The World Bank Emission Reductions Program to Combat Climate Change and Poverty in the Caribbean Coast, the BOSAWAS and the Indio Maiz Reserves (P167434) Public Disclosure Authorized

For Official Use Only Public Disclosure Authorized Appraisal Environmental and Social Review Summary Appraisal Stage (ESRS Appraisal Stage)

Date Prepared/Updated: 01/12/2021 | Report No: ESRSA01155 Public Disclosure Public Public Disclosure Authorized Public Disclosure Authorized

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BASIC INFORMATION

A. Basic Project Data

Country Region Project ID Parent Project ID (if any)

Nicaragua LATIN AMERICA AND P167434 CARIBBEAN

Project Name Emission Reductions Program to Combat Climate Change and Poverty in the Caribbean Coast, the BOSAWAS and the Indio Maiz Reserves

Practice Area (Lead) Financing Instrument Estimated Appraisal Date Estimated Board Date

For Official Use Only Environment, Natural Investment Project 1/12/2021 4/2/2021 Resources & the Blue Financing Economy

Borrower(s) Implementing Agency(ies)

Ministry of Finance and Ministry of the Environment Public Credit and Natural Resources (MARENA)

Proposed Development Objective To make payments to the Program Entity for measured, reported and verified Emissions Reductions (ER) from Public Disclosure Public reduced deforestation and forest degradation, as well as the enhancement of forest carbon stocks (REDD+) in targeted areas of Nicaragua, and to ensure that paid amounts are distributed according to an agreed benefit sharing plan.

Financing (in USD Million) Amount

Total Project Cost 47.50

B. Is the project being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No

C. Summary Description of Proposed Project [including overview of Country, Sectoral & Institutional Contexts and Relationship to CPF]

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Country Context: Nicaragua’s economic and poverty outlook has been jeopardized by the political crisis that began in April 2018. Social and political unrest and a protracted political crisis have affected economic activity and eroded confidence. Real Gross Domestic Product (GDP) contracted by -4.0 and -3.9 percent in 2018 and 2019, respectively. According to the latest forecasts, for 2020 growth is expected to fall to -6.3 percent, and would recover slowly to 0.7 percent by 2021. The COVID-19 (Coronavirus) pandemic plus the violence that has prevailed in the last years, job losses, a fall in consumer and business confidence, and a decline in labor intensive sectors have taken a social and economic toll, further halting progress achieved in poverty reduction since 2005.

Nicaragua is one of Latin America’s least developed countries. Poverty (with income below USD 3.2 per person per day in 2011 Purchasing Power Parity – increased to 13.1 percent in 2019 (from 9.5 percent in 2017). Currently, the pandemic is expected to adversely affect Nicaragua through declined remittance inflows, reduced trade, paralyzed tourism, and increased risk premiums, partially offset by lower oil prices. The gender equality index in Nicaragua was is 0.65 in 2019 (Classification 55 of 129 countries) reflecting considerable inequalities in health, empowerment, and For Official Use Only education. Indigenous and Afro-descendants’ women and youth tend to be disproportionally affected by poverty.

Agriculture and livestock have continued to grow despite the political crisis and the COVID19 pandemic. Local demand for agricultural products has remained stable. In international markets, the agri-export sector has fared well. Historically, increases in agricultural and livestock production have not been accompanied by significant intensification, and yields for Nicaraguan commodities are among the lowest (USD717/hectare) among its regional peers. This extensive production model, in concert with the development of roads and other infrastructure, has caused serious threats to forest ecosystems.

Nicaragua is highly vulnerable to natural disasters and climatic variability, including droughts, hurricanes, floods and landslides (particularly in the coastal zones), in addition to geological events, earthquakes, and volcanic eruptions. Tropical cyclones currently appear on the increase and heavy rainfalls, combined with unsustainable land use

Public Disclosure Public management, make communities more vulnerable to landslides. A strong warming trend across the country has been reported, manifesting through diurnal temperature increases (+0.40 degrees C) in deforested areas.

Sectoral and Institutional Context

Nicaragua’s diverse forests are essential to sustain the livelihoods of Indigenous peoples and Afrodescendant communities and the economy. Most of the Nicaragua’s forest area (82%) lies in the Caribbean Coast, which contains 3.2 million hectares of relatively well-conserved sub-tropical forests. Forest ecosystems are home to approximately 20,000 flora and fauna species. Forests contribute to regulate hydrology and precipitation, conserve water sources, biodiversity, and soil fertility, critical functions to maintaining regional and local agricultural productivity. They are often a primary source of income and wealth for forest dwellers (including the extreme poor), who in the Caribbean Coast are approximately 1.1 million people. Forest also sustain the cultures and spiritual values of Indigenous peoples and Afro-descendent communities.

However, forests are threatened by deforestation and forest degradation. The forest cover has been reduced by more than half during the last 35 years in Nicaragua. The country has experienced forest loss of approximately 147,200 hectares per year since 2005 (2.3% per year). Over time, the Caribbean area has become the primary source of deforestation (97% of the national deforestation between 2010 and 2015), with expansion of extensive livestock and

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agriculture mirroring forest cover loss – and with a significant share happening in the two largest protected areas. The annual reforestation is insufficient (4,000 ha/year) to counterbalance forest loss. Increasing pressure on forests, mainly due to the growing migration to the Caribbean Coast, often leads to land speculation, affecting the IATs. Weak forest sector governance is also a major underlying driver of forest degradation. The Indigenous peoples and Afrodescendent communities often lack the necessary capital, equipment, technical knowledge, infrastructure and commercial contacts for sustainable forest management. This lack of opportunity together with the lengthy, time- consuming and costly processes for obtaining permits incentivizes small-scale but widespread illegal forest extractive activities such as logging, firewood harvest and charcoal production. Forest fires also have a great incidence.

Deforestation and forest degradation are responsible for a large share of the country’s Greenhouse Gases (GHG) emissions. Under the business-as-usual scenario used in Nicaragua’s Nationally Determined Contribution (NDC) on climate change, the Agriculture, Forestry, and Land Use sector was responsible for 67 percent of the country’s total GHG emissions. Projections indicate that the national GHG emissions could grow by 33 to 55 percent between 2010 For Official Use Only and 2030.

In this context, Nicaragua developed an Emission Reductions (ER) Program focused on two large political jurisdictions in the Caribbean Coast, the country’s main agriculture frontier. The ER Program area covers approximately 7 million hectares, of which about 45 percent are covered by forests. The ER Program area is culturally diverse and has high poverty levels and incidence of extreme poverty. The ER Program represents the investment phase of the Reduction from Deforestation and forest Degradation (REDD+) financing strategy. The proposed Emission Reductions Payment Agreement (ERPA) forms the actual results- based payment mechanisms for the ERs.

The ER Program contributes to national development priorities and operationalizing the National REDD+ Strategy (known as ENDE-REDD+). It also contributes to the World Bank Group’s corporate goals of ending extreme poverty and boosting shared prosperity sustainably. The ER Program is aligned with Nicaragua’s FY18-22 Country Partnership

Public Disclosure Public Framework. Particularly, the Project will contribute to achieving Objective 6 on improved natural resource management (water, forests, and land) and reduced vulnerability to natural hazards, under the third pillar, “Improving Institutions for Resilience and Sustainability.”

Operation Description

The proposed Emission Reductions Crediting (ERC) operation consists of a transaction through an Emission Reduction Payment Agreement (ERPA) for the delivery of, and payment for Emission Reductions (ERs) and subsequent distribution of payments according to a Benefit Sharing Plan (BSP). The financing for this operation is provided by the FCPF Carbon Fund and will not cover the investment costs associated with ER Program implementation. The ERs generated will be measured as tCO2e against a previously determined Forest Reference Emissions Level (FREL) through a monitoring, reporting and verification system and involving independent, third-party verification of monitoring reports.

Underlying activities that will generate the ERs: To reduce emissions, Nicaragua will implement government programs, including Green Climate Fund supported Bioclima Project. These investment programs will address the drivers of deforestation and forest degradation. Nicaragua has agreed with the Carbon Fund on an approach that ensures that future measurement of emissions in the program jurisdiction is consistent with the agreed FREL.

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The ERC Transaction has two key features: (1) ER Verification and Payment and (2) Benefit Sharing.

1. ER Verification and Payment. The ER Program is expected to generate up to 9.5 million tCO2e, with the potential of additional ERs during the four-year ERPA term. The Carbon Fund will calculate the corresponding payments based on the country’s monitoring reports verified by an independent party. The monitoring report will include information on ER Program implementation and safeguards, non-carbon benefits, transfer of ER titles to the Carbon Fund, and benefit sharing.

2. Benefit Sharing. According to the BSP, the results based ERPA payments will be distributed among proponents and beneficiaries of REDD+ initiatives: The Indigenous and Afrodescendant communities in their Indigenous and Afrodescendant Territories (IAT) will receive non-monetary benefits based on the community development plans they have submitted, and will form by far the majority of the beneficiaries. The private landowners outside the IATs, as For Official Use Only well as selected institutions (the Northern and the Southern Caribbean Coast Autonomous Regions, the Alto Wangki Bocay Development authority and the National Protected Area System) will receive monetary benefits. A commercial bank that will be recruited to administer the Trust Fund will be the recipient of the gross ER payments from the Carbon Fund and, based on BSP, it will transfer said resources to the beneficiaries.

D. Environmental and Social Overview D.1. Detailed project location(s) and salient physical characteristics relevant to the E&S assessment [geographic, environmental, social] The ER Program accounting area includes the North Caribbean Coast Autonomous Region (RACCN) and the South Caribbean Coast Autonomous Region (RACCS), the Special Development Regime of the territories located in the upper Wangki and Bocay watershed, the BOSAWAS Biosphere Reserve in the north and Indio Maiz Biological Reserve in the Public Disclosure Public south. The BOSAWAS Reserve lies within the RACCN and the departments of Jinotega and Nueva Segovia, while the Indio Maiz Reserve is found partly in the Rama y Kriol territory located in the RACCS and partly in the department of Rio San Juan. The two Autonomous Regions and the upper Wangki and Bocay watershed make up 49% of the national territory and 83% of the accounting area, while the two Reserves make up 10% of the national territory and 17% of the accounting areas.

The total area of carbon accounting consists of 7,023,717 ha, of which 3,188,867 (45%) are covered by forests. The RACCN, the special development regime of Alto Wangki and Bocay, as well as BOSAWAS represent an area of 4,008,037 ha, of which, in turn, 2,054,573 ha (51%) are forests and the RACCS and the Indio-Maíz Reserve represent an area of 3,015,680 ha, of which, in turn, 1,134,293 ha (37%) are forests.

Nicaragua hosts around 7% of the world's biodiversity. The accounting area of the ER Program hosts the largest number of mammal species with 154 species, equivalent to 66% of the mammal fauna of Nicaragua with species of importance for conservation (endangered species), including 5 feline species, as listed in Appendix I of CITES. Nicaragua has 23.34% of the total terrestrial herpetofauna species present in Central America and in the accounting area some of the herpetofauna species in critical danger of extinction.

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At the national level there are reports of 6014 species of flora. In the accounting area of the ER Program, 13 endemic species are registered, which represent 12.5% of the endemism of flora at the national level. Nicaragua has identified two regions of high flora endemism at the national level.

In the ER Program there are 4 of the ecosystems identified as most relevant, the deciduous forests (inshore and sub- montane) with 17,223 ha; mangrove with 30,598 ha and the cloud forests, with an area of 1,059,791 ha because of the level of vulnerability and a wide range of biological threats. The accounting area is an important physical space for conservation, represented mainly by the Mesoamerican biological corridor. At the accounting area level, it has 7 biological corridors that contribute to the connectivity of endemic and foreign species: Amerrisque Musum Corridor; Atlantic Biological Corridor; Central Corridor; El Castillo - San Juan; Musun -Quiragua -Masigue; Peñas Blancas - Bosawas; Saslaya - Wawa. The biological corridors comprise a total of 1,447,135.95 ha of accounting area. As for the dynamics of change of use of the 2005-2015 biological corridors, the biological corridor with the greatest deforestation is the Atlantic Biological Corridor with 529,765 ha. For Official Use Only The reduction in forest cover is mainly related to the advance of the agricultural frontier, which causes fragmentation in biological connectivity. The agricultural frontier has historically moved from the Pacific, through the central zone and in recent years concentrated almost exclusively on the Caribbean Coast. The lowest percentages of biodiversity abundance are found mainly in the agricultural frontier areas of the accounting area. Deforestation in the Caribbean region accounted for half of all deforestation that occurred in the country between 1983 and 2000; then it reached 70% in the period 2000-2005, 85% between 2005 and 2010. This accelerated tendency will continue if no action is taken to address it. Recommendations are on capacity building, need to implement the laws, involving all those that have competencies to act, including subnational, local, and indigenous territorial and communal governments; enhance coordination and participation for the monitoring of the sector, procure financial and technical assistance, among others.

Public Disclosure Public The Caribbean Coast is characterized by its multi-ethnic population represented by the original and Afro-descendant peoples. Indigenous groups include Miskitos (120,817), Ramas (4,1845), Mayangnas (9,756) and Ulwas. Other peoples include Afro-descendants Garifuna and Creoles. The population of the RACCS is mostly mestizo (81%), and Creole (8.5%); The population of the RACCN, on the other hand, is predominantly Miskito (72%) (72%) and mestizo (22%). The Caribbean Coast is therefore multicultural and multilingual, with Miskito, Creole and Spanish being the most widely used languages, while the Mayangna, Ulwa, Garifuna and Rama languages are used in smaller geographical areas.

While it is true that both poverty and extreme poverty have been reduced in half since 2005, Nicaragua is the second poorest country in the Western Hemisphere, and RACCS, RACCN and Río San Juan have the lowest human development indices (0.50-0.55) of Nicaragua. The latest socio-political crisis since April 2018 is revealing the fragility of the country’s economic resilience and could pose significant challenges for the further economic development of the country.

Land Tenure context in the ER Program accounting area includes communal property (53%) which belongs to indigenous and Afro-descendant peoples; private property (46.7%) and untitled land (2%). The Caribbean Coast Emission Reduction Program Document, 2018 (page 76) stated that, “Nicaragua is a pioneer and regional leader in the development of a robust institutional and legal framework as regards to the restoration and protection of the rights

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of originary and afro descendant peoples. Land tenure is legally guaranteed, and the communal lands in Nicaragua possess special protection, according to Law 445 (Demarcation Law).

“However, there are weaknesses with the implementation of the law, and illegal occupation of lands and illegal land trafficking, are latent sources of tension and conflict, especially between indigenous communities (owners of some of the land) and settlers (“colonos”). It was identified that the national government is making efforts to solve the problem using actions to clean up public property registries, recognizing agrarian reform titles, accelerating the judicial resolutions for lawsuits and mediating for the resolution of conflicts between population groups. As reflected in the aide memoires for the various consultancies held during the formulation of the ER program, these weaknesses, and existing tensions are also the main concerns of indigenous and Afrodescendant communities. They have expressed their support for the Program but are asking for immediate and effective actions to address the illegal occupation of lands, deforestation and forest degradation.

For Official Use Only Nicaragua is currently undergoing a socio-political crisis. The trigger was the pension reform proposed by the Nicaraguan Institute of Social Security (INSS) on April 16, 2018. This reform gave spark to massive civil protests in different parts of the country, with its peak moment during the month of July 2018, where the whole country was paralyzed, and due to public manifestation and barricades that the protesters erected on main roads of the country. The response of the government to the protests of April 2018 is considered by many sources as disproportionate, with allegation of human rights abuses against people that expressed dissent and protested against government. Actors like the Inter-American Commission on Human Rights, International Amnesty, UN High Commissioner for Human Rights, the European Parliament and the United States Government among others voiced their concerns. While violence deaccelerated more recently, socio-political tensions continue and the actors referenced above as well as international civil society claim that the democratic space is further shrinking due to the approval of controversial new legislation (e.g. Foreign Agents law; Law on Cyber Crime; proposed Constitutional reform to allow life in prison for “hate crimes”) that could, in their view, significantly curtail freedom of speech and be used to target the opposition.

Public Disclosure Public Presidential elections will take place in November 2021 and hence, political turbulence could potentially increase.

The socio-political crisis has resulted in a downfall of the economy of the country lasting up to now. This has been further compounded by the damages caused by Hurricane Eta and Iota. Hurricane Eta and Iota caused significant impacts on local populations and core infrastructure, and has added significant stress to the limited public welfare and health systems, where families already were struggling to survive due to the COVID-19 pandemic. The RAAN and RACCS regions are the ones most severely exposed to Hurricanes Eta and Iota and the ER Program will provide benefits to some of the most vulnerable communities in those same areas.

The aforementioned context could present risks for ER Program implementation, particularly around stakeholder engagement. Contributing additional factors for potential conflicts in the ER Program accounting are: i) the increasing presence of illegal settlers - colonos - in indigenous and Afrodescendant territories, that could spur more violence and further drive deforestation and displacement; and iii) government capacity to prevent land invasion is weak and, in most cases, absent. Against this context, there is also some opposition from civil society in Nicaragua against the ER Program, with some NGOs and IP organizations sending letters to the Bank and FCPF Donors raising concerns with respect to the consultation process, including with Indigenous Communities (IPs), the risk of retaliation, the passing of repressive laws and the complex political situation of the country. D. 2. Borrower’s Institutional Capacity

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Overall coordination and implementation responsibility for the ER Program will be with MARENA (the ER Program Entity) as the governing body for the environment and climate change and the designated national focal point responsible for REDD+ and for international climate change negotiations. MARENA will be responsible for coordination of the Program’s projects and budgets, ER accounting and reporting, safeguards compliance through the implementation of the ER Program ESMF, benefit sharing implementation, monitoring and reporting on the ER Program, as well as high-level coordination with other actors and development partners. MARENA currently has twenty technical specialists dedicated to REDD+ coordination and implementation. A dedicated coordination unit within MARENA will be established to oversee the ER Program’s implementation.

MARENA leads the country’s REDD+ agenda. With FCPF Readiness Fund support, Nicaragua prepared its National Avoided Deforestation Strategy (ENDE-REDD+), based on a Social and Environmental Strategic Assessment (SESA) and elaborated the corresponding Environmental and Social Management Framework (ESMF). MARENA also developed a draft National Forest Monitoring System (NFMS) and built institutional capacity to estimate the Forest Reference For Official Use Only Emission Levels (FREL) and for forest carbon accounting. These are the elements of the Nicaragua’s REDD+ Readiness Package which FCPF endorsed in October 2016. The proposed Project will rely on this country capacity.

MARENA is also the country’s leading agency for applying the country’s main environmental legislation. This includes regulations on environmental impact assessment, biodiversity, climate change, forest, wetlands, RAMSAR sites protection, among others. The main MARENA departments that will be working in the project are: protected areas, biodiversity, and climate change.

In order to achieve the requirements of the ESF, the Program Entity works with other institutions such as Ministry of Agriculture (MAG), Nicaraguan Institute of Agricultural Technology (INTA), National Forest Institute (INAFOR), National Institute for Territorial Studies (INETER), and Ministry of Family, Communal Cooperative, and Associative Economy (MEFCCA). In addition, the ER Program will include the active participation of the indigenous territorial

Public Disclosure Public governments (ITGs) (the territorial and communal governments are responsible for decision making related to land and natural resource use and management, in line with the Autonomous regional governments of the RACCS and RACCN), community organizations, cooperatives, universities, and other organizations. The ER program will address capacity building activities to strengthen the institutional capacity of the ITG, and that will be financed as part of the overall budget of the program, stemming from ER payments, but mainly through the budgets of projects that will be involved in the implementation of the ER Program activities such as: Bio-CLIMA Nicaragua: Integrated climate action for reduced deforestation and strengthened resilience in the BOSAWÁS and Rio San Juan Biosphere Reserves (in formulation); Strengthening the Resilience of Multiple Use Protected Areas to generate global environmental benefits (GEF ID 5277) Resilient Landscape Management (GEF ID 9579 - approved concept.) and the Biodiversity Protection, emission reduction and SAT improvement in the Indio Maíz Biosphere Reserve (in formulation). Public funds are also available for the ITG and as part of yearly budget approved by the national assemble of the country.

Even though MARENA has experience in implementing World Bank projects, they will further strengthen their capacity for the management of the Environmental and Social Standards. Since 2010, MARENA has been working on the implementation of safeguards instruments for the FCPF REDD Readiness project. The World Bank has provided advice and supervision for the development of environmental and social safeguards instruments, for the REDD + Nicaragua Strategy, as well as in the elaboration of a System for reporting how the environmental and social safeguards of the United Nations Framework Convention on Climate Change are met and respected, one of the

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requirements that a country must comply with to be part of REDD +. During this time, MARENA has established a team that has been trained and strengthened in the identification of environmental and social risks, as well as in the implementation of prevention and mitigation measures, so that the National REDD + Strategy is environmentally and socially sustainable. The MARENA safeguards team has also been trained in the development, implementation and reporting of the GRM.

However, MARENA could face some challenges in the implementation and monitoring of environmental and social management requirements when working at regional and local levels, as well as with other institutions. In order to strengthen the capacity of MARENA's safeguards team and other institutions, the ER Program includes a capacity building program, outlined in the ESMF and its Annexes. The ER Program will try to ensure robust budgets for the strengthening of MARENA’s capacity, client supervision, and continued consultation, through the ERPA signature.

Training and capacity building activities will be provided prior to and post ERPA signing. Two specialists (one social and For Official Use Only one environmental) will be hired and/or assigned to the Program Entity and will have responsibility to work and train Environmental and Social Specialists of MARENA departmental/regional offices for the implementation, monitoring and reporting on the ESF and its standards. The program will also have specialists to address potential Sexual Exploitation and Abuse and Sexual Harassment (SEA/SH) risks of the ER Program. This could also be complemented through expertise at the Latin America and the Caribbean regional level, if required. MARENA will also provide training on ESF and its application to stakeholders at the territorial levels. Capacity building will be a priority throughout the life of the ER Program, and it is cross cutting to the program’s strategic and action lines. MARENA is in the process of formulating the Bio-CLIMA Nicaragua project “Integrated climate action for reduced deforestation and strengthened resilience in the BOSAWÁS and Rio San Juan Biosphere Reserves”, that will finance necessary actions to achieve the goals of the ERPA. Component 3 of the Bio- CLIMA project is specifically designed for capacity building options and tools to support and sustain productive landscape restoration and forest conservation efforts and investments.

Public Disclosure Public To implement the ER Program activities, the GoN is planning to align existing institutional initiatives and land-use projects as well as preparing a new GCF and a new CEF7 project. Still, MARENA would be responsible for overall ER Program coordination at the national level, assisted by a multi-stakeholder Advisory Committee composed of several institutions involved in land use, land-use change and forestry in Nicaragua. The Regional Governments, Regional Council, and Secretaries of Natural Resources and Environment would be responsible for ER Program coordination at the regional level. Several institutions would contribute to the ER Program implementation (the (implementors of the program’s underlying activities) through existing activities, including the following: Forest conservation.

The ESCP includes specific provisions on third party monitoring to determine level of adherence of underlying activities with E&S documents, and the Program Entity’s E&S risk management system.

The independent third-party monitoring for the ER Program will be paid by the Facility Management Team (FMT) of the Forest Carbon Partnership Facility (FCPF). A generic ToR has been developed for the TPM and is included in the Environmental and Social Management Framework (ESMF) for the ER Program. The TPM will carry out independent monitoring annually, or at minimum as specified in the ERPA, and will report directly to FCPF and World Bank. The reports will be results-based, provide an independent assessment of compliance with the ESSs and agreed frameworks and instruments, and organized according to activity/sector. MARENA will also be responsible for annual self-reporting on E&S compliance including the functioning of the grievance redress mechanism (GRM) to the World

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Bank. World Bank will review the information from third-party monitoring, along with MARENA’s self-reporting, as part of its due diligence process to determine whether or not to make the ER payments under the ERPA to the Program Entity.

The monitoring system for the Benefit Sharing Plan will integrate the participation of the indigenous and Afrodescendant territories (IAT). The ESCP also reflects the participation of IAT as part of the functioning of the regional commission on safeguards. The regional commission will be chaired by the Regional Governments, and integrated by the Regional Governments, with the participation of Municipal Governments as well as Indigenous and Afrodescendant Territorial Governments. They will also give follow up to the consultation processes, the implementation of the ESCP, safeguard instruments, and the GRM.

The ER Program has also developed a Safeguard Information System (SIS) that aligns with the United Nations Framework Convention on Climate Change’s Cancun Safeguards framework as well as with the World Bank For Official Use Only environmental and Social Standards (ESSs). The SIS will serve as a repository of information and for public disclosure information. The GRM will be strongly linked with the safeguard information system and will be monitored by the TPM.

II. SUMMARY OF ENVIRONMENTAL AND SOCIAL (ES) RISKS AND IMPACTS

A. Environmental and Social Risk Classification (ESRC) High

Environmental Risk Rating Moderate The environmental risk rating is Moderate. The Project is not likely to generate a wide range of significant adverse risks and impacts on the environment. The risks and impacts themselves are mostly temporary, predictable and/or reversible. Serious adverse effects are not expected. The effects of the Project on areas of high value or sensitivity are Public Disclosure Public expected to be positive, given the mainly environmental conservation characteristics of the project, reducing emissions from deforestation and forest degradation, effects on biodiversity and living natural resources. Nevertheless, given the nature of the instrument, it is classified as moderate risk.

Some examples of potential adverse risks and impacts on the environment are related to the implementation of infrastructures such as the opening of new paths, that can generate risks such as the opening of new deforestation fronts, runoff, the removal of vegetation, the loss of biodiversity due to the invasion of non-native species and environmental degradation due to canopy opening and the increased risk of fires. Forest management and restoration activities can generate risks associated with the use of fertilizers, pesticides and hydrocarbon pollution by the use of machinery. Risks related to primary suppliers can also be associated with these strategies through the purchase of seeds and seedlings, or even timber for fencing.

The vast majority of these risks and impacts are predictable and specific mitigation actions reduce their probability of occurrence. However, in order to ensure that the risk does not become an impact, the borrower has developed environmental instruments, such as the ESMF, the Integrated Pest Management (IPM) the Guides for Biodiversity Action Plan (GBAP) and guidelines for the Forest Management Plan (FMP) (See section III of this ESRS: Borrower’s Environmental and Social Commitment Plan (ESCP)). The ESMF and its annexes include a capacity building program

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for the Borrower, in order to manage such risks and impacts; not only from direct project activities from MARENA, but also from other stakeholders involved, crucial for achieving the Project’s goals. Social Risk Rating High The Social Risk Rating is High.

Several contextual and ER Program specific risks could potentially impact the ER Program implementation, particularly around free and meaningful stakeholder engagement or equitable distribution of ER benefits. The socio-political context of Nicaragua is very sensitive, as a result of the socio political context of crisis since 2018, with many international actors claiming that significant human rights abuses have been committed and that freedom of speech has been significantly curtailed, as further detailed in Section D above; the accumulation of tensions stemming from conflicts between indigenous communities and campesinos – colonos (agricultural frontier colonists), land grabbing, coupled with competing interests and demands of different land holders and people without land title, and illegal For Official Use Only logging activities. Furthermore, there are risks identified related to indigenous territories and forms of forest administration; and potential local social conflicts stemming from the distribution of the benefits of Payments for Environmental Services.

The ER Program per se is not likely to cause significant negative impacts on human populations. On the contrary, it is expected to have positive impacts on vulnerable and systematically excluded groups through the increase in employment and business opportunities, and the improvement of the livelihoods of people with small land properties. Furthermore, the ER Program will foster the adoption of sustainable and productive land-uses. It is also expected to enhance livelihoods through a more coordinated support from various public programs that would generate increased revenues from sustainable practices (agriculture and forestry).

Other risks, such the potential impacts on physical, cultural, and/or archeological sites, are thought to be minimal and measures to avoid, minimize or mitigate, are reflected in the ESMF developed for the program. There will be no Public Disclosure Public situation of land acquisition or resettlement, and any activity that could produce such impacts will be screen out of the program activities. However, the ER Program underlying activities could lead to the restriction of access to natural resources, or access to protected areas or communal forest lands for which a Process Framework has been developed.

The Program Entity shall manage the ER Program through a participatory approach and apply citizen engagement and beneficiary feedback mechanisms, also applicable to the BSP. A facilitator will also be hired to ensure meaningful participation with all stakeholders, particularly IPs, in line with the ESSs. The SEP was designed to be culturally appropriate and puts a strong focus on inclusive stakeholder management. The SEP includes a Grievance Redress Mechanism as well. To ensure that the grievance mechanism is in place and will function in accordance of the provisions of ESS10, the ESCP includes a provision that the Bank will verify the appropriateness of the installed GRM as an effectiveness condition.

The borrower has also developed a Process Framework (PF), and an Indigenous People Planning Framework (IPPF), that includes afro descendant communities. The purpose of the Process Framework is to describe the process by which potentially affected communities and affected population will participate in planning, designing the restrictions, as well as in proposing the mitigation measures, and in regard to naturally protected areas. The IPPF is

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pertinent because, even though broad geographic areas are defined, specific participant indigenous communities are not. So far, the two years preparation of the ER program have not identified any activity that would require Free, Prior, and Informed Consent (FPIC). If during implementation it is revealed that ER Program might have adverse impacts on land and natural resources subject to traditional ownership or under customary use or occupation, such activities will be excluded from project activities.

B. Environment and Social Standards (ESSs) that Apply to the Activities Being Considered

B.1. General Assessment

ESS1 Assessment and Management of Environmental and Social Risks and Impacts Overview of the relevance of the Standard for the Project: The Standard is relevant. The ER Program is expected to generate benefits for local communities through the For Official Use Only adoption of sustainable and productive land uses, as well as significant positive impacts on forest conservation, as it aspires to tackle the main direct drivers of deforestation and forest degradation to promote emissions reductions.

The underlying activities of the ER Program are: 1.1)Improved forest and land use management and governance in indigenous territories; 1.2) Community forest management; 1.3) Promotion of natural regenerations and social reforestation (reforestation crusade); 2.1) Silvopastoral trusts; 2.2) Promotion of Agroforestry systems; 2.3) Commercial reforestation; 3.1 Strengthening of private or government institutions that promote private investment (PRONicaragua/PRONicaribe) private or government institutions that promote private investment; 4.1) Harmonization of policies and improved institutional coordination; 4.2) Improved regional and local forest and land use monitoring; 4.3) Better information gathering, use, and dissemination; 4.4) improved application of laws, policies, regulations, and norms, and 4.5) improved institutional resources and capacities in order to better control land and natural resource use and promote sustainable land use.

Public Disclosure Public The Environmental and Social assessment identified that the ER Program’s underlying activities will generate overall positive impacts related with landscape restoration and promote sustainable and resilient land use practices. However, there is an important contextual social risk associated with possible local social conflicts stemming from the distribution of the benefits of the Payments for Results/benefit sharing schemes. Vulnerable groups were identified, among whom are indigenous and Afro-descendant inhabitants of 23 indigenous and Afro-descendant territories: 16 in the RACCN, 4 in the RACCS and 3 in Jinotega. These territories host the most vulnerable population in terms of poverty line, exposure to hazardous weather conditions (Hurricane and Floods), and violence.

Based on this assessment, the socio-political context of Nicaragua is also sensitive as an accumulation of tensions stemming from conflicts between indigenous communities and campesinos – colonos (agricultural frontier colonists), land grabbing, coupled with competing interests and demands of different land holders and people without land title, and illegal logging activities. Furthermore, there are risks identified related to indigenous territories and forms of forest administration; elite capture, and local social conflicts for distribution of the benefits of Payments for Environmental Services.

Because specific communities that will be part of the program are still not defined, an Environmental and Social Management Framework (ESMF) was developed, widely consulted upon and disclosed by MARENA

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(http://www.marena.gob.ni/Enderedd/wp-content/uploads/2020/06/1-EAS1_MGAS-Evaluación-y-Gestión-Amb-y- Soc-09062020.pdf). This ESMF was developed in a participatory way, and complies with country environmental legislation and the ESSs, laying out procedures and requirements for evaluating social and environmental risks and potential impacts and identifying mitigation and management measures.

The ESMF includes: i) an exclusion list of activities, such as the introduction of invasive species in plantations, or the land titling over regional conservation areas; (ii) a screening plan to identify, avoid and mitigate any potential negative environmental, health, safety, and social impacts associated with underlying activities; iii) a process for categorizing, in terms of expected level of environmental and social risk, and assessing and safeguarding future potential underlying activities to be included under the ER Program; (iv) good practices for potential activities such as community forestry, sustainable management of forest landscapes, guidelines for sustainable exploitation of timber and non-timber products, productive reconversion, national and international certification, value chain development, access to markets, and certification processes, as well as for the preservation of critical natural habitats sustained by For Official Use Only these forests, inter alia. The exclusion list that is in chapter XV of the ESMF, will not allow nor support activities such as introduction of invasive species for reforestation, and excludes any activity that could cause involuntary resettlement, including physical displacement to formal landowners or informal land occupants - Also, any activity that would lead to physical relocation of IPs from their traditional/customary land and natural resources and/or have adverse impacts on land and natural resources subject to traditional IPs ownership or customary use and/or any activities that have significant impacts on Indigenous Peoples cultural heritage that is material to the identity and/or cultural, ceremonial, or spiritual aspects of the affected Indigenous Peoples lives will be screened out from eligibility under the ER Program, as specified in the ESMF.

Based on the identified risks and impacts, the ESMF also contains the following documents as annexes: Integrated Pest Management (IPM) Plan; Biodiversity Management Plan (BMP); Labor Management Procedures (including code of conduct and Grievance Mechanism for workers); Guidelines for Forest Management Plans (for both commercial

Public Disclosure Public and small-scale activities); and Guidelines for Cultural Heritage. As stand-alone instruments, the ER Program also has an Indigenous Peoples Framework and a Process Framework, and a Stakeholder Engagement Plan (SEP), with its Grievance Redress Mechanism. Budget for the implementation of the SEP and the GRM is defined in the SEP and will be partially financed by ER payments, as well as by the BioCLIMA project that will be implementing the ER Program Activities.

Based on the findings of the ESMF, the ER program will formulate and implement site-specific, Environmental and Social Management Plans. While the World Bank, as trustee over the overall ER Program, will not be responsible for supervising the implementation of such site-specific plans at the subproject level, the Bank will nonetheless carry out periodic spot checks of the site-specific plans being developed in accordance with the framework instruments, to validate that they are being effectively implemented and appropriately cover the relevant environmental and social risks and impacts emerging on subprojects.

The Emission Reduction Program of Nicaragua is planning to implement its activities through the Bio-CLIMA project that is currently under preparation, as well as through other ongoing programs. These projects may have their own Environmental and Social Management Manual, that in this context, must be aligned with the World Bank's environmental and social standards. With regards to the environmental management instruments of the Emission Reduction Program, the ESMF for the ER Program is mandatory for all projects that comprise the ER Program. In

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order to ensure that the participating institutions have the resources and institutional capacity necessary for the proper implementation of this ESMF, the Environmental and Social Commitment Plan (ESCP) of the ER -Program foresees, as from the signing of the Emissions Reduction Payment Agreement (ERPA), the implementation of a series of initiatives to strengthen the capacity of the participating agencies and their professional teams in the application of the actions and procedures contemplated in this ESMF. These actions will begin after the signing of the ERPA and will be maintained throughout the entire implementation of the ER Program. The Government of Nicaragua is committed to ensuring the necessary budgetary availability in order to guarantee the implementation of the ESMF.

The ESMF establishes the foreseen financial resources for the ESMF measures, including operational costs, such as the safeguards team, the grievance mechanism, safeguards and biodiversity monitoring, communication plan, and others. The ESMF will be conducted and supervised by MARENA, in coordination with the MHCP, MEFFCA, SDCC, INETER and INAFOR, as well as by regional and territorial governments of indigenous and afro-descendant people. MARENA will present biannual reports to the FCPF and to CABEI, as Accredited Entity to the GCF for the Bio--CLIMA For Official Use Only Project.

The ESMF and its annexes were consulted and disclosed by MARENA on their website prior to appraisal. All draft E&S instruments were furthermore disclosed on the Bank’s external website prior to appraisal. Instruments will be finalized before ERPA signature.

ESS10 Stakeholder Engagement and Information Disclosure The main stakeholders are MARENA, regional and municipal governments, indigenous and afro descendants’ territorial and communal governments, and actors such as community groups, indigenous peoples, and small and medium-sized producers. Potential stakeholders also include private enterprises and NGOs that operate in the jurisdiction, and whose actions contribute to the achievement of the ER Program's objectives, to the extent that they

Public Disclosure Public act through public-private alliances and/or public-private-communal alliances that help to promote low-emissions development. The ESMF (Chapter VIII) includes an overview of the participation process from 2016 (beginning of the project preparation) to date. This chapter also includes the link to documentation of the participation process: http://www.marena.gob.ni/Enderedd/memorias-talleres-ende-redd/ .

From September 19 – 24, 2019, MARENA consulted the following ESS instruments: Environmental and Social Management Framework (ESMF,) including its annexes, Labor Management Procedure (LMP,) Stakeholder Engagement Plan (SEP), Indigenous Peoples Planning Framework (IPPF), Process Framework (PF) and Grievances Redress Mechanism (GRM). The Benefit Sharing Plan (BSP) was also consulted. The consultation was carried out in the localities of in San Andres- Alto Wangki Bocay - September 19 – 20; Bilwi- RACCN - SEPTEMBER 19-20 and in Bluefields RACCS – September 23-24, 2019 with approximately 76 participants per event, out of which: approximately 26% are women, 57 % are indigenous (Miskito, Mayangna, Ulwa, Rama) and 19% Afro descendants (creoles and Garifunas). The participants (including indigenous and Afrodescendant organizations, communal and territorial governments) came mainly from the following institutions and sectors: Regional Autonomous Governments, Regional Autonomous Council, Communal Governments (Bluefields Creole, Tasbapounie) Territorial governments (Matumbak, Wak, Lilamni, Tuahka, Táwira, Karatá, Wangki Twi Tasba Raya, Kiplasait, M.S.B, Kukra Hill, Awaltara, Rama-Creole,) Municipal Governments (Rosita, Bonanza, Waspam, Prinzapolka, Bluefields, Rama), University BICU, URCACCAN; Producers, association of farmers and fishermen, ONGs (CEDEHCA, Nacion Mayangna, AMICA, PANA-

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PANA , Guardabarranco) means of communication and ministries and public institutions ( MARENA, INAFOR, MEFCCA, MHCP, MINED, Civil Defense, PRONICARAGUA, National Police. All the social and environmental instruments prepared by Nicaragua’s Government have been published by MARENA in its website.

During the consultation process, the stakeholders expressed support for the ER Program and the E&S instruments. The main E&S comments of stakeholders during such consultations were addressed, as appropriate and where feasible, in the respective E&S instruments by MARENA and shared with the Bank. These concerns are related to labor risks, use of pesticides, equitable distribution of benefits, and need for training. Despite support expressed during consultations undertaken during the ER Program preparation, there was also some opposition from international civil society and IP organizations against the ER Program, with some NGOs and IP organizations sending letters to the Bank and FCPF Donors raising concerns with respect to the consultation process, including with Indigenous Communities (IPs), the risk of retaliation, the passing of repressive laws and the complex political situation of the country. Mitigation measures in place to ensure stakeholder engagement in line with ESS10, include, For Official Use Only for example, the hiring of an independent facilitator to be part of stakeholder engagement.

The Stakeholder Engagement Plan (SEP) prepared by MARENA will accompany the ER Program’s preparation and implementation phase. The SEP outlines: a) who the key stakeholders are; b) how the ER PROGRAM will engage with them, especially regarding indigenous peoples’ representatives, members of the afro descendant communities (if applicable), women of all ethnicities, and other vulnerable groups; c) how often the engagement will occur throughout the ER Program; d) how feedback will be solicited, recorded and monitored over the ER Program; e) who is responsible of this engagement; f) timeline for this engagement; g) budget, h) culturally appropriate engagement, and i) human resources, among other details. To avoid or minimize the risk of leaving certain vulnerable groups behind, the SEP describe the measures that will be used to remove obstacles to participation in the benefits of the ER Program, and how the views of differently affected groups will be captured. The SEP allows anonymous complaints free of retaliation Where applicable, the SEP includes differentiated measures to allow the effective participation of

Public Disclosure Public those identified as disadvantaged or vulnerable, focusing on IPs and small farmers without formal organizations. The SEP requires the hiring of a facilitator for meaningful stakeholder engagement and GRM robustness. Final version of the SEP, as well as the other ESS instruments, will be ready and disclosed prior to ERPA signing.

Dedicated approaches and an increased level of resources may be needed for communication with such differently affected groups such as remote and dispersed populations so that they can obtain the information they need regarding the issues that will potentially affect them (positively or negatively). The stakeholder engagement process has already begun and will guide the ER Program through implementation. Feedback has been integrated into the SEP.

The existing Grievance Redress Mechanism (GRM) developed by MARENA for the sake of this program, was further strengthened during preparation in order to better receive and facilitate resolution of concerns and grievances and ensure agility, access, prompt response timeframes, and respect for confidentiality. The technical assistance provided by the Bank to reinforce the GRM has benefitted from the lessons learned during a portfolio wide review of the GRM functioning in Nicaragua. The GRM has a procedure for people to provide feedback and submit grievances; defines responsible parties for dealing with feedback, and or grievances; sets procedures for resolving or mediating and investigating grievances; has a tracking record tool, for keeping complainants informed of status updates; and reflects

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the protection of confidentiality of complainants. . The implementation and monitoring of the GRM will be the responsibility of the safeguard commissions, defined in chapter IX of the SEP; and chapter XVI in the ESMF.

The design of the GRM includes the use of permanent mailboxes that will be located in municipal offices, administrative centers of Indigenous Territorial Governments, and MARENA to facilitate greater access and participation. Likewise, the feedback mechanism establishes a procedure for indigenous and afro-descendant peoples since it includes the traditional judges of the communities (“Whitas”) in this mechanism, given their traditional role of attending and resolving conflicts within their communities, which are currently recognized by the country's justice system, and through community assemblies. The Community Assemblies are spaces in which complaints can be expressed and filed. In addition, the realization of periodic meetings has been incorporated in the design, which will be useful in order to know the level of satisfaction or concern about complaints by stakeholders related to the Program implementation, the distribution of benefits and services, and/or possible social or environmental impacts.

For Official Use Only To ensure the effectiveness of the GRM, the Bank as Trustee will require MARENA to guarantee that entities implementing the ER program will allow people to submit grievances without fear of threats, coercion, retaliation or harassment. The ESCP also stipulates that MARENA shall ensure that the Bank, including the independent third party monitoring agency to be contracted by the Bank, will have access to all data from the Grievance Redress Mechanism and the ability to supervise the resolution of complaints.

Electronic access: MARENA has on its website a window marked with the word “Contact us”, which opens a form through which all stakeholders or interested parties can enter their request for information, questions, suggestions or complaints. The system will generate an automatic response indicating receipt and that within a period of no more than thirty (30) days there will be a response. The automatic response includes a number that identifies the approach, this number may be used as a reference in case of appeal, in case the person who raised the concern or complaint is not satisfied with the response obtained. http://www.marena.gob.ni/Enderedd/mecanismo-de-

Public Disclosure Public retroalimentacion-y-atencion-de-quejas/ To facilitate communication between community members and their leaders or between producers and managers, and in turn with the Regional or Departmental Safeguards Commission, a WhatsApp group will also be created, administered by the head of the Regional Safeguards Commission. On this platform, stakeholders can receive and respond to proposals made by the protagonists. In the context of COVID19, the SEP, in section 8.5 includes stakeholder engagement strategies that point out ways to minimize close contact and follow the recommended good hygiene procedures as outlined in the World Health Organization, Pan-American Health Organization, Ministry of Health of Nicaragua, as well as the following of guidance, provided in the technical note of the World Bank on “Public Consultations and Stakeholder Engagement in WB-supported operations when there are constraints on conducting public meetings”.

B.2. Specific Risks and Impacts

A brief description of the potential environmental and social risks and impacts relevant to the Project. ESS2 Labor and Working Conditions This Standard is relevant, based on the underlying activities of the ER Program. The ER Program for Nicaragua will be implemented primarily by government staff from the implementation Ministries (Finance, Environment, Forest, Protected Areas, Agriculture). In line with ESS2, where government civil servants are working in connection with the

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project, whether full-time or part-time, they will remain subject to the terms and conditions of their existing public sector employment agreement or arrangement, unless there is an effective legal transfer of their employment or engagement to the project. ESS2 applies to government civil servants related to the project in regard to provisions of paragraphs 17 to 20 (Protecting the Work Force) and paragraphs 24 to 30 (Occupational Health and Safety). These will be covered by the ESMF when project-related.

At the same time, ER Program underlying activities may also include small-scale community-based projects, and projects where most activities are carried out by contractors and subcontractors. In this sense, the ER Program and the underlying activities may encompass the hiring of different types of workers (direct workers, community-based labor, consultants). In the case of community labor, the Borrower assessed whether there is a risk of child labor or forced labor and identified those risks consistent with paragraphs 17 to 20 of the ESF. As indicated in section XI of the Labor Mangement Procedures (LMP) prepared for the program, the use of child labor and force labor is prohibited. This analysis concludes that Nicaragua has a consistent Legal Framework on principles and rights in labor matters. For Official Use Only The LMP was developed by the Borrower as an annex to the ER Program-ESMF (refer to Table 1, Section II), and includes specific provisions for each type of expected labor and also prevents the use of all forms of forced labor and child labor. The LMP will serve as the basis for preparation of more specific Labor Management Plans by MARENA and co-implementors like Bioclima, as needed during implementation, applying any requirements that are relevant given the nature of the activity. The LMP is disclosed at: http://www.marena.gob.ni/Enderedd/wp- content/uploads/2020/03/3-Gestión-de-Mano-de-Obra.pdf

The LMP outlines, among other elements: terms and conditions of employment, provisions on non-discrimination and equal opportunity, and the establishment of workers’ organizations. It also includes codes of conduct. As part of the LMP, MARENA developed a Grievance Redress Mechanism (GRM) for project workers. The LMP also reflects available guidance to ensure appropriate occupational health and safety with respect to the risks posed by COVID19 (section 1.6), and will be further updated as needed depending on the evolution of the pandemic and updated

Public Disclosure Public guidance from authorities such as WHO and PAHO, as well as any requirements of the Government of Nicaragua.

The number of workers is not known at this time and will be estimated and updated after ERPA signing, once the specific sites for the ER Program’s intervention are identified. As a ‘live’ document, the LMP will be updated further as and when more information becomes available.

Because of the nature of the program, no significant physical work, in terms of construction of buildings or roads, is expected. Foreign labor influx related impacts are not expected. The ER Program will promote transparency in terms and conditions of employment, nondiscrimination and equal opportunity where possible. Procedures to address conditions of employment were developed in the Labor Management Procedures, prepared by the borrower.

During ER Program implementation, the LMP will be revisited and updated as required and as additional labor related risks or issues unfold.

ESS3 Resource Efficiency and Pollution Prevention and Management

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This ESS is relevant in cases where the underlying activities of the ER Program may pose a risk of environmental pollution and degradation of natural resources (soil, water). These include commercial reforestation and commercial agroforestry, use of technologies, equipment, and inputs through technical assistance, implementation of community development plan and community forestry management systems, among others. These activities may generate environmental pollution and degradation by an inadequate: (i) use of pesticides and agrochemicals; (ii) consumption of water resources and consequent degradation of water quality and quantity (affecting users downstream); (iii) use of gas and oils for equipment; etc. The fact that these activities are likely to involve smallholders (less equipped to handle/manage potentially dangerous chemicals) makes it particularly important to include appropriate guidance and provisions in the ER PROGRAM -ESMF. The ER PROGRAM -ESMF also includes specific measures to prevent and mitigate the pollution of natural resources, mainly soil and water, when handling hydrocarbons (oil and gas) for equipment in forestry and agroforestry activities.

The ER PROGRAM contains mainly underlying activities which support sustainable forestry activities. The ER For Official Use Only PROGRAM ’s ESMF stipulates that underlying activities will avoid the use of prohibited pesticides at the national level and those prohibited in the international lists that are applicable. An Integrated Pest Management (IPM) Plan has been prepared and is annexed to the ESMF. Substantial measures on training and potentially computer equipment and other equipment in order to systematize and follow up on the implementation and reporting of safeguards in order has been considered in the budgeting for ESMF/IPMP implementation.

ESS4 Community Health and Safety This ESS is relevant. The ER Program -ESMF considers the potential risks and impacts to community health and safety from ER Program implementation and operational stages and guide the development and implementation of specific safeguards instruments, including emergency plans, particularly in regard to emergencies from exposure to climate vulnerabilities (e.g., forestry fires, floods, and landslides) and man-made hazards (e.g., emergencies from exposure to

Public Disclosure Public pesticides and agrochemicals, and accidents due to unsafe use of equipment during forestry activities). To address these risks, the ER PROGRAM -ESMF includes: (i) Specific language on the prevention of incidents and accidents due to unsafe use of equipment and technology, including particularly training and capacity building measures. (ii) Core principles of ESS4 are considered in the Integrated Pest Management (IPM) described under ESS3. (iii) Provisions on Emergency Responses related to climate disasters. (iv) Specific language on the prevention of violent encounters and accidents/fatalities during forestry supervision, an activity promoted under the ER Program’s underlying activities. (v) Provisions related to minimizing COVID19 transmission risks in subprojects, as described in section 13.1 of the ESMF and section 1.6 of the LMP.

(vi) Requirements that every Sub-project will be subject to an ESIA, which will identify potential violent conflicts and establish specific measures for risk mitigation or avoidance, according to ESS4.

There may be a need to improve accessibility to Program buildings and offices for the public. Some minor modifications may be necessary for facilitating access to program information and systems to people with special needs. The ESMF addresses measures to ensure gender inclusiveness and participation. The Site-specific ESMPs will

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address measures to manage and reduce road safety, related to operation of vehicles in the project area. The site specific ESMPs, will also address measures related to security personnel, when MARENA or co-implementers will retain direct or contracted workers to provide security to safeguard its personnel and property. The Program is not expected to engage security forces, as project activities will be implemented by communities and farmers, where no security forces will be required. Any potential conflict within or between communities, and around the implementation of the Benefit Sharing Plan, will be resolved in the spirit of the framework of the regional autonomous institutions of the RACCN and RACCS. However, section 13.2 of the ESMF addresses measures to be implemented by the associated project related to security, e.g. Bio-CLIMA, in case there could be a need to safeguard materials or protect the personal of missions. As outlined in the ESMF, they will assess risks posed by these security arrangements to those within and outside the project site. MARENA will not sanction any use of force by direct or contracted workers in providing security except when used for preventive and defensive purposes in proportion to the nature and extent of the threat. In the case of needing external contracting services by MARENA or by co- implementers like Bioclima, and to implement any service related to the project, the contractor will: (i) make For Official Use Only reasonable inquiries to verify that the direct or contracted workers to provide security are not implicated in past abuses; (ii) train them adequately (or determine that they are properly trained) in the use of force (and where applicable, firearms), and appropriate conduct toward workers and affected communities; and (iii) require them to act within the applicable law and any requirements set out in the ESCP. MARENA will review all allegations of unlawful or abusive acts of security personnel, act (or urge appropriate parties to act) to prevent recurrence and, where necessary, report unlawful and abusive acts to the relevant authorities. Code of conduct has been incorporated by the program entity (MARENA) into the ESMF and to be adopted and implemented in site specific Environmental and Social Management Plans, as relevant.

ESS5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement The standard is relevant.

Public Disclosure Public The ER Program is not expected to cause involuntary taking of land leading to physical or economic displacement to formal landowners or informal occupants, but might include restrictions of access to land or resources in legally protected areas. The ER Program will only finance activities, where indigenous communities or farmers have title for their land. Any activity that would lead to involuntary taking of land as stated above was screened out in the ESMF. However, the ER Program underlying activities could lead to the restriction of access to natural resources, or access to protected areas or communal forest lands. This could imply that new resource access rules will be stipulated and lead to a restriction of access to natural resources in parks or protected areas for communities.

The decisions on the creation of co-management arrangements will be sought through the participation of communities, Indigenous Peoples, and municipalities. However, there could be the cases where, for some community members, these arrangements may imply access restrictions. Thus, a Process Framework (PF), (in case restriction of access to legally designated parks and protected areas), was prepared by MARENA. The Process Framework addresses the potential economic displacement that could be caused by the restriction of access to natural resources/ecosystem services and outlines the procedures the GoN will follow during ER Program implementation in order to define and address impacts covered under ESS5.

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The Program will be implemented in areas agreed upon and defined by the indigenous and Afrodescendant communities of a given territory and also in the 2% of land that is in the process of titling (corresponding to complementary areas of indigenous territories, in Alto Wangki and Bocay. They all have legal title to their land (see chapter 9.3 of the ESMF, and chapter 8.1 of the PF). Therefore, the situation in which one community may imposed restrictions on another, is not expected. However, in case such situations arise, the PF will apply measures mentioned in section 10.3 of said instrument. Also, the PF establishes that any activity that would require land acquisition or resettlement and would cause economic impacts on livelihoods would be screened out of the program activity.

The Components 1.1.1.4 and 1.1.1.3 of Bio- CLIMA project propose mitigation measures and strengthening actions, in order to mitigate any risk related to the access and restriction to natural resources.

The PF describes the process for resolving disputes relating to resource use restrictions that may arise between or among affected communities. The PF takes into consideration cultural knowledge and was consulted through For Official Use Only participatory consultation processes, in the localities of in San Andres- Alto Wangki Bocay - September 19 – 20; Bilwi- RACCN - September 19-20 and in Bluefields RACCS – September 23-24, 2019. Feedback was incorporated in the PF.

ESS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources This standard is relevant because many of the activities support forest management and conservation, including in legally protected areas, natural and critical habitats that are the habitat of endangered, migratory, and threatened species. Some activities will focus on forests, their protection/management as well as community linkages and use of these resources and non-timber forest products. The ESMF has assessed possible risks to natural and critical habitats to ensure that program activities carried out in these areas are consistent with ESS6 guidelines. To address the mentioned risks, the ER PROGRAM -ESMF and its annexes includes: (i) A list of ineligible activities under the ER Program umbrella, including (particularly relevant for this ESS): (a)

Public Disclosure Public any activity that may produce adverse impacts on critical natural habitat in accordance with the criteria set out in ESS6, classified by MARENA; (b) the introduction and/or promotion of use of invasive species and/or non-native species (not currently established in the region). Where alien species are already established in the region, the underlying activities’ implementors will undertake diligence in not spreading them into areas in which they have not already become established; (c) any activity that may result in land use change of non-disturbed forests (to be classified by structural parameters such as size, stratification, presence or absence of significant disturbances by specific studies already performed or mapped by MARENA), to plantations, agroforestry systems, and silvopastoral systems. These types of project activities will be located on land that is already converted or highly degraded (excluding any land that has been converted in anticipation of the project). (ii) A screening plan for activities to identify potential negative impacts on biodiversity conservation. (iii) A process for categorizing (in terms of expected level of environmental risks and impacts) and assessing and safeguarding future potential underlying activities to be included under the ER Program. Underlying activities that pose adverse impacts over critical natural habitats will not be financed (ineligible activities). (iv) Procedures to determine the need for development of site-specific assessments and guide the implementation of safeguard measures, adequately applying the Mitigation Hierarchy and following GIIPs. Such measures include: guidelines for sustainable exploitation of timber and non-timber products and to avoid overexploitation; measures for forest fire prevention and control practices; procedures for preventing hydrological changes and consequent impacts on water users downstream of the areas of intervention; measures to ensure that

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any activities undertaken in legally protected areas and areas of international recognized biodiversity importance are consistent with the area’s protection status and and/or management and designation objectives; among others. Integrated Pest Management (IPM): i) measures to address the risk of possible damage to biodiversity and health due to improper use of pesticides, ii) provisions for awareness campaigns for producers in order to raise awareness about the development, use and application of pesticides. (v) Guidelines for the development and implementation of Forest Management Plans (FMP), which take into account the requirements of the ESS6, for both commercial and small-scale activities, required for those specific underlying activities that include the promotion and development of forestry plantations, agroforestry systems, reforestation activities and community-based forest management for timber and non-timber products.

