Accounting firm: audit, tax and financial advice

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2 PwC Accounting firm: audit, tax and financial advice Advisory services related to Climate Change and Sustainability: - Due-Diligence for carbon investments - Design and implementation of voluntary emission offset schemes ( green parcel ) - Quantification and verification of CO 2 -emissions - Design of the German agency for emissions trading - Design of sustainable investment funds / trust funds PricewaterhouseCoopers Slide 2

3 Challenge Opportunity Opportunity PricewaterhouseCoopers Slide 3

4 The Challenge The Challenge: Financing conservation How can private sector activities be channeled towards conservation? PricewaterhouseCoopers Slide 4

5 The Opportunity: Development of the Market for Sustainable Investments The opportunity: A growing demand for sustainable investment products But: Very few of these green funds actually finance biodiversity enterprises! Volume (Billion Euro) Volume of registered sustainable investment funds in the German-speaking area Source: Sustainable Business Institute of the European Business School e.v., January 2008 PricewaterhouseCoopers Slide 5

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7 Agenda

8 Is there a Business Case? Ecotourism Case studies in Namibia and Costa Rica Position for graphic or image Position for graphic or image NamibRand Safaris (Pty) Ltd., Namibia: Finances the restoration of the original wilderness in the NamibRand Nature Reserve, the largest privately-owned nature reserve in Southern Africa (ca. 185,000 hectares) Lapa Rios S.A., Costa Rica: Finances the conservation of tropical forest and fauna in the Lapa Rios private nature reserve PricewaterhouseCoopers Slide 8

9 To help protect your privacy, PowerPoint prevented this external picture from being automatically downloaded. To download and display this picture, click Options in the Message Bar, and then click Enable external content. Is there a Business Case? Sustainable forestry Case study in Brazil Precious Woods do Pará S.A., Brazil: Precious Woods is a leading company in the sustainable management of tropical forests Pará: Sustainable Management of ca. 180,000 hectares of tropical forests according to the guidelines of the FSC (Except for Pacaja1 - end of the harvesting cycle) Operation of sawmill stopped PricewaterhouseCoopers Slide 9

10 Is there a Business Case? Analysis of the case studies shows that investments in conservation can yield a satisfactory return on investment Initial situation of project portfolio 100% equity financing Investment of approx million Euros Utilised area totalling 217,000 hectares Ecotourism Project returns before tax of 10 % and 25 % respectively Forestry Project return before tax of 13 % if harvesting concessions are provided timely + potential revenues from sale of CO 2 -emission rights PricewaterhouseCoopers Slide 10

11 Is there a Business Case? Opportunity: Demand for sustainable products and services Threat: Political conditions Ecotourism Sustainable forestry Opportunities + Opportunities + Tourism: one of the most Demand for certified timber dynamic sectors of the economy Demand for CO 2 -emission rights Growing demand for ecotourism (reforestation or generation of renewable energy from waste wood) Threats Threats Security situation Land reforms Diseases (SARS etc.) Political conditions: Concessions / harvesting permits Land reform, illegal logging Currency fluctuations => Success factors: Good location, secure land-use rights, management know-how, certification PricewaterhouseCoopers Slide 11

12 The Biodiversity sector : Lack of expertise and means regarding the development of bankable biodiversity projects Finance sector: Lack of expertise regarding the opportunities biodiversity investments may offer PricewaterhouseCoopers Slide 12

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14 Structure of a Biodiversity Fund and its partners Catalyst Steering Committee Project Developer Consultant supports incorporate tax-deductible donations Government Trust Donors incorporates fund, provides debt/equity profits golden share Investors debt equity profits Biodiversity Enterprise Fund Board Investment Committee Debt Funding selects, provides debt /equity /advice profits Portfolio of Biodiversity Enterprises Local communities concession & tax payments, job creation Host government agencies NGOs PricewaterhouseCoopers Slide 14

15 Structuring Biodiversity Enterprise Funds Biodiversity Enterprise Funds can: Be a cost-effective mechanism to deliver extra biodiversity funding Improve the acceptance of conservation Generate multiplier effects Build biodiversity product markets PricewaterhouseCoopers Slide 15

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17 Successfully establishing Biodiversity Enterprise Funds Get the right people on board! Biodiversity Enterprise Funds: Very innovative, complex instruments without a proven track record! Get input and commitment from a broad set of stakeholders - Financial catalysts - Local stakeholders Attract an experienced, highly qualified fund manager! PricewaterhouseCoopers Slide 17

18 Successfully establishing Biodiversity Enterprise Funds Set the right goals! Pre-Determine goals: - Mission - Sector scope - Geographical scope - Minimum scale of targets Pre-Assess the suitability of a Biodiversity Enterprise Fund CFA s Biodiversity Finance Guide, to be found on PricewaterhouseCoopers Slide 18

19 Successfully establishing Biodiversity Enterprise Funds Ensure sufficient sources of funding and establish initial deal pipeline! Ensure clear donor and investor commitments - to cover start-up phase - to ensure a minimum fund size Develop a deal pipeline of biodiversity businesses and assess - receptiveness to outside equity ownership - ability of management to achieve triple bottom-line PricewaterhouseCoopers Slide 19

20 Successfully establishing Biodiversity Enterprise Funds Choose the right regulatory environment! Determine right location of fund management and assets Ensure absence of major political and economic risks Choose environment that - provides incentives for donations and investments - encourages the creation of new enterprises PricewaterhouseCoopers Slide 20

21 Successfully establishing Biodiversity Enterprise Funds Develop the right legal and financial structure! Choose the right legal structure Ensure independent fund management and stakeholder representation Define investment criteria for a triple bottom-line Set investment activity deadlines, ensure exit options PricewaterhouseCoopers Slide 21

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23 Conclusion PricewaterhouseCoopers Slide 23

24 Conclusion Current initiatives WWF NL: The Wild Places Development Plan. Pilot project: Tourism concept for the Valdés peninsula, Argentina PwC UK: Establishing a global working group of banks and key stakeholders to agree sustainable financing criteria for the forestry sector PricewaterhouseCoopers Slide 24

25 PricewaterhouseCoopers Slide 25

26 PricewