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Project Document PAD Resubmission DBSA Project Document Development Bank of Southern Africa Unlocking Biodiversity Benefits through Development Finance in Critical Catchments Project Document prepared by SANBI for the DBSA ii Executive Summary/Brief Description Through its focus on planning, finance and development in the water value chain, this project will unlock simultaneous biodiversity and water benefits in South Africa, especially in two demonstration catchments. South Africa is one of the most biologically diverse countries in the world due to its species diversity and endemism as well as its diversity of ecosystems. As such, the Berg-Breede and the Greater uMngeni demonstration catchments extend into three global biodiversity hotspots. These rich endowments of biodiversity assets underpin the delivery of ecosystem services and enhance the resilience of natural systems, working landscapes and open spaces to support the country’s development path and contribute to the Sustainable Development Goals (SDGs). While there have been major strides in conserving and managing South African biodiversity over the past two decades, there are still experiences high rates of biodiversity loss. The National Biodiversity Assessment (2012) reports that freshwater ecosystems in particular are most threatened, facing pressures such as flow alterations, pollution, degradation and conversion to other land uses and climate change. Failure to address these pressures threatens the country’s ability to meet global and national biodiversity conservation targets, while undermining the ability of naturally functioning ecosystems to provide crucial ecosystem services to millions of people, thereby reducing water security. Referred to as ecological infrastructure, ecosystems such as rivers, wetlands and terrestrial ecosystems in key water-producing catchments play an especially crucial role in the delivery of water-related services such as water provisioning and purification, flow regulation and disaster risk reduction, amongst others. These services are of increasing importance to water security as available surface water yields approach full utilization, security of supply is a growing concern and water quality is declining. Both demonstration catchments for instance are at their limits of water supply. They support South Africa’s second and third largest cities, which generate a gross domestic product (GDP) in the order of R400 billion per annum and are home to over 16 million people. While built infrastructure, such as dams, remains essential for addressing these challenges, there is a growing need to recognise the role of ecological infrastructure in supplementing, sustaining and, in some cases, substituting for built infrastructure solutions for water resource management. This role, and the impacts and dependencies of infrastructure on natural capital, are insufficiently internalised in water sector development and finance planning. This project thus responds to an urgent need to integrate biodiversity and ecosystem services into planning, finance and development in the water sector to improve water security and avoid further loss of biodiversity and ecosystem services. The project will address this need through a three- pronged approach. First it will work with national and sub-national level stakeholders to strengthen the enabling environment through: developing natural capital accounts; influencing applicable policy frameworks, regulatory instruments and institutions; and supporting the operationalization of mechanisms for financing ongoing rehabilitation and maintenance of biodiversity and ecosystem services. Second, the project will work with catchment-level stakeholders to test the application of policies and financial mechanisms to improve water security in the Berg-Breede and the Greater uMngeni demonstration catchments. Third, the project will work with a range of national, regional and local stakeholders from the biodiversity and water sectors to improve the integration of biodiversity and ecosystem services into the water value chain through strengthening social learning, co-generation of credible evidence, and knowledge management. These investments will help avoid further loss of biodiversity and ecosystem services in global biodiversity hotspots, and enhance social development and transformation that is ecologically sustainable (as envisaged in South Africa’s National Development Plan (NDP)) and contribute to the achievement of SDGs and the Aichi Targets. iii Table of Contents Table of Contents ................................................................................................................................... iv List of Figures .......................................................................................................................................... v List of Tables .......................................................................................................................................... vi Acronyms ............................................................................................................................................... vi Section 1 – Elaboration of the Narrative ................................................................................................ 1 Part I. Situation Analysis ..................................................................................................................... 1 1. Introduction ............................................................................................................................ 1 2. Biodiversity and water context ............................................................................................... 4 2.1. Global and national biodiversity context ........................................................................ 5 2.2. Water and socio-economic context in South Africa ..................................................... 13 2.3. Threats to biodiversity, root causes and impacts from current approach to water resource management and development ................................................................................ 33 3. Long term solution and barrier to achieving the solution .................................................... 40 3.1. Proposed long term solution ........................................................................................ 40 3.2. Barriers .......................................................................................................................... 43 4. Baseline ................................................................................................................................. 48 5. Stakeholder analysis ............................................................................................................. 60 Part II. Strategy ................................................................................................................................. 63 6. Project Rationale and Policy Conformity .............................................................................. 63 6.1 Project alignment with the GEF Focal Area Strategy and Strategic Programme ................ 63 6.2 Project alignment with the DBSA Strategy ......................................................................... 64 6.3 Rationale and summary of the GEF Alternative .................................................................. 64 7. Project Goal, Objective, Outcomes, Outputs and Activities ................................................. 65 8.1 Component 1: Enabling environment is strengthened for improving water security through the integration of biodiversity and ecosystem services in the water value chain. ..... 66 8.2 Component 2: Application of policies and financial mechanisms in the water value chain improves water security in critical catchments ........................................................................ 73 8.3 Component 3: Social learning, credible evidence, and knowledge management improves the integration of biodiversity and ecosystem services into the water value chain. ............... 77 8. Cost-effectiveness ................................................................................................................. 80 9. Project Consistency with National Priorities ......................................................................... 82 10. GEF Conformity and Country Eligibility ................................................................................. 84 11. Sustainability and Replicability ............................................................................................. 85 Part III. Implementation Arrangements ............................................................................................ 88 12. Implementation Arrangements ............................................................................................ 88 13. Project Management ............................................................................................................ 94 Part IV. Monitoring, Reporting and Reviewing Framework .............................................................. 96 14. Monitoring and Reporting .................................................................................................... 96 Section 2 – Strategic Results Framework .............................................................................................. 99 Part I. Strategic Results Framework .................................................................................................. 99 Part II. Table of outcomes,
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