(vi) Guidelines for the development and implementation of a Biodiversity Management Plan (BMP)), required for those specific underlying activities that pose adverse residual impacts on natural and the biodiversity they support.

For Official Use Only (vii) Activities to strengthen the relevant Government institutions and stakeholders to comply with this standard and the corresponding provisions were included in the ER PROGRAM -ESMF. Sustainable management of living natural resources: Since the ER Program’s underlying activities involve primary production and harvesting of living natural resources, the Borrower assessed the overall sustainability of these activities, as well as their potential impacts on habitats, biodiversity and communities (including cumulative impacts). In the case of small-scale forestry activities, these follow principles of this ESS in regard to time-bound planning for achieving sustainable management. Regarding commercial forestry plantations, the Borrower ensures such operations are certified according to the requirements of ESS6. Primary suppliers: Underlying activities related to the establishment of plantations, agroforestry systems, and silvopastoral systems, may entail the purchase of plants, seeds or other products such as wood, that are known to originate from areas where there is a risk of significant conversion or significant degradation of natural or critical habitats. The ER PROGRAM -ESMF includes an evaluation of the systems and verification practices used by the

Public Disclosure Public primary suppliers (mainly nurseries). According to the obtained results, the Borrower established a systems and verification practices in line with requirements of Paragraph 38 of ESS6. The Biodiversity Management Plan (BMP) was prepared in accordance to the National Biodiversity Action Plan. All activities under the ER Program will have to be in line and comply with the established guidelines. The activities under the ER Program will provide several ecosystem services, including the improvement of air quality, water quality, climate change mitigation and adaptation measures, as well as recreation and cultural services. The ER Program is also expected to provide economic services, improving community prosperity and well-being.

ESS7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities This standard is relevant. Large segment of the ER PROGRAM beneficiaries is expected to be indigenous communities. It is not expected that the underlying activities of the ER PROGRAM will have a negative impact on indigenous peoples. The main challenges stem from the need to ensure that the underlying activities take into consideration the views, concerns, cultural practices and expectations of IPs in line with ESS7. Furthermore, it is important to: (i) improve targeting of indigenous peoples, particularly those in areas of difficult access, (ii) support communication and outreach challenges due to geography, culture, and at times, language, (iii) ensure that access to services is provided in a culturally adapted manner will be critical and will require institutional strengthening of the program

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entity at the various levels, and (iv) strengthen grievance redress mechanisms tailored to indigenous people’s customs. An Indigenous Peoples Planning Framework (IPPF) was prepared, widely consulted upon with IPs and their representatives, and disclosed on the MARENA website. The early disclosure of the draft IPPF and other environmental and social instruments of the ER Program on the MARENA website, has the purpose of allowing stakeholders to have access to information and give feedback. Final version of the IPPF will be available before ER PROGRAM signing and will be disclosed. The IPPF identifies the potential positive and negative impacts on IPs and provide recommendations on how to screen for them and avoid them, but also how to promote IP participation in ER Program and benefits. It contains specific guidelines on culturally adequate consultations/dialogues, as well as measures to ensure joint planning, capacity building and culturally-inclusive implementation of activities, promoting equally distributed benefits for the population, including women and youth. In addition, the IPPF establishes guidelines and criteria for the preparation of Indigenous Peoples Plans (IPPs), to be drafted when required and during implementation once concrete activities require it. Where required, IPPs will be developed in line with ESS7 and will For Official Use Only describe the specific actions, budgets, and indicators and will encourage inclusion of affected Indigenous Peoples and communities during their implementation. The IPPF was consulted in the localities of San Andres- Alto Wangki Bocay - September 19 – 20; Bilwi- RACCN - September 19-20 and in Bluefields RACCS – September 23-24, 2019 on each activity area, in a culturally-sensitive manner, with IP communities and/or their representatives, as appropriate, to ensure communities´ broad support to the ER Program. Feedback was integrated into the IPPF. The IPPF was disclosed by MARENA http://www.marena.gob.ni/Enderedd/wp-content/uploads/2020/06/8-EAS7_Marco-de-Planifi-de-Pueblos-Indigenas- y-Afro-09062020.pdf. The IPPF will be disclosed in the WB’s external webpage, and prior to ERPA signing. Main concerns captured during the consultation process are: i) Deforestation is a huge issue of concern for Indigenous Peoples, and the problem is only accelerating over the years, ii) Colonos (settlers) invading Indigenous territories, is a major driver of deforestation and displacement, and the laws are hardly enforced, iii) With respect to vulnerability, stakeholders noted that female IPs are at particular risk given this context, and that risk to the

Public Disclosure Public deforestation of specific tree species (e.g. in the RACCN where Tuno tree, used to make handicrafts) pose particular challenges for women since they depend on these trees to produce traditional handicrafts that are both part of their cultural heritage and comprise a big part of their income. Land invaders are cutting these trees, among others, iv)The importance of the participation of women is consider as important, including their participation in the benefit sharing, iv) The stakeholders from indigenous communities, expressed support for the ER Program, but ask for rapid and effective actions, to stop the degradation of their natural environment.

ESS8 Cultural Heritage The Standard is Relevant. The ER Program focuses on forestry activities, the improvement of livelihoods, and sustainable land management practices - in which physical cultural resources are likely to be found in forest or rural areas, and some of the objects identified may be pre-Hispanic structures, sacred sites, protected land, inter alia. For example, Nicaragua has important historical sites and cultural monuments, e.g. it is believed that thousands of years old stone pyramids lay intact deep in the jungle of Indio Maíz. Some call it a lost city of ancient Indians. The site, called Canta Gallo is also sacred to the Rama indigenous people Chance finds procedures, are considered through a Guideline on Cultural Heritage, which is an annex to the ESMF and to the IPPF and IPPP.

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http://www.marena.gob.ni/Enderedd/wp-content/uploads/2020/03/9-Gu%C3%ADa-para-la-Gestión-del-Patrimonio- Cultural-1.pdf

“Chance find procedures” will furthermore be incorporated in all contractor contracts.

ESS9 Financial Intermediaries The standard is not considered relevant at this time as the project does not involve Financial Intermediaries.

C. Legal Operational Policies that Apply

For Official Use Only OP 7.50 Projects on International Waterways No The Project will not affect international waterways as defined in the Policy. Therefore, this Policy is not triggered. OP 7.60 Projects in Disputed Areas No The Policy is not triggered because the Project will not be implemented in areas known to involve disputed areas.

B.3. Reliance on Borrower’s policy, legal and institutional framework, relevant to the Project risks and impacts

Is this project being prepared for use of Borrower Framework? No

Areas where “Use of Borrower Framework” is being considered: None Public Disclosure Public

IV. CONTACT POINTS

World Bank Contact: Philippe Eric Dardel Title: Senior Natural Resources Management Specialist

Telephone No: +1-202-473-5795 Email: [email protected]

Borrower/Client/Recipient Borrower: Ministry of Finance and Public Credit

Implementing Agency(ies) Implementing Agency: Ministry of the Environment and Natural Resources (MARENA)

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V. FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects

VI. APPROVAL

Task Team Leader(s): Philippe Eric Dardel Practice Manager Maria Gonzalez de Asis Cleared on 08-Jan-2021 at 17:40:21 GMT-05:00 For Official Use Only (ENR/Social) Marco Antonio Zambrano Chavez (SAESSA) Concurred on 12-Jan-2021 at 12:34:19 GMT- Safeguards Advisor ESSA 05:00 Public Disclosure Public

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