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Adaptation Benefits Mechanism

Sector Land Use and Forestry
Instruments Impact notes or climate bonds
Actors Multilateral and Bilateral Development Finance Institutions Commercial Financial Institutions National Development Banks (NDBs) Private Equity and Venture Capital (PE/VC) African Governments Philanthropies, Foundations, and Non-Profits

Description

The Adaptation Benefits Mechanism (ABM) is a results-based financing instrument designed to catalyze private investment into adaptation projects through grants to project sponsors to repay commercial investors. Grant payments are based on a third party, non-market valuation of adaptation benefits generated by the project. While the mechanism is designed for many different types of adaptation projects, it is well suited to land use and forestry where benefits can be easily quantified, and subsidized capital can be catalytic in terms of bridging a gap between market terms and community ability to pay.

Stage of Implementation

ABM is in its pilot phase, launched in 2019 and due to last through 2023. During this time, ABM will seek to deploy USD 50 million to projects in this phase.

Actors Involved

  • African Development Bank: AfDB is leading the implementation of the pilot phase, and is responsible for hosting the Secretariat, leading operations, and fundraising for the mechanism.
  • Donors: The ABM is able to accept funding from all types of funders to capitalize the facility for results-based payments to projects. These donors may include DFIs, philanthropies, and the private sector.
  • Project developers: The ABM is flexible in that it can accommodate projects developed by both for-profit and non-profit entities.
  • Project investors: Debt and equity investors provide the conventional funding for the individual projects. These include commercial or national development banks, private equity funds, and DFIs.
  • Third party verifiers: ABM will contract with third party experts to verify and quantify the adaptation benefits generated by individual projects.
  • Project beneficiaries: These are the individuals and communities who benefit from conservation of ecosystems and creation of sustainable economic activities supported by individual projects. ABM gives clear direction that beneficiaries should be included in the design, implementation, and monitoring of the projects.
  • Host country governments: Host country governments may provide approval for projects if required by the ABM. In addition, host countries are able to report on adaptation benefits generated in the context of their NDCs.

Criteria

  • NDC/NAP focus on conservation efforts: Countries that prioritize ecosystem conservation and other adaptation efforts will be more likely to support and develop a pipeline of projects that meet ABM criteria.
  • Presence of private sector investors: For the results-based ABM financing to provide the greatest incentive, the commercial terms of the project-level debt or equity investment should be non- or minimally concessional. As such, project level lenders and investors should have confidence to invest in the country.

Applicable Countries

While the ABM could be deployed in a number of countries, Ghana and Cote d’Ivoire have been the most supportive of the establishment of the mechanism, so likely to be active in proposing pilot projects.

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This project has been developed in partnership with the Global Center on Adaptation

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