in rainfall and storm intensity; and d. sea level rise of up to 1.5 meters.

4. The resulting impacts could have a profound effect on the region’s prospects for sustainable development. Stronger hurricanes, longer dry seasons and shorter wet seasons4 will undermine economic activity – particularly given that the Caribbean depends on climate-vulnerable sectors such as and – and pose serious threats to people and infrastructure throughout the region.5 Increasing coastal erosion and severe bleaching events in 2005 and 2010 bear witness to this, as do the catastrophic hurricane events of 2011, 2014, 2017 and 2019. In sum, climate change threatens to undermine decades of development progress and effort.

5. As a major proponent of the need for coordinated and aggressive climate action worldwide, the Caribbean region is also committed to becoming a leader in the transition to low-emissions sustainable development. At present, many Caribbean countries depend primarily on fossil fuels for electricity generation – typically using diesel generators – and transportation. Although the Caribbean is responsible for a minuscule proportion of global greenhouse gas (GHG) emissions, electricity generation is generally responsible for a large proportion of emissions in these countries. Coupled with the significant potential for renewables and energy efficiency gains throughout the region, many countries have committed to aggressive targets in this respect. This is particularly true for Belize, Jamaica and St Lucia, all of which have set ambitious 2030 emissions targets that are expected to be achieved primarily through investments in sustainable and renewable energy systems.

Financial barriers and fiscal constraints in the Caribbean

6. Most Caribbean countries recognize that they must leverage contributions from the private sector to deliver the investment flows needed to pursue climate-resilient and low-emissions sustainable development pathways. However, many financial service providers in the Caribbean consider investments in energy and agriculture projects (among others) to be high-risk – particularly when led by local stakeholders that may be highly leveraged and/or possess limited collateral. On the other hand, many private sector stakeholders in the region lack the capacity to design and develop bankable projects, and to financial service providers that the proposed investments are less risky than they may appear. As a result, the private sector is currently not providing affordable loans for the types of climate action investments that are urgently needed and envisaged under the programme. The result is low uptake of climate-related investments by the Caribbean private sector, delaying much-needed action to address adaptation and mitigation needs while also foregoing potentially profitable investment opportunities.

7. Meanwhile, public fiscal constraints throughout the Caribbean are limiting the extent to which governments can intervene to address these barriers. Debt-to-GDP ratios are quite high across the region, in part because of the repeated impacts of extreme weather events and the significant resources needed for post-disaster recovery and redevelopment. Many countries are also working closely with international partners to keep government deficits and debts at manageable levels. In short, national governments cannot provide the concessionality needed to enable the flow of financing at the rates and terms needed to unlock climate action investment.

3 et al., 2018. Future Caribbean Climate in a of Rising Temperatures: The 1.5 vs 2.0 Dilemma. Journal of Climate, Volume 31. 4 Clinton L. Beckford; Kevon Rhiney, eds. (2016). "1". Globalization, Agriculture and Food in the Caribbean. Palgrave Macmillan UK. 5 Batiste, April Karen; Rhiney, Kevon (July 1, 2016). "Climate justice and the Caribbean: An introduction". Geoforum. 73 Supplement C: 17-21. Ramón Bueno; Cornella Herzfeld; Elizabeth A. Stanton; Frank Ackerman (May 2008). The Caribbean and climate change: The costs of inaction (PDF). Winston Moore; Wayne Elliot; Troy Lorde (2017-04-01). "Climate change, Atlantic storm activity and the regional socio-economic impacts on the Caribbean". Environment, Development and Sustainability. 19 (2): 707–726. Reyer, Christopher (2017-08-01). "Climate change impacts in America and the Caribbean and their implications for development". Regional Environmental Change. 17 (6): 1601–1621.

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8. These barriers and constraints are not only inhibiting private and public investment in climate action, but also constrain countries’ abilities to finance the preparatory work needed to develop high-quality programme/project proposals that respond to these challenges. This dynamic is particularly pronounced with regards to the GCF given the level of detail and due diligence required by the fund. This points to a pronounced need for external financial and technical support to develop, finance and deliver programmes and projects that can unlock climate-related investment by the private sector.

Contributions from the Accredited Entity and partner DFIs

9. The Caribbean Development Bank (CDB) is committed to supporting its Borrowing Member Countries (BMCs) to address the above-mentioned challenges/barriers and scale up climate action investment. CDB is allocating its staff time and resources accordingly. This includes the approximately USD 26 million in co-financing that CDB will provide to the programme once it is approved by the GCF Board. In addition, CDB has already allocated its limited staff time and resources to develop the programme idea and Concept Note, and will allocate additional staff time and resources – including the time/expertise from its climate finance team and private sector unit, as well as from its ESS specialists, gender specialists and economists, among others, amounting to an estimated USD 90,000 of in-kind contributions – to develop the full funding proposal.

10. However, the full costs of preparing a high quality, approvable funding proposal are beyond the scope of what CDB can finance on its own. The Bank has limited discretionary (cash) financing that can be used for such activities. The availability of cash/grant financing to recruit the external experts/consultants needed to develop the envisaged programme proposal is therefore limited.

11. As a Direct Access Entity (DAE) accredited to the GCF, CDB is therefore applying for resources from the GCF PPF to complement its own (mostly in-kind) contributions and enable the Bank to fully develop a high-quality funding proposal (with associated annexes) for the programme. CDB aims to maximize the contributions of its own staff to the process of developing the funding proposal, and thereby minimize the costs borne by the GCF PPF. These costs are outlined in more detail in Section E of this PPF application.

12. In addition, the partner DFIs – the Development Finance Corporation of Belize, Development and the St. Lucia Development Bank – will provide valuable in-kind contributions throughout the process of developing the programme funding proposal and annexes. This will include in-kind contributions from existing technical staff to guide, support and review the work performed by the selected firm. Contributions from the partner DFIs will also include logistical support to organize in-country meetings and consultations, liaise with relevant stakeholders and other country- level coordination and support. For the sake of simplicity, these in-kind contributions have not been quantified and included as co-financing in the detailed budget because they will be provided on an ‘as-needed’ basis. The degree of work that the DFIs will be required to undertake will therefore depend on a number of factors, including the final work plan to be prepared by the selected firm and the approach to dealing with COVID-related complications/restrictions, among other factors. Due to this uncertainty, quantified estimates of the DFIs’ in-kind contributions have not been included in this PPF application. Nevertheless, these contributions are expected to be significant and invaluable to the success of the programme development process.

D. Implementation Arrangements 13. CDB will serve as both the Accredited Entity and Executing Entity for this PPF request, and will thus be responsible for the prudent use of PPF funds to develop the full funding proposal within the envisaged timeframe. As the Accredited Entity, CDB will bear overall responsibility for ensuring proper fiduciary management and timely reporting to the GCF in line with the grant agreement to be signed between CDB and UNOPS (as the trustee/administrator of GCF readiness and PPF funds). In this capacity, CDB will also be responsible for supervising implementation, and ensuring adherence with high technical standards with a view to producing high-quality deliverables and results. CDB shall implement the Project Preparation Activities with the goal of submitting a funding proposal for approval by the GCF Board within two (2) years of the approval of the Project Preparation Funding Application. In the event that CDB has reason to believe that a submission within this timeframe may not be possible, CDB shall notify the GCF promptly.

14. In its role as the Executing Entity, CDB will manage the contract with the firm that the Bank expects to recruit to produce the PPF deliverables. As such, day-to-day management of GCF Proceeds will be done in line CDB policies and standards, which were found to be compliant with GCF policies and standards during the CDB accreditation process that concluded in 2016. Throughout the process of PPF implementation, the selected firm will

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collaborate closely with CDB, the partner DFIs, the National Designated Authorities (NDAs) in Belize, Jamaica and St. Lucia, and other relevant national and sub-national stakeholders.

15. In consultation with counterparts in UNDP, CDB will aim to procure the services of a qualified firm that will be able to produce all of the deliverables under PPF Activities 1-5 (as outlined in Section B) using existing staff and/or through sub-contracting (as needed). Procurement of a qualified firm will be done through a competitive process, in line with CDB’s procurement policy and procedures. The selected firm will bear overall responsibility for providing the human resources needed to produce the envisaged deliverables. The actual resources allocated by CDB to the selected firm will depend on their bid/proposal. The firm may also propose to re-allocate some personnel/resources across the PPF activities if required. Any deviations from the above work plan and attached budget will be subject to CDB approval, and will be informed by, inter alia, the grant agreement to be signed between CDB and UNOPS and the provisions contained therein with regards to re-allocation of PPF funds.

16. The PPF implementation, execution and reporting arrangements are summarized in Figures 1 & 2 (below).

Figure 1: PPF implementation and execution arrangements

Figure 2: PPF supervision and reporting arrangements

17. CDB shall implement the Project Preparation Activities with the goal of submitting a funding proposal for approval by the Board within 2 years of the approval of the Project Preparation Funding Application. CDB shall notify the Fund as soon as it has reasons to believe that a submission within this timeframe may not be possible.

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18. Terms of Reference for all envisaged PPF activities and their associated deliverables (as described in Section B) are annexed to this application.

E. Budget Details and Disbursement Schedule

19. A detailed budget has been provided as a separate annex due to the fact that: (i) it contains confidential information; and (ii) public disclosure of this information could affect the competitiveness of the procurement process.

Disbursement and Reporting Schedule:

20. The disbursement schedule is described below, and summarized (along with the indicative reporting schedule) in the table further below.

o 1st Tranche: 90% of the total grant will be disbursed upon effectiveness of the Grant Agreement and also upon fulfilment of the disbursement conditions specified in the Grant Agreement and Standard Conditions.

o 2nd Tranche: 10% of the total grant will be transferred upon submission of a project completion report and final Audit Report. Submission of the completion and audit report will be furnished in line with the timeline agreed in the Grant Agreement.

Indicative disbursement and reporting schedule Month 1 Month 7 Month 13 Month 14 First disbursement (90% First progress report Submission of completed Completion and audit of GCF Proceeds). submitted by CDB (once funding proposal and reports submitted by CDB. drafts of the feasibility annexes. study and eligibility criteria Final disbursement (10% are available). of GCF Proceeds) upon review/approval of Completion Report by GCF Secretariat.

Project/Programme Title: Transforming Finance to Unlock Climate Action in the Caribbean

Country(ies): Belize, Jamaica, St. Lucia

Belize: Ministry of Economic Development, , Investment, Trade and Commerce National Designated Jamaica: Ministry of Economic Growth and Job Creation Authority(ies) (NDA): St. Lucia: Department of Economic Development, and Civil Aviation

Accredited Entity(ies) (AE): Caribbean Development Bank (CDB)

Date of first submission/ 2020-06-08 V.1 version number:

Date of current submission/ 2020-06-08 V.1 version number

Please submit the completed form to [email protected], using the following name convention in the subject line and file name: “CN-[Accredited Entity or Country]-YYYYMMDD”

PROJECT / PROGRAMME CONCEPT NOTE Template V.2.2

Notes • The maximum number of pages should not exceed 12 pages, excluding annexes. Proposals exceeding the prescribed length will not be assessed within the indicative service standard time of 30 days. • As per the Information Disclosure Policy, the concept note, and additional documents provided to the Secretariat can be disclosed unless marked by the Accredited Entity(ies) (or NDAs) as confidential. • The relevant National Designated Authority(ies) will be informed by the Secretariat of the concept note upon receipt. • NDA can also submit the concept note directly with or without an identified accredited entity at this stage. In this case, they can leave blank the section related to the accredited entity. The Secretariat will inform the accredited entity(ies) nominated by the NDA, if any. • Accredited Entities and/or NDAs are encouraged to submit a Concept Note before making a request for project preparation support from the Project Preparation Facility (PPF). • Further information on GCF concept note preparation can be found on GCF website Funding Projects Fine Print.

PROJECT / PROGRAMME CONCEPT NOTE Template V.2.2 GREEN CLIMATE FUND | PAGE 1 OF 4

A. Project/Programme Summary (max. 1 page) Project A.2. Public or private Public sector A.1. Project or programme ☐ ☐ sector ☒ Programme ☒ Private sector A.3. Is the CN submitted in Confidential Yes No A.4. Confidentiality ☐ response to an RFP? ☐ ☒ ☒ Not confidential Mitigation: Reduced emissions from: ☒ Energy access and power generation ☒ Low emission transport ☒ Buildings, cities and industries and appliances A.5. Indicate the result ☐ Forestry and land use areas for the project/programme Adaptation: Increased resilience of: ☒ Most vulnerable people and communities ☐ Health and well-being, and food and water security ☒ Infrastructure and built environment ☐ and ecosystem services A.7. Estimated At least 375,000 direct A.6. Estimated mitigation At least 0.6 million tCO2eq adaptation impact beneficiaries (note: this is a impact (tCO2eq over (note: this is a tentative estimate (number of direct tentative estimate that will lifespan) that will be refined) beneficiaries and % be refined) of population) USD 35 million (senior A.8. Indicative total A.9. Indicative GCF loan) project cost (GCF + co- Programme: USD 68.25 million funding requested finance) USD 6.998 million grant A.10. Mark the type of financial instrument ☒ Grant ☐ Reimbursable grant ☐ Guarantees ☐ Equity requested for the GCF Subordinated loan Senior Loan Other: specify______funding ☐ ☒ ☐ A.12. Estimated A.11. Estimated duration Disbursement period: 7 years project/ Programme 20 years of project/ programme: Repayment period: TBD lifespan A.13. Is funding from the ☐ A or I-1 Project Preparation A.14. ESS category Yes ☒ No ☐ ☒ B or I-2 Facility requested? ☐ C or I-3 A.15. Is the CN aligned A.16. Has the CN with your accreditation been shared with Yes ☒ No ☐ Yes ☒ No ☐ standard? the NDA? A.18. Is the CN A.17. AMA signed (if included in the Yes No Yes ☒ No ☐ submitted by AE) ☒ ☐ Entity Work Programme? Climate change is not simply a challenge with which Caribbean countries must grapple, but rather a fundamental threat to their prospects for sustainable development. The Caribbean is particularly vulnerable to increasing temperatures, changing precipitation patterns, sea-level rise (and associated saltwater intrusion) and increasingly intense A.19. Project/Programme tropical cyclones due to the region’s geography and dependence on climate-vulnerable rationale, objectives and sectors. Caribbean countries also recognize that there is a pronounced need to involve the approach of local private sector in transforming productive sectors and energy systems toward a low programme/project carbon, climate resilient pathway. Such investments can contribute to: (i) adapting to the increasingly negative impacts of climate change on physical structures/buildings, as well as on productive sectors such as agriculture; and (ii) mitigating climate change by scaling up renewable energy, energy efficiency and low-emissions transportation.

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Although many Caribbean countries recognize the need for climate action by non- government stakeholders, numerous barriers are inhibiting the private sector from scaling up investment in these areas. Prominent among them is the limited availability of affordable financing. Meanwhile, many private sector stakeholders are not aware of local adaptation needs or mitigation-related investment opportunities, while others lack the capacity to develop bankable projects. The result is low uptake of climate-related investments by the Caribbean private sector, delaying much-needed climate action while also foregoing profitable investment opportunities. This points to a pronounced need to catalyse a transformation of Caribbean finance to unlock the private investments needed to transform Caribbean productive sectors and energy systems.

In response to this need, the Caribbean Development Bank (CDB) is developing a programme on Transforming finance to unlock climate action in the Caribbean. Under the programme, CDB will blend GCF and CDB resources to extend concessional lines of credit to Development Finance Institutions (DFIs), who in turn will on-lend to MSMEs and homeowners for climate action investments. The programme will include two components: (1) Scaling up access to finance for DFIs to enable climate action investments in productive sectors and energy systems (comprising national sub-projects, financed through GCF and CDB loans); and (2) Delivering technical assistance (TA) to facilitate lending and support the transformation toward climate-informed lending by Caribbean DFIs (financed through GCF grants). The CDB will serve as the Accredited Entity for the programme and will jointly execute the TA Component with the Development Programme (UNDP). The partner DFIs will execute the sub- projects in their countries (hereinafter referred to as “projects”), through which they will lend to MSMEs and homeowners for small-scale investments (hereinafter referred to as “sub-projects”).

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B. Project/Programme Information (max. 8 pages) B.1. Context and baseline (max. 2 pages) Climate Change Rationale

1. As set out in the Paris Agreement, the international community aims to limit the increase in global mean surface temperatures to 2 degrees Celsius (relative to pre-industrial averages). Even if the international community achieves this goal – which they are not currently on track to do – many countries in the Caribbean could experience the following impacts (relative to a 1971-2000 baseline)1: a. further warming of 1.0-2.5 degrees Celsius; b. decreases in average annual rainfall, with the entire region becoming drier (-15% to -20%) and maximum drying in the south eastern Caribbean; c. further increases in rainfall and storm intensity; and d. sea level rise of up to 1.5 meters.

2. These impacts could have a profound effect on the region’s prospects for sustainable development. Stronger hurricanes, longer dry seasons and shorter wet seasons2 will undermine economic activity – particularly given that the Caribbean depends on climate-vulnerable sectors such as tourism and agriculture – and pose serious threats to people and infrastructure.3 Increasing coastal erosion and severe coral reef bleaching events in 2005 and 2010 bear witness to this, as do the catastrophic hurricane events of 2011, 2014, 2017 and 2019. The Intergovernmental Panel on Climate Change (IPCC) has reinforced that small islands states are among the most vulnerable in the world, with sea level rise and rise among the most insidious threats for coastal flooding and erosion, ecosystem degradation and loss of livelihoods.4 In sum, climate change threatens to undermine decades of progress and effort.

3. As a major proponent of the need for coordinated and aggressive climate action worldwide, the Caribbean region is also committed to becoming a leader in the transition to a low-emission and climate-resilient development pathway. At present, many Caribbean countries depend primarily on imported fossil fuels for electricity generation – typically using diesel generators – and transportation. Although the Caribbean is responsible for a minuscule proportion of global greenhouse gas (GHG) emissions, electricity generation is generally responsible for a large proportion of emissions in these countries. Coupled with the significant potential for renewables and energy efficiency gains throughout the region (described in more detail below), many countries have committed to aggressive targets in this respect. This is particularly true for Belize5, Jamaica6 and St. Lucia7, all of which have set ambitious 2030 emissions targets that are expected to be achieved primarily through investments in their energy systems.

4. Most Caribbean countries recognize that they must leverage contributions from the private sector to deliver the investment flows needed to pursue climate-resilient and low-emissions sustainable development pathways. As outlined below, numerous barriers are inhibiting private investment in climate action in relevant sectors.

1 Taylor et al., 2018. Future Caribbean Climate in a World of Rising Temperatures: The 1.5 vs 2.0 Dilemma. Journal of Climate, Volume 31. 2 Clinton L. Beckford; Kevon Rhiney, eds. (2016). Globalization, Agriculture and Food in the Caribbean. Palgrave Macmillan UK. 3 Batiste, April Karen; Rhiney, Kevon (July 1, 2016). "Climate justice and the Caribbean: An introduction". Geoforum. 73 (Supplement C): 17–21. Ramón Bueno; Cornella Herzfeld; Elizabeth A. Stanton; Frank Ackerman (May 2008). The Caribbean and climate change: The costs of inaction (PDF). Winston Moore; Wayne Elliot; Troy Lorde (2017-04-01). "Climate change, Atlantic storm activity and the regional socio-economic impacts on the Caribbean". Environment, Development and Sustainability. 19 (2): 707–726. Reyer, Christopher (2017-08-01). "Climate change impacts in and the Caribbean and their implications for development". Regional Environmental Change. 17 (6): 1601–1621. 4 IPCC, 2019: Summary for Policymakers. In: IPCC Special Report on the and Cryosphere in a Changing Climate. IPCC, 2018: Summary for Policymakers. In: Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty. 5 As outlined in the first NDC submitted by Belize, available here: https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Belize%20First/BELIZE%27s%20%20NDC.pdf 6 As outlined in the first NDC submitted by Jamaica, available here: https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Jamaica%20First/Jamaica%27s%20INDC_2015-11-25.pdf 7 As outlined in the first NDC submitted by St. Lucia, available here: https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Saint%20Lucia%20First/Saint%20Lucia%27s%20INDC%2018th%20 November%202015.pdf

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Baseline scenario and barriers

Energy 5. The Caribbean Islands are faced with high energy costs, which is partly due to their dependence on imported liquid fossil fuels for electricity generation. In 2013, the average electricity was US$0.39/kWh (with lower oil prices of US$70/barrel the tariff is estimated at US$0.33/kWh). By comparison, in the State of Florida in the , the average tariff was US$0.11/kWh. On average, the fuel cost represented 53% of the total cost to end users in the Caribbean. Because most of these countries do not have local oil or natural gas resources, they are subject to oil and diesel imports with volatile prices that result in high and volatile electricity tariffs.

6. Many Caribbean countries therefore have considerable potential for (and strong incentives to invest in) renewable energy and energy efficiency. However, the uptake of such investments has thus far been limited. This is attributable in part to a lack of economies of scale, as many Caribbean countries have small territories and scarce land (i.e. for utility-scale solar PV farms), as well as small markets. In addition, many local private sector actors are simply unaware of the considerable potential returns that can be achieved through modest investments in renewable energy and energy efficiency. In some countries, enabling environments are not conducive to widespread uptake of renewable energy and energy efficiency technologies, which stifles private investment. Additional barriers are also inhibiting the flow of financing to private sector actors for such investments, as outlined in Paragraph 10 (below).

Agriculture 7. According to recent data, agriculture accounts for a sizeable share of employment in many Caribbean countries, including Belize (17%), Jamaica (16%) and St. Lucia (10%).8 It is also an important contributor to GDP in some countries, notably Belize (10%) and Jamaica (6.7%). The sector is also among the most vulnerable to the effects of a changing climate. Arable land, water resources and are already under pressure, and are expected to be further stressed by increasing temperatures and changes in precipitation patterns. Extreme weather events – which are expected to become increasingly intense as a result of climate change – can also inflict significant damages on agriculture and the fisheries industry. Damages to coastal vegetation, which act as protective barriers for the coastlines, opens the land up to more destruction as a result of storm surges that can inundate agricultural lands and displace coastal settlements. Increasing surface water temperatures in the are also affecting coral reefs and fish production. These changes pose a major concern to food security in the Caribbean region through the direct threat to the production of food from land and sea.

8. This points to the need to significantly scale up investment to enhance the resilience of farming and fisheries in Caribbean countries. Such investments have thus far lagged far behind the needs of the sector, due in part to a lack of awareness in the private sector about climate change risks and projected impacts, as well as appropriate (climate- resilient) technologies and response measures. Relevant private sector actors also encounter barriers inhibiting their access to affordable financing (described in Paragraph 10 below).

Buildings and infrastructure 9. As a result of climate change, many Caribbean countries will have to grapple with increasingly intense extreme weather events. rainfall rates could increase by 20-30% over the coming decades, while maximum wind speeds from such storms could increase by 2-11%.9 Buildings and infrastructure in many Caribbean countries already struggle to withstand the impacts of tropical cyclones – impacts that will only intensify in the decades to come. This points to a pronounced need to improve the resilience of buildings and infrastructure. More robust building codes and careful land-use planning will play an important role in this respect. However, such regulatory changes will not be sufficient. It will also be important to increase awareness of projected climate change impacts among building owners, and support them to access the financing needed to enhance the resilience of their assets – building in different ways and places, and doing so using different (more resilient) materials and methods.

Barriers inhibiting the flow of finance 10. Leveraging private sector finance requires an appreciation of the numerous challenges associated with financing climate-related activities. According to Berliner et al. (2013)10 there are seven classes of barriers that may deter

8 World Bank, 2019. World Bank Open Data. Available at: https://data.worldbank.org/ 9 Taylor et al., 2018. Future Caribbean Climate in a World of Rising Temperatures: The 1.5 vs 2.0 Dilemma. Journal of Climate, Volume 31. 10 Berliner, J., Grüning, C., Kempa, K., Menzel, C. and Moslener, U. (2013) ‘Addressing the barriers to climate change’. CDKN Guide. London

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private investment, namely: externalities and public goods; imperfections in financial markets; new and unproven technologies; information gaps; economies of scale; political economic frameworks; and regulatory risks. In the case of the Caribbean and within the focus of this programme, financial barriers are seen as significant challenges. Local financial institutions are limited in their ability to provide the type of long-term capital that is typically needed for green investments. Such institutions also typically perceive much-needed climate action investments (e.g. in RE/EE, climate-resilient agriculture) as high-risk propositions. As a result, the interest rates and tenors offered to local private sector actors in Belize, Jamaica, St. Lucia and other countries are often not attractive, thus limiting the extent to which such investments occur. This is partly attributable to a lack of technical expertise within financial institutions to effectively assess and evaluate climate-related investments. As outlined in the regional scoping study on private sector engagement in climate action that was recently undertaken with the support of the GCF readiness programme, many local private sector actors also encounter barriers that limit investment in climate action. This includes: limited access to affordable and appropriate financing, which itself is partly attributable to the fact that many local actors are heavily indebted and/or possess limited collateral with which to secure a loan; a lack of awareness and knowledge of climate risks, needs and opportunities; limited technical capacity to identify suitable adaptation and mitigation measures, and to design bankable project proposals; policy and regulatory environments that are not conducive to climate-related investments; and social attitudes that limit interest/engagement in respond to climate change.

Identification of partner countries 11. Based on a preliminary assessment of the above-mentioned needs, challenges and barriers, Belize, Jamaica and St. Lucia have been identified as suitable partner countries for the proposed programme (see Annex 2 for a preliminary summary of key climate change impacts and risks, as well as GHG emissions, for each of these countries). These countries also possess well-capacitated DFIs that can play a key role in overcoming the aforementioned barriers, particularly those inhibiting the flow of financing. CDB is therefore proposing to collaborate with the Development Finance Corporation of Belize (DFC Belize), the Development Bank of Jamaica (DBJ) and the St. Lucia Development Bank (SLDB) to scale up lending for climate action under this GCF programme. By working with multiple countries and DFIs through a single GCF initiative, the programme will achieve economies of scale while also enabling countries and DFIs to share information and lessons learnt – regional collaboration on climate action that is expected to continue beyond programme closure. In each of the countries, the programme will build on the past experiences and existing initiatives of each partner DFI. This includes drawing on lessons learnt from past private sector-oriented lines of credit (i.e. what did and did not work), as well as providing opportunities for DFIs to channel their lines of credit toward priority initiatives and investment areas that have already been identified. In addition, the DFIs have expressed an interest in continuing to collaborate with GCF – including as prospective Direct Access Entities – and will therefore benefit from learning more about the fund and its expectations through this programme.

B.2. Project/Programme description (max. 3 pages) 12. The programme aims to enhance climate resilience and reduce/avoid greenhouse gas (GHG) emissions in three Caribbean countries. To accomplish this, the programme will contribute to unlocking the private sector investment needed to transform Caribbean productive sectors and energy systems by catalysing a transformation of finance. The programme will thereby: • Achieve tangible results during its implementation period, both with regards to (a) increasing lending and investment as well as (b) reducing/avoiding greenhouse gas (GHG) emissions and (c) enhancing resilience to the incremental risks/challenges associated with climate change; and • Equip Caribbean financial service providers and local private sector actors with the knowledge and capacity needed to enable the continued flow of financing for climate action investments after programme closure.

13. The programme will also deliver important co-benefits, including by supporting private sector investment that will contribute to post-COVID-19 recovery and redevelopment in the partner countries. All three countries have been very hard-hit by the economic fallout of the current pandemic, in part due to their dependence on international tourism from markets that have been severely affected by the coronavirus. The financing provided through this programme will help rectify this by supporting much-needed private investment (which in turn will have positive impacts on the revenues and livelihoods of suppliers and contractors) while also promoting post-COVID recovery and redevelopment efforts that are compatible with climate change goals.

14. To accomplish this, the programme will deliver two inter-linked Components.

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15. Component 1: Scaling up access to finance for DFIs to enable climate action investments in the productive sectors and energy systems. Under this Component, the programme will finance a series of projects through which partner DFIs will have access to concessional lines of credit, which they will use to on-lend to local private sector actors (i.e. MSMEs, homeowners) for climate action investments.11 To enable this, the GCF will provide CDB with a concessional line of credit amounting to USD 35 million. CDB will in turn blend GCF resources with USD 25 million of its Ordinary Capital Resources (OCR), mobilizing a total of USD 60 million in concessional financing to be made available to Caribbean DFIs. CDB will then extend a concessional line of credit to each partner DFI (approximately USD 20 million for each country/DFI/project12), which will use these funds to finance sub-projects led by local private sector actors. This will increase lending and investment for climate action in each BMC involved in the programme, and thereby result in tangible adaptation and mitigation benefits through the investments made by MSMEs and homeowners. This Component includes one Sub-Component.

16. Sub-Component 1.1: DFIs lend to eligible sub-borrowers to finance impactful climate action investments. Under this Sub-Component, each DFI will draw on their concessional line of credit from CDB to finance climate action investments in eligible sectors, as outlined in Table 1 (below). Each line of credit extended by CDB to each DFI, along with the investments financed by each DFI using their line of credit, will constitute a project within the programme. The projects financed by the DFIs will hereafter be referred to as “sub-projects”, several of which are expected to be included in each DFI-executed project. This is illustrated in Figure 1 (below).

Figure 1. Structure of the GCF programme, including projects and sub-projects13

11 Each project will focus on a set of sectors/areas in line with the local context and needs, as well as the priorities of each partner DFI. The specific implementation/execution arrangements of each project are also expected to vary, including with regards to whether the DFI will lend directly to private sector actors and/or lend via financial intermediaries (e.g. commercial banks, credit unions). 12 The expected volume of financing to be provided to each country/DFI/project will be further assessed through a market (supply/demand) assessment during the feasibility and programme design stage. This assessment will also determine the loan terms and rates that would be needed to make the envisaged types of sub-projects viable, which in turn will inform: (i) the minimum level of concessionality of the loans to be provided by DFIs (which will be codified in the loan agreements with CDB); (ii) the concessionality of the loans from CDB to the DFIs; and (iii) the concessionality of the loans from the GCF to CDB. 13 In addition to direct lending by DFIs to local MSMEs and homeowners, CDB and the partner DFIs will explore options for DFIs to use their lines of credit to lend to local financial intermediaries (e.g. credit unions) that would in turn lend to local private sector actors. This approach would have the added benefit of reaching (and supporting transformation among) a broader group of financial sector stakeholders, while also channeling funds to a greater proportion of final beneficiaries through their existing banking channels – an approach that may increase uptake of sub-loans. The feasibility of including such financial intermediaries will be assessed in more detail during the programme design and feasibility stage. Additional factors to be considered during this assessment will include: (i) interest in the programme (and demand for financing) among credit unions and other prospective financial intermediaries; (ii) the potential implications for managing compliance risk (e.g. prohibited practices, E&S safeguards, gender) during implementation; and (iii) the extent to which the inclusion of such intermediaries may affect the sub-loan rates and terms offered to local private sector actors.

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17. DFC Belize, DBJ and SLDB will be responsible for ensuring proper appraisal and approval of the sub-projects to be financed using the concessional credit lines from CDB. The criteria to be used when appraising sub-projects will be defined in the loan agreements that will govern the use of the CDB credit lines. An initial set of criteria are included in Annex 1, which will be refined during the feasibility and programme design stage. CDB will ensure compliance with eligibility criteria by:

(i) including these criteria (and if needed, others) in the loan agreements between CDB and each DFI, which will provide a legal basis for enforcing compliance; (ii) delivering technical assistance (Component 2), through which CDB and UNDP will: a. enhance the capacity of DFIs to apply the eligibility criteria when appraising sub-projects; b. enhance the capacity of private sector actors to develop sub-project proposals that satisfy the approved criteria; and c. directly guide and support DFIs during the appraisal and approval of sub-project proposals. (iii) overseeing and supervising programme implementation, through which the CDB Accredited Entity Team will review progress and financial reports, commission spot checks and audits of the projects, and engage in supervision missions to (inter alia) ensure the eligibility criteria are consistently being applied.

18. The Activities delivered under this Sub-Component are expected to be the same for each project executed by a particular DFI – although the projects themselves are expected to vary in terms of focus sectors/areas, and in terms of implementation arrangements (i.e. inclusion of financial intermediaries) – and will include the following:

Activity 1.1.1. Appraise and approve project proposals submitted by MSMEs and homeowners (sub-projects). Selected DFIs will receive sub-project proposals from MSMEs and housing finance applicants in their respective countries, building on the technical assistance delivered under Component 2. The DFIs will subsequently appraise these proposals/applications in line with (inter alia) the eligibility criteria specified in their loan agreements with CDB. If proposals are eligible and bankable – a determination that will be made by the DFIs, which will consult with the CDB Programme Execution Team for sub-loans that exceed a pre-defined threshold14 – the DFIs will approve the sub-project proposals. For each approved proposal, the DFI will enter into a legal agreement with the relevant sub-borrower to govern the use of funds and repayment terms, and would subsequently begin to draw down their line of credit from CDB for disbursement to the sub-loan recipients.

Activity 1.1.2. Monitor sub-projects, and provide regular financial and progress reporting to CDB. Each DFI leading the execution of a project under this programme will closely monitor the implementation of the sub- projects they are financing using programme funds. The monitoring and reporting processes will be elaborated in the Programme Operations Manual (and the loan agreements between CDB and the DFIs), and will include both financial reporting and progress reporting. For financial reporting, DFIs will provide CDB with regular updates on: (i) disbursements to approved sub-projects; and (ii) use of funds within sub-projects. Progress reporting will include information on: (i) the status of sub-project implementation; and (ii) results achieved by sub-projects15.

19. Component 2: Delivering technical assistance (TA) to facilitate programme lending and support the transformation toward climate-informed lending by Caribbean DFIs. Under this Component, the programme will support DFIs, MSMEs and homeowners to access financing from CDB-supported credit lines, as well as sustain and scale up the flow of financing for climate action investments beyond programme closure. It will do so by addressing capacity, knowledge and awareness gaps that are inhibiting the flow of financing, as described in Section B.1. In so doing, this Component will support effective delivery of the financing and investments under Component 1, and help catalyse the broader process of transforming Caribbean finance – and the targeted productive sectors and energy systems – over the medium/long term. Component 2 will deliver two Sub-Components.

14 The specific threshold will be defined in the funding proposal, and be set based on further assessments and consultations during the programme design and feasibility stages. CDB and partner DFIs already operate according to this type of model on other lines of credit for private sector sub-loans – experiences that will provide a basis for determining an appropriate threshold for this programme. 15 The logical frameworks, indicators and targets developed for each sub-project will be aligned with the logical framework, indicators and targets in the CDB-led GCF programme proposal, which itself will be aligned with the GCF Performance Measurement Frameworks (PMFs) and Results Management Framework (RMF).

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20. Sub-Component 2.1: DFIs have enhanced access to climate finance, and strengthened capacities to lend for climate action investments. Under this Sub-Component, the programme will strengthen the capacities of partner DFIs to scale up lending for climate action – both under their projects and beyond programme closure. It will do so by addressing supply-side barriers that are currently inhibiting the flow of finance for investments in climate change mitigation and adaptation, including by supporting DFIs to more effectively appraise and monitor delivery/results of climate change projects. This Sub-Component will also support DFIs to improve their environmental and social risk management systems and capacities to address gender issues within their climate-related lending, in line with any gaps identified during the programme design/feasibility stage. In addition, the programme will equip DFIs to better understand climate change risks, investment opportunities and the international climate finance landscape. In so doing, Sub- Component 2.1 will facilitate delivery of Component 1, while also improving DFIs’ long-term capacities to finance climate action investments and their prospects for mobilizing international climate finance if/when needed.

21. Activities under this Sub-Component will include:

Activity 2.1.1. Strengthen the capacity of partner DFIs to comply with the provisions of their CDB loan agreements and address related capacity constraints. The programme will organize trainings for relevant staff from partner DFIs on: (i) the approved eligibility criteria to be applied during sub-project appraisal; (ii) the expected methods and processes for monitoring sub-projects; (iii) requirements vis-à-vis financial and progress reporting; (iv) requirements for environmental and social (E&S) risk management within their respective projects; and (v) programme requirements and good practices related to assessing and addressing gender- differentiated needs, vulnerabilities and barriers. Building on detailed capacity assessments conducted during programme design, any pending capacity gaps (i.e. on E&S risk management, gender) will be addressed under this Activity. This will have the added benefit of enabling DFIs to apply such standards beyond the scope of this programme, which will better equip them to scale up lending for climate action investments – drawing on own resources and international climate finance – after programme closure. This Activity will also finalize the tools and templates needed to support effective project implementation, monitoring and reporting.16 This may include sub-borrower proposal templates and guidance documents, appraisal forms and reporting templates to be used at sub-project and project levels. This may also include the development of tools and templates that can be used to improve the reliability of sub-project performance (e.g. lists of reputable suppliers for relevant technologies, as well as standardized contracts that oblige suppliers to ensure their equipment performs according to the advertised standards/specifications).

Activity 2.1.2. Directly support appraisal of sub-projects. Under this Activity, the programme will recruit specialists to work with partner DFIs during the identification and appraisal of sub-borrower proposals. Coupled with the capacity development support under Activity 2.1.1, these specialists will reinforce the ability of DFIs to prioritize and finance the highest quality proposals. This will contribute to ensuring compliance with the eligibility criteria and selection process for sub-projects, while also maximizing climate impact from, and ensuring the financial viability of, the programme and its projects.

Activity 2.1.3. Collaborate with partner DFIs and other financial institutions to develop/strengthen strategies and capacities for understanding and responding to climate change risks and opportunities. Under this Activity, the programme will engage with the partner DFIs and other financial institutions in Belize, Jamaica and St. Lucia (including any financial intermediaries involved in programme lending and other banks, credit unions, etc.) to enhance their capacities to identify, mitigate and manage: (i) physical risks associated with climate change (i.e. understanding how projected climatic changes may directly affect the viability of investments and value of assets in specific sectors, and how various types of resilience-building measures can mitigate such risks); and (ii) transition risks associated with the transformation toward a low-emissions economy (i.e. understanding how the pace of decarbonisation will affect the risk of stranded assets, and how to manage such risks to avoid severe negative impacts on balance sheets). Activity 2.1.3 will also support financial institutions to better understand and identify local lending and investment opportunities within the transition to a low-emissions and climate- resilient economy. This Activity is further expected to train DFIs on the climate finance landscape to provide them with a better overview of prospects for mobilizing concessional resources for any other climate-related initiatives that may be priorities in their respective countries, as well as will facilitate knowledge exchange among these partners to enable them to support one another as they collectively grapple with climate change.

16 Initial versions of relevant tools and templates will be included in the Programme Operations Manual that will be submitted along with the GCF Funding Proposal, but will be reviewed and (if needed) refined under this Activity during programme inception.

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22. Sub-Component 2.2: MSMEs and homeowners have enhanced capacity to access financing for climate action investments. This Sub-Component aims to support private sector actors to understand climate change risks, needs and investment opportunities, and to translate this enhanced understanding into viable sub-projects. The support provided will enable MSMEs and homeowners to develop and submit high-quality sub-borrower proposals – thereby facilitating the flow of funds to eligible sub-projects – while also equipping private sector actors with the understanding and skills needed to access financing for climate action investments after programme closure.

Activities under this Sub-Component will include:

Activity 2.2.1. Raise awareness among private sector stakeholders about projected climate change impacts and mitigation needs/potential, including to better understand the business case for climate action. Under this Activity, the programme will launch multi-media awareness-raising campaigns (e.g. print, radio, television, Internet) in each participating country that target relevant private sector actors. The awareness-raising campaigns will aim to enhance these actors’ understanding of projected climate change impacts and mitigation opportunities/potential, as well as the potential links to their businesses. In so doing, Activity 2.2.1 will encourage a broader group of MSMEs and homeowners to engage with the programme and start thinking about possible sub-project proposals. This Activity will also increase the likelihood that non-beneficiary MSMEs and homeowners (i.e. those who are ultimately unable to finance sub-projects through the programme) will invest in climate action independently of the programme.

Activity 2.2.2. Train private sector actors on how to identify and develop eligible sub-project proposals. Under this Activity, the programme will organize trainings in each participating country in collaboration with the relevant DFI to support local private sector actors to: (i) understand the eligibility criteria for financing of sub- project proposals; and (ii) strengthen their capacity to develop quality sub-project proposals. Trainings will be organized in easy-to-access locations and at times that are (to the extent possible) convenient for local private sector representatives. Relevant entities will be invited to submit applications to register for these trainings through the awareness-raising campaigns organized under Activity 2.2.1. The programme will approve applications for registration only if the entity’s needs/business operations are relevant to the programme, and if these actors express a clear interest in scaling up climate action. The programme will allow each participating entity to register a select number of their staff/members, and expects that only a portion of the entities reached through the awareness-raising campaigns (Activity 2.2.1) will register for the trainings.

Activity 2.2.3. Provide guidance and support to private sector actors on project development. Under this Activity, the programme will support a targeted group of private entities (selection process and criteria will be linked to Activity 2.2.2, and defined in detail during feasibility/programme design) to develop their initial sub-project ideas into approvable proposals. The programme will provide guidance to these entities on how to navigate this process, and will also provide modest financial and technical support if needed (i.e. supporting the development of feasibility studies, energy audits).

Envisaged types of sub-projects

23. A preliminary overview of the types of sub-projects that CDB envisages will be financed under this programme is included in Table 1 (below).

Table 1. Envisaged types of eligible sub-projects Climate Alignment with GCF Results Envisaged types of sub-projects change focus Areas Mitigation • Renewable energy (e.g. for industrial, commercial and residential Reduced emissions from: sectors), including: • Energy generation and 17 Target: o Electricity generation (e.g. solar, biomass). access. Approx. 50% of o Heat production (e.g. solar water heating). • Low emission transport. programme • Energy efficiency (e.g. in the industrial, commercial and/or • Buildings, cities, industries lending residential sectors). and appliances.

17 These are tentative programme-level targets, and are not indicative of the expected breakdown of lending within a particular country. Targets will be further assessed during programme design based on, inter alia, market demand studies and surveys.

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• Low-emissions transportation (e.g. electric buses and other vehicles in the tourism sector). Adaptation • Resilient agriculture, fisheries and land use Increased resilience of: o Climate-resilient farming practices and/or adoption of • Increased resilience of the Target: climate-adapted species (e.g. resilient to drought). most vulnerable people and Approx. 50% of o Resilience-enhancing aquatic ecosystem management for communities . programme climate-resilient fisheries. • Infrastructure and built lending • Resilient infrastructure and buildings (e.g. retrofits for industrial, environment. commercial and residential structures to withstand impacts of increasingly intense extreme weather events).

24. The types of sub-projects that are expected to be financed by DFIs under this programme will be defined in more detail during the feasibility and programme design stage, based in part on a detailed assessment of current market dynamics in the partner countries. The funding proposal will include an indicative (but non-exhaustive) list of technologies that will be eligible for financing, guided by an assessment of the most effective and efficient technologies available in/to the partner countries. The funding proposal will also include a list of excluded technologies and practices that are not eligible for financing.18 These lists are meant to provide guidance to the GCF Board and country stakeholders on the types of sub-projects that are expected to be supported through the programme. However, it will also be possible for private sector stakeholders to submit other types of sub-projects (i.e. those that do not include technologies from the indicative list of eligible technologies) as long as they satisfy all other eligibility criteria specified in the loan agreement to be signed between CDB and the relevant DFI. For an initial/tentative list of these criteria and how they would be applied/enforced, see Paragraphs 12-13 (above).

Theory of Change

25. The proposed programme aims to support Caribbean countries to enhance climate resilience and reduce/avoid GHG emissions by engaging the private sector. It will do so by addressing financial (i.e. high cost of finance), capacity and knowledge barriers to enable DFIs to scale up lending to local MSMEs and homeowners for climate action investments, while also strengthening the capacities of DFIs and private sector stakeholders to scale up the flow of financing for climate action. Assuming that DFIs continue applying their new/strengthened networks and capacities to scale up climate-informed lending, and that local private sector stakeholders continue investing in climate action using own funds and loans from DFIs and other financial institutions, the programme will thereby help transform Caribbean finance to become a catalyst for scaled-up climate action beyond programme closure. These dynamics are captured in the Theory of Change diagram that is annexed to this concept note.

Implementation arrangements

26. Having operated in the region for almost 50 years, the Caribbean Development Bank (CDB) is ideally placed to lead the development and implementation of this programme. CDB has successfully collaborated with DFIs throughout the region to scale up much-needed investment (including through previous lines of credit), and can build on this experience under the proposed programme. CDB also has valuable experience working with the local private sector to support them to address and overcome barriers to investment, and a strong track record of developing and delivering successful projects to support investments in agriculture, services, housing and energy systems.

27. The CDB Programme Execution Team and UNDP will execute Activities under Component 2, delivering TA to complement programme lending under Component 1. Meanwhile, each partner DFI will serve as the Project Executing Entity for the project in their country. The three partner DFIs are well capacitated and have valuable experience financing private sector climate action in their respective countries.

Operational & financial risks and mitigation measures19

18 Technologies and practices on the ‘exclusion list’ will likely include those that entail significant environmental and social risks. Other technologies/practices may also be excluded from financing due to their performance against other eligibility criteria (e.g. inadequate performance against the $/tCO2eq reduced/avoided benchmark, or excessive O&M costs). In this latter case the technologies/practices will likely not be on the ‘exclusion list’, and instead this determination would be made on a case-by-case basis. 19 Foreign exchange risk is only a concern for Jamaica (as the currencies in Belize and St. Lucia are pegged to the USD) and therefore not included in this table. CDB and DBJ will work together during programme design to identify suitable ways of managing this risk.

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Description of possible risk Risk category Level of impact Probability of risk occurring 1) Lack of engagement by DFIs due to lack of Operational High Low/medium incentives, inability to secure a sovereign guarantee and/or perceived risks. Risk mitigation measures: This risk will be mitigated in part by providing attractive rates and tenors for the lines of credit extended to the DFIs. In addition, by providing concessional loans as lines of credit, the DFIs will only be liable for repaying what they draw down. Furthermore, the programme will deliver a robust package of technical assistance activities to increase the number of high-quality sub-projects that are likely to be developed, and thus actively facilitate the flow of funds from DFIs to the MSMEs and homeowners. Partner DFIs will be heavily involved in delivering this TA, thereby strengthening national ownership and networks that the DFIs can leverage/utilize after programme closure – an additional incentive to engage. To address potential difficulties securing sovereign guarantees, CDB and the partner DFIs will explore multiple different avenues (during the programme design and feasibility stage) to provide adequate/acceptable security for the loans issued by CDB.

2) Lack of engagement by MSMEs and Operational High Low/medium homeowners, and thus lack of sub-projects submitted for financing. Risk mitigation measures: This risk will be mitigated in part by ensuring DFIs provide attractive terms (interest rates, tenors, etc.) that incentivize MSMEs and homeowners to develop/submit sub-project proposals, drawing on experiences/lessons learnt from past/present initiatives. In addition, the programme will actively support these entities to understand climate change risks, mitigation needs and investment opportunities, as well as to design project proposals that will satisfy the pre-defined eligibility criteria. This TA is also expected to increase the overall quality of sub-borrower proposals, and thus reduce the perceived risks for lenders. Finally, during programme design, CDB and the partner DFIs will assess market demand and ensure the credit offered by the programme is attractive – including by exploring (if needed) alternative approaches to securing sub-loans (e.g. asset-based financing).

3) Compliance risks (AML/CFT, ESS, gender) Compliance Medium Medium related to the management of funds by DFIs. Risk mitigation measures: Overall, the partner DFIs are well capacitated, which will help mitigate compliance risks. In addition, CDB will work with the DFIs during programme design to conduct assessments of their current policies and capacities. Any pending capacity gaps (e.g. with regards to capacity to comply with the ESMS) will be addressed through Activity 2.1.1. Such support will also equip the DFIs to engage more effectively with the GCF and other providers of climate finance beyond programme closure. In addition, the CDB Accredited Entity Team will supervise the DFIs during programme implementation, while the CDB Programme Execution Team and UNDP will engage with DFIs and private sector actors to enable/support compliance throughout the implementation of projects.

4) Risk of default (MSMEs, homeowners, DFIs). Financial Medium Medium Risk mitigation measures: This risk will be mitigated in part through the detailed due diligence to be performed prior to lending (to DFIs, and in turn to MSMEs and homeowners) that is geared toward ensuring loans and investments will be viable. Robust eligibility criteria and sub-project appraisal – coupled with direct support by the CDB Programme Execution Team during this process – will increase the likelihood that programme-financed investments by MSMEs and homeowners will be successful and produce the necessary returns to enable timely payback of the loans and lines of credit under this programme. The risk of default will be further mitigated by ensuring that the rates and terms for sub-borrower loans are conducive to enabling repayment.

B.3. Expected project results aligned with the GCF investment criteria (max. 3 pages) Impact potential

28. The size and scope of the programme and its projects are still being assessed. This will continue to be refined in consultation with partner countries, DFIs and other stakeholders during the programme design and feasibility stages. This in turn will inform estimates of the impact potential of the programme. As such, only initial (tentative) estimates of impact potential are possible at this stage. These are outlined below.

29. The impact of the programme will ultimately be based on the number of sub-projects that are financed by the partner DFIs, as well as the performance (and impacts) of these sub-projects. It is not possible to estimate the exact number

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of such projects at this stage, nor is it possible to estimate the average impact of these projects. However, given that the set of eligibility criteria with which partner DFIs will have to comply will include benchmarks in relation to the GCF investment framework criteria – including $/tCO2eq (for mitigation) and $/beneficiary (for adaptation) – it is possible to develop a tentative estimate of the minimum impact potential to be achieved through the sub-projects based on the current (tentative) volume of loans to be issued through the programme. Although the precise benchmarks for $/tCO2eq and $/beneficiary (to be included among the eligibility criteria that DFIs will have to apply) will be further assessed during programme design and feasibility stages, it is reasonable to suggest that sub-projects should only be financed if they are able to: (i) reduce or avoid GHG emissions (over the lifetime of the investments) at a maximum cost of USD 50/tCO2eq; or (ii) deliver direct benefits at a maximum cost of USD 80/beneficiary. Based on these tentative benchmarks, as well as the assumption that the programme will channel approximately half of its lending (USD 30 million) to mitigation-focused sub-projects and half of its lending (USD 30 million) to adaptation-focused projects, it is conservatively estimated that the programme will: (i) reduce or avoid at least 0.6 million tCO2eq; and (ii) directly benefit at least 375,000 people.

30. The above-mentioned benchmarks and impact potential estimates are tentative, and will be further assessed and refined during the full programme design and feasibility stages.

Paradigm shift potential

31. This programme will support the process of transforming finance in the Caribbean to shift toward climate-informed lending, and in so doing, catalyse broader transformations of the productive sectors and energy systems. Given the magnitude of this challenge and the number of stakeholders that must be involved, transformation must be seen as a more medium/long-term process – one that the programme cannot achieve on its own. Instead, the GCF programme will focus on setting these transformation processes in motion, and equipping stakeholders to sustain and scale up these processes after programme closure. There are three ways in which the programme will accomplish this.

a. The programme will raise awareness among private sector stakeholders about the need for climate action and the associated investment opportunities. As outlined in Section B.1, many local private sector actors are simply unaware of the risks that climate change poses to their businesses and/or the significant returns that can be achieved through investments in RE/EE – particularly in a region with high energy costs. By addressing this barrier, the programme will not only increase the private sector’s interest in engaging with partner DFIs, but also their interest in scaling up investment in climate action beyond this GCF programme.

b. The programme will enable DFIs to finance a critical mass of sub-projects in each country, further increasing awareness of (and interest in) such investment opportunities among private sector sub-borrowers and financial service providers. By providing the concessional resources needed to enable the flow of financing to sub-projects at scale, the programme will: (i) achieve tangible and significant impacts that directly contribute to mitigation and adaptation efforts; while also (ii) providing tangible evidence of the benefits and financial viability of climate action investments to other private stakeholders (i.e. those not involved in programme-supported sub-projects). The potential to catalyse broader transformational change is therefore tied to the success rate of sub-projects – a fact that reinforces the need to include a robust TA component to support the identification, development and approval of high-quality sub-projects. The TA component will also directly raise awareness of climate change risks and associated investment opportunities, as well as enable DFIs and other relevant stakeholders to exchange good practices and lessons learnt – support that will further increase awareness of (and interest in) climate action investment.

c. The programme will strengthen the capacities of DFIs and local private sector actors to sustain and scale up the flow of financing for climate action investments, and thus continue the process of transforming the productive sectors and energy systems in their respective countries. Although increased awareness and interest in climate action are of critical importance (as outlined above), it is also important that capacity gaps be addressed to overcome barriers that are inhibiting the flow of financing for such investments. By improving the capacities of private sector entities to identify and develop bankable proposals, while also strengthening the capacities of DFIs to appraise such proposals, the programme will equip these entities to continue identifying, developing and financing climate change projects in the future. The programme will also strengthen relationships between DFIs and the local private sector specifically with regards to climate change – relationships that can provide a foundation for future lending and investment. In addition, by improving DFIs’ capacities on climate change risk & vulnerability assessment, environmental & social

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safeguards and gender, the programme will equip DFIs to engage with international partners (including the GCF) to further scale up lending. DFIs will also be better positioned to champion climate action within their countries, including among local financial service providers.

32. There is significant potential to replicate the proposed programme approach and support in additional countries in the Caribbean, many of which have common climate change needs and experience similar barriers to scaling up the flow of financing for (and investment in) climate action. CDB will also explore opportunities to include additional countries and DFIs in this programme proposal during the design and feasibility stages.

Sustainable development potential

33. The programme is expected to deliver considerable sustainable development co-benefits, making important contributions to achieving Sustainable Development Goals (SDGs) 2, 7, 8, 9, 11 and 13, as well as SDGs 3, 5, 12, 14 and 15. This is described in more detail below.

a. Economic: Sub-projects to be financed through this programme will make important contributions to sustainable economic development in the region. For example, investments in renewable energy and energy efficiency offer considerable potential to reduce energy-related costs incurred by businesses and homeowners, thereby enabling them to use these resources for other investments and/or to meet other needs. Investments in enhanced resilience will also contribute to countries’ capacities to sustain economic activity in the face of increasingly frequent and intense climatic shocks and hazards.

b. Environmental: The transition to an energy system that is built on renewables can significantly reduce the potential for environmental damages associated with importing, handling and burning fossil fuels. This transition can also significantly improve air quality in the partner countries, as combustion using diesel fuel produces considerable particulate pollution (e.g. Particulate Matter 2.5). In addition, programme support for investments in climate-resilient agriculture and fisheries technologies and practices are expected to contribute to more sustainable management of natural resources such as land, water and aquatic , thereby improving soil and water quality. This will have the added benefit of further enhancing resilience to (inter alia) rising temperatures, changing precipitation patterns and increasingly intense extreme weather events.

c. Social: Reduced particulate pollution due to reductions in reliance on diesel fuel to produce electricity can improve health outcomes for inhabitants of the partner islands. Furthermore, the programme will contribute to improving reliable access to food and energy, including by increasing the resilience of food production and fostering investment in the deployment of renewable energy technologies. Increased investment in climate-resilient agriculture will also contribute to reducing rural poverty in the partner countries, and may thereby contribute to reducing rural out-migration. In addition, the programme will seek to foster effective engagement with civil society throughout programme implementation, while also seeking to improve dialogue between DFIs and civil society organizations that can be continued after programme closure.

d. Gender: The programme will take a proactive approach to supporting gender-equitable development. This will be guided by the programme-level Gender Action Plan. Specific actions to be taken by the programme may include: (i) mainstreaming gender considerations in the TA Activities under Component 2; (ii) potentially setting targets for the proportion of sub-projects that are expected to be led by women-owned MSMEs and/or women-headed homeowners; and (iii) ensuring that all sub-projects duly account for gender issues (as outlined in the list of eligibility criteria). The programme will also strengthen the capacities of the partner DFIs to apply such standards throughout their portfolios (see Activity 2.1.2). The emphasis on supporting gender-equitable development will be reflected in the logical framework for the programme and projects, which will include gender dis-aggregated indicators (where appropriate).

Needs of the recipient

34. The Caribbean is considered to be among the most vulnerable regions in the world to a changing climate. Many countries in the Caribbean consistently rank near the top of global climate change risk and vulnerability indices,

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including the Germanwatch Global Climate Risk Index.20 As outlined in Section B.1, the combination of slow-onset challenges (e.g. temperature rise, shifting precipitation patterns) and sudden-onset challenges (e.g. increasingly intense tropical cyclones) leave the region and its inhabitants in a very precarious situation. The regions’ prospects for sustainable development are fundamentally threatened, and the need for external support is therefore pronounced.

35. As described in more detail in Section C.2, many Caribbean countries are grappling with significant fiscal constraints that limit their ability to provide the concessionality needed to unlock lending and private investment in climate action. These countries have nevertheless committed to ambitious adaptation and mitigation goals (as outlined in their NDCs), and are allocating their scarce resources accordingly. Nevertheless, they will require external financial and technical assistance to achieve their ambitions – a point that has also been clearly articulated in their NDCs.

Country ownership

36. As outlined in Section B.1, the proposed programme is closely aligned with the priorities identified in the first NDCs submitted by the initial set of partner countries that are expected to be involved in this programme: Belize, Jamaica and St. Lucia. All three countries assign considerable importance to scaling up investment in renewable energy and energy efficiency in order to meet their mitigation targets. In addition, all three countries have prioritized adaptation support for areas such as agriculture, fisheries, coastal and marine resources, as well as infrastructure and human settlements. The proposed programme will therefore make important contributions to achieving countries’ NDC targets and priorities, as well as those stipulated in the national policies, strategies and plans that underpin their NDCs. This includes, inter alia: a. Belize: Horizon 2010-2030; National Energy Policy Framework; Sustainable Energy Action Plan 2014-2033; National Climate Resilience Investment Plan; Growth and Sustainable Development Strategy; and the National Climate Change Policy, Strategy and Action Plan. b. Jamaica: Climate Change Policy Framework; National Energy Policy (2009-2030); and Vision 2030 Jamaica – National Development Plan. c. St. Lucia: National Climate Change Adaptation Policy; National Environmental Policy and National Environment Management Strategy; and the National Energy Policy.

37. When developing this Concept Note, CDB consulted closely with DFC Belize, DBJ and SLDB in late 2019 and early 2020. All three DFIs have expressed strong support for the initiative and provided valuable feedback that has been reflected in the Concept Note and programme design/development plan. CDB has also consulted with the NDAs in Belize, Jamaica and St. Lucia, and received important suggestions that have similarly shaped the design of the programme. CDB will continue to collaborate closely with the DFIs, NDAs, other public sector stakeholders, private sector actors and civil society when further developing and delivering this programme.

38. Information on the capacities of CDB, DFC Belize, DBJ and SLDB to deliver this programme and its projects is outlined in Section B.2 (see Para 26-27).

Efficiency and effectiveness

39. As outlined above with regard to the description of ‘impact potential’, the impact, efficiency and effectiveness of the programme will depend on the performance of the sub-projects. In this context, the programme will establish benchmarks for relevant GCF investment framework criteria (to be included in the list of eligibility criteria) according to which sub-projects should be assessed. In so doing, the programme can assure that key metrics for efficiency and effectiveness (e.g. $/tCO2eq and $/beneficiary) can be achieved. Specific benchmarks will be established during the programme design and feasibility stages.

40. GCF financing is expected to crowd-in considerable additional financing for climate action that would otherwise not have occurred, including approximately USD 26.25 million in co-financing from CDB. The ratio between GCF financing and co-financing is therefore expected to be approximately 60:40. In addition, GCF and CDB financing are expected to leverage additional financing by the DFIs, MSMEs and homeowners involved in the programme. In particular, these funds are expected to leverage: (i) additional lending by the DFIs within the scope of their projects; and (ii) equity from the selected private sector actors within the scope of their sub-projects.

20 Eckstein et al., 2019. Global Climate Risk Index 2020: Who suffers most from extreme weather events? Weather-related loss events in 2018 and 1999 to 2018. Germanwatch e.V.

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41. The financial feasibility and merits of the programme, projects and sub-projects, as well as their economic costs and benefits, will be assessed in detail during the programme design and feasibility stage.

B.4. Engagement among the NDA, AE, and/or other relevant stakeholders in the country (max ½ page) 42. The idea for the proposed programme builds directly on past engagements and discussions between CDB staff and national counterparts, including those in DFC Belize, DBJ and SLDB. Such discussions have highlighted the urgent need to scale up climate action, the importance of involving the private sector in this process, and the need for concessional financing to do so. The need for a robust technical assistance component to support enhanced capacity and knowledge also stems from past and ongoing discussions with counterparts in each of the partner BMCs.

43. As outlined in Paragraph 38 (above), CDB has developed this Concept Note in close consultation with the DFIs and NDAs in the partner countries. CDB will continue to collaborate closely with the DFIs, NDAs, other relevant public sector stakeholders (i.e. those involved in climate change-related initiatives/planning and the sectors/areas targeted by this programme), private sector actors and civil society when further developing and delivering this programme.

C. Indicative Financing/Cost Information (max. 3 pages) C.1. Financing by components (max ½ page) 44. The programme requests a concessional line of credit from the GCF in the amount of USD 35 million. CDB will blend these funds with USD 25 million of its own Ordinary Capital Resources (OCR). CDB will then extend lines of credit to the DFIs, who in turn will lend to MSMEs and homeowners. These figures are tentative and will be further refined during the programme design and feasibility stage based on, inter alia, the results of market studies/surveys. Similarly, the volume of lending that is expected in each country will be further assessed based on such studies.

45. The programme also requests a USD 5 million grant from the GCF. This will be used to deliver technical assistance under Component 2 (to be expected by CDB and UNDP), which will complement and facilitate lending under Component 1 and strengthen the capacity of DFIs and private sector stakeholders to sustain and scale up the flow of finance for climate action investments. An additional USD 1.998 million in grant financing is requested to cover programme management costs (PMC), to be used for operational and administrative expenses associated with day- to-day execution of the programme. CDB will mobilize USD 1.252 million (cash & in-kind) to complement these GCF resources for PMC.

46. The financial contributions from the GCF and CDB are expected to leverage additional financing and investment by the DFIs, MSMEs and homeowners involved in the programme. In particular, these funds are expected to leverage: (i) additional lending by the DFIs within the scope of their projects; and (ii) equity from the selected private sector actors within the scope of their sub-projects. These additional financial contributions from the DFIs and the private sector will constitute leveraged financing rather than co-financing, due (in part) to the fact that the precise volume of funding that may be leveraged will not be known at the time of programme approval given that (inter alia) the final selection of sub-projects will occur after programme approval. However, CDB will develop estimates of the volume of financing to be leveraged during the feasibility and programme design stage.

Component/Output Indicative GCF financing Co-financing cost Amount Financial Amount Financial Name of (USD) (USD) Instrument (USD) Instrument Institutions Component 1: Scaling up access to finance for DFIs to enable Senior loan Caribbean Senior loan climate action investments in the 60,000,000 35,000,000 25,000,000 (line of Development (line of credit) productive sectors and energy credit) Bank systems. Component 2: Delivering technical assistance (TA) to enhance programme lending and 5,000,000 5,000,000 Grant - - - support the transformation toward climate-informed lending by Caribbean DFIs.

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Caribbean Programme management costs Cash & in- 3,250,000 1,998,000 Grant 1,252,000 Development (PMC) kind Bank

Indicative total cost (USD) 68,250,000 41,998,000 26,252,000

C.2. Justification of GCF funding request (max. 1 page) 47. Throughout the Caribbean, it has proven difficult to finance much-needed climate action investments without external financial and technical support. Many financial service providers in the Caribbean consider investments in energy and agriculture projects (among others) to be high-risk – particularly when led by local stakeholders that may be highly leveraged and/or possess limited collateral. On the other hand, many private sector stakeholders in the region lack the capacity to design and develop bankable projects, and (if needed) demonstrate to financial service providers that the proposed investments are less risky than they may appear. As a result, the private sector currently has limited access to affordable financing for the types of investments proposed under this programme. The result is low uptake on climate related investments by the Caribbean private sector, delaying much-needed action to address adaptation and mitigation issues, while also foregoing potentially profitable investment opportunities.

48. The barriers inhibiting private lending for climate action investments point to the need for external financial and technical support. DFIs could play an important role in this context, but lack the concessional resources and risk appetite needed to offer interest rates and tenors that would entice local private sector actors to scale up climate action investments. Meanwhile, public fiscal constraints throughout the Caribbean limit the extent to which governments can address these barriers. Debt-to-GDP ratios are high across the region – in part because of the repeated impacts of extreme weather events and the resources needed for post-disaster recovery and redevelopment – and many countries are working with international partners to keep deficits and debts at manageable levels. Although CDB can provide DFIs with financing at rates that are better than what they could otherwise access, these rates are still not sufficiently concessional to enable the flow of financing for such investments. The GCF is therefore requested to provide concessional loans to address challenges associated with the current high cost of financing, as well as grant financing for non-revenue-generating Activities to help overcome technical and capacity barriers.

49. Concessionality provided by the GCF will be passed on (via CDB and the DFIs) to the sub-borrowers to enable investments in the envisaged types of sub-projects. CDB will ensure this by specifying minimum requirements for sub-loans/sub-projects in the loan agreements between CDB and the DFIs. To determine the level of concessionality to be requested from the GCF, CDB (in collaboration with partner DFIs) will first assess the interest rates and tenors needed for the sub-loans during the full programme design and feasibility stages. This will inform the concessionality that DFIs will receive from CDB through the lines of credit, which in turn will determine the level of concessionality that CDB will request from the GCF. At each stage in this process, CDB will aim to provide (and thus request from GCF) the minimum level of concessionality needed to make sub-projects, projects and thus the overall programme viable, while also noting that the rates and terms to be offered must be attractive to MSMEs and homeowners – and competitive with other potential sources of financing – to ensure strong uptake of sub-loans under this programme.

C.3. Sustainability and replicability of the project (exit strategy) (max. 1 page) 50. The proposed programme will include provisions to ensure sub-projects deliver lasting benefits and are sustainable beyond programme closure. In particular, for any sub-project that will use programme financing for infrastructure or major equipment, the sub-borrower will be required to prepare a robust operations & maintenance (O&M) plan as part of their application to the relevant DFI. This will be among the eligibility criteria to be applied by the DFIs when processing sub-project applications, and will be enforced by CDB through its loan agreements with the DFIs. In addition, sub-project proposals will be required to include analysis demonstrating that the underlying investments are financially viable and thus (a) will enable repayment of the loans and (b) provide incentives for the sub-borrower to continue using the project-supported technologies/practices (e.g. equipment, infrastructure, land-use practices, etc.) beyond programme closure.

51. Through Component 2, CDB will strengthen the capacities of partner DFIs (and potentially also other financial institutions in countries that may lend through financial intermediaries) to continue scaling up lending for climate action investments beyond programme closure – an important element of the programme’s effort to catalyse a broader transformation of finance in the Caribbean. Coupled with programme support to strengthen the capacities of private sector stakeholders (e.g. on the development of bankable projects), as well as the continued maturation (and reduction

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of costs) of key programme-supported technologies, this is expected to enable the continued flow of financing for climate action beyond programme closure – even with less external assistance and lower levels of concessionality.

52. To increase the likelihood that sub-projects will generate sufficient returns to enable full repayment of loans – a key element of sustainability (as this implies the sub-borrowers will continue to use the assets, and thus generate the envisaged climate impacts, for the envisaged lifespan) and replicability (as this may incentivize other financial institutions to provide similar products/services) – the programme will place a strong emphasis on robust due diligence and appraisal of sub-projects, as well as provide guidance and support to develop such projects (under Component 2). This is expected to significantly increase the quality and financial viability of such projects, and thus reduce the risk of non-performing loans. This is described in Section B.2 under ‘Operational and financial risks and mitigation measures’.

D. Supporting documents submitted (OPTIONAL) ☐ Map indicating the location of the project/programme ☒ Diagram of the theory of change ☐ Economic and financial model with key assumptions and potential stressed scenarios ☐ Pre-feasibility study ☐ Evaluation report of previous project ☒ Results of environmental and social risk screening

Self-awareness check boxes

Are aware that the full Funding Proposal and Annexes will require these documents? Yes ☒ No ☐ • Feasibility Study • Environmental and social impact assessment or environmental and social management framework • Stakeholder consultations at national and project level implementation including with indigenous people if relevant • Gender assessment and action plan • Operations and maintenance plan if relevant • Loan or grant operation manual as appropriate • Co-financing commitment letters Are you aware that a funding proposal from an accredited entity without a signed AMA will be reviewed but not sent to the Board for consideration? Yes ☒ No ☐

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Annex 1: Preliminary set of eligibility criteria to be applied during sub-project appraisal

Type Criterion Notes

Relevance Climate change rationale Assessment of the extent to which the sub-borrower proposal responds to the key climate change challenges/opportunities outlined in the ‘country profile’ developed for each country.

Sectoral relevance Assessment of the extent to which the sub-borrower proposal is aligned with the focus sectors/areas identified by the partner DFI for their project.

Alignment with Assessment of whether the sub-borrower proposal draws on the indicative list of eligible indicative list of eligible technologies/practices and complies with the technologies/practices exclusion list.

Targeting Sub-borrower type Size and legal status of the entity submitting the sub-loan proposal.

Suitability of the sub- Financial condition of the sub-borrower including the ability to meet borrower debt service obligations.

Performance Performance against Assessment of the sub-project’s expected climate impact, paradigm GCF Investment shift potential, sustainable development co-benefits, needs of the Framework recipient, country ownership (namely alignment with national priorities), and efficiency and effectiveness (incl. $/beneficiary ratio).

Alignment with GCF Assessment of whether the sub-project objectives and expected RMF and PMFs results are aligned with (i) those of the overall programme; and thus (ii) the GCF RMF and PMFs.

Other E&S risk management Assessment of whether E&S risks and gender considerations have and gender action plan been properly accounted for, and whether robust measures have been integrated/planned in the proposal.

Sustainability Assessment of whether the sub-borrower proposal includes a robust O&M plan.

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Annex 2: Preliminary summary of key climate change impacts & risks and GHG emissions

Country Past/present climate change impacts and risks Projected (future) climate change impacts and risks GHG emissions Belize Temperature: Temperature: According to the third Mean annual temperature has increased by 0.45°C since The mean annual temperature is projected to further increase by 0.8 to 2.9°C by the 2060s, and 1.3 National Communication 1960, an average rate of 0.10°C per decade. The average to 4.6°C by the 2090s. The range of projections by the 2090s under any one emissions scenario is submitted by Belize to the rate of increase is most rapid in the wet seasons (MJJ and 1.5‐2°C. The projected rate of warming is a little more rapid in the wet seasons (MJJ and ASO) than UNFCCC, and the further ASO) at 0.14‐0.15°C per decade and slower in the dry the dry seasons (NDJ and FMA). analysis done by the seasons (NDJ and FMA) at 0.08‐0.09°C per decade. UNFCCC Secretariat, the Precipitation: country’s total GHG Precipitation: Projections of mean annual rainfall from different models are broadly consistent in indicating emissions (without Mean annual rainfall over Belize has decreased at an decreases in rainfall for Belize. Ensemble median values for almost all seasons and emissions LULUCF) in 2009 were average rate of 3.1mm per month per decade since 1960, scenarios are negative. Projections vary between ‐64% and +20% by the 2090s with ensemble about 1,200 Gg CO2eq, of but this trend is not statistically significant. Whilst all median values of ‐11 to ‐22%. which about 37% were seasons appear to have shown decreasing precipitation Changes in projected rainfall show the strongest decreasing signal in MJJ, at ‐83 to +22% by 2090s. from the energy sector. trends since 1960, only FMA has a statistically significant According to the third trend. Climate-related hazards: National Communication, • The coastal lowlands in northern Belize may be vulnerable to sea‐level rise (leading to coastal about 50% of these energy Climate-related hazards: erosion and flooding). Much of Belize is at sea level, and largescale inundation from sea-level sector emissions are • River floods, urban floods, coastal flooding/ sea rise and from more severe storm surges expected (CCPA); Sea‐level in this region is projected attributable to road level rise (high risk), due to the country´s low lying by climate models to rise by the following levels by the 2090s, relative to 1980‐1999 sea‐level: transportation. terrain. o 0.18 to 0.43m under SRES B1 • Cyclones and hurricanes (high risk). o 0.21 to 0.53m under SRES A1B • Forest fires (high risk). o 0.23 to 0.56m under SRES A2 • Extreme heat (high risk). • Increased intensity of storms, hurricanes and cyclones, leading to diverse impacts to local • Water scarcity (medium risk). livelihoods, ecosystems, and food and water security (WB, 2020). • Increasing temperatures will exacerbate water scarcity and extreme heat • Increased precipitation and intensity of storms could lead to increased landslides and the contamination of water supplies resulting from expected increase in the intensity of rainfall in fewer rain days.

Jamaica Temperature: Temperature: According to the third Mean annual temperature has increased by around 0.6°C Some models indicate that the mean annual temperature is projected to further increase by 0.6 to National Communication since 1960, an average rate of 0.14°C per decade. One 2.3°C by the 2060s, and 1.1 to 3.5 degrees by the 2090s. The range of projections by the 2090s submitted by Jamaica to the manifestation of this has been an increase in the under any one emissions scenario is around 1‐2°C. Projections used for IPCC AR5 indicate that UNFCCC, the country’s frequency of very hot days and nights, and a decrease in temperatures could further increase by 0.82-3.09°C for 2081-2100. total GHG emissions in the frequency of cold days and nights. The most 2012 (excluding emissions pronounced warming has occurred in the summer months Precipitation: and removals from (June-August). Projections of mean annual rainfall from different models are consistent in indicating decreases in LULUCF) was 14,922 Gg rainfall for Jamaica in JJA and MAM under the highest emissions scenario. Across all emissions CO2eq, of which 6,909 Gg Precipitation: scenarios, the range of changes for JJA is ‐72% to +12% and‐59% to +51% by the 2090s. For the were from the energy other seasons, projections range from increases to decreases, but ensemble median values are always sector. Of these emissions,

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Mean rainfall over Jamaica has decreased in JJA and negative. Annual projections vary between ‐65% to +22% by the 2090s with ensemble median public electricity and heat SON by 6.2 and 4.5 mm per month (4.4 and 2.0%) per values of ‐6 to ‐14%. This is consistent with modelling used for IPCC AR4 and AR5, with models production (2,825 Gg decade respectively, but these trends are not statistically from the former projecting changes of -44% to +18% by the 2050s, and -55% to +18% by the CO2eq) and road transport significant. Other modelling indicates that there has been 2080s. (1,726 Gg CO2eq) were a trend (1992-2010) toward increasing rainfall in the responsible for the largest centre of the island and decreasing rainfall over the Climate-related hazards: shares of emissions, and eastern and western parishes, with decreasing trends • Sea level rise will increase coastal erosion and flooding, and may also lead to saline intrusion were collectively stronger than increasing trends. of agricultural lands, aquifers and freshwater sources. responsible for about 65% • Increased intensity of storms, hurricanes and cyclones, leading to diverse impacts to local of energy-related Climate-related hazards: livelihoods, ecosystems, and food and water security. emissions. • Sea level rise (high risk). • Increased precipitation and intensity of storms could lead to increased risk of landslides. • River flooding, urban flooding and coastal flooding • Increasing temperatures and dry conditions could increase the risk and severity of wildfires. (high risk). • Landslides (high risk). • Cyclones, hurricanes and tropical storms (high risk). • Wildfires (high risk). • Extreme heat (medium risk). St. Temperature: Temperature: According to St. Lucia’s Lucia Mean annual temperature in St Lucia has increased by The mean annual temperature is projected to increase by 0.5 to 2.1°C by the 2060s, and 1.0 to 3.6°C third National around 0.7°C since 1960, at an average rate of 0.16°C per by the 2090s. The range of projections by the 2090s under any one emissions scenario is around 1‐ Communication to the decade. 2°C. The projected rate of warming is similar throughout the year, but a little more rapid in the UNFCCC, the country’s colder seasons (DJF and SON). total GHG emissions in Precipitation: 2010 (excluding emissions Mean rainfall over St Lucia has increased in SON, by Precipitation: and removals from 16.1mm per month (6.1%) per decade since 1960, but this Projections of mean annual rainfall from different models are broadly consistent in indicating LULUCF) was 647 Gg increase is not statistically significant. This increase is decreases in rainfall for St Lucia. Ensemble median values for all seasons are negative. Annual CO2eq, of which 493 Gg offset partially by decreases of around 9.0mm per month projections vary between ‐56% and +15% by the 2090s with ensemble median values of ‐10 to ‐ (or 76%) were from the (3.2%) per decade in JJA. 22%. energy sector. Of these emissions, energy Climate-related hazards: Climate-related hazards: industries (251 Gg CO2eq) • Cyclones, hurricanes and tropical storms (high risk). • Sea level rise will increase coastal erosion and flooding, and may also lead to saline intrusion and road transportation • Landslides (high risk), often occur as a secondary of agricultural lands, aquifers and freshwater sources. (197 Gg CO2eq) were effect of torrential rains, storms, floods or seismic • Increased intensity of storms, hurricanes and cyclones, leading to diverse impacts to local responsible for the largest activity. livelihoods, ecosystems, and food and water security. proportion of emissions, • Coastal flooding (medium risk). • Increasing temperatures will exacerbate water scarcity and extreme heat. and were collectively • Extreme heat (medium risk). • Increased precipitation and intensity of storms could lead to increased risk of landslides. responsible for almost 70% of total GHG emissions in the country.

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Annex 3: Theory of Change

Paradigm shift to low-emission sustainable development pathway, and increased climate-resilient sustainable development.

Catalysing a transformation of the productive sectors and energy systems in the Caribbean, and equipping relevant stakeholders (e.g. DFIs, Annex 1: Theory of ChangePS actors) to sustain and scale up this transformation beyond programme closure.

Important contributions toward achieving the objectives of: Delivery against GCF mitigation and adaptation core indicators, as well as the • The Nationally Determined Contributions (NDCs) in Belize, Jamaica and following Fund-level Impacts: St. Lucia. • M1.0 – Reduced emissions through increased low-emission energy access

LEVEL RESULTS • Key climate change-related cross-sectoral and sectoral policies, and power generation. - strategies and plans in Belize, Jamaica and St. Lucia. • M3.0 – Reduced emissions from buildings, cities, industries and appliances. • A1.0 – Increased resilience and enhanced livelihoods of the most vulnerable people, communities and regions. • A3.0 – Increased resilience of infrastructure and the built environment to climate change threats. HIGHER

Assumption: Programme-supported Assumption: DFIs continue lending to Assumption: PS continues investing in PS-led investments in productive relevant PS actors for climate action climate action using own funds, as well sectors and energy systems produce investments using own funds and (as as loans from DFIs and other financial tangible and significant results. needed) international climate finance. service providers.

PROJECT RESULTS 1.1 PS is investing in climate action 2.1 DFIs have enhanced access to 2.2 PS has enhanced capacity to in productive sectors and energy climate finance and capacities to access financing for climate action systems using financing from DFIs. lend for climate action investments. investments.

Assumption: SPs are Assumption: DFIs engage Assumption: Relevant PS actors identified, appraised, with the programme, and are engage with the programme, approved and implemented equipped to lead project and are equipped to design & successfully. execution. deliver quality SPs.

PROGRAMME ACTIONS TO OVERCOME BARRIERS 2.2.1. Raise PROGRAMME awareness 2.1.1. Strengthen DFI capacity to among PS 1.1.1. 1.1.2. deliver their projects. actors. Approve Monitor sub- sub- 2.1.2. Support 2.1.3. projects projects DFIs with SP Strengthen DFI 2.1.2. Train PS 2.1.3. Support (SPs). and report appraisal. capacity to actors on PS actors with to CDB. respond to CC. design of SPs. design of SPs.

BARRIERS TO TRANSFORMATION

Banks/lenders consider Lack of access to Limited capacity of Lack of awareness among local PS actors to be high- financing for local PS lenders to appraise CC private sector actors of CC risk borrowers. actors at the necessary projects (and price risks, mitigation needs and rates and terms. services accordingly). business opportunities.

CLIMATE CHANGE RATIONALE

Need to unlock High GHG Significant potential Changes in Vulnerability of private sector emissions from the for the private precip., temp. Caribbean due (PS) investment energy system due sector to scale up & intensity of to dependence CHALLENGES to transform to reliance on RE/EE due to extreme events on rainfall, productive imported diesel fuel favourable threaten local geology sectors & in most Caribbean conditions and high productive and other energy systems. countries. energy costs. sectors. factors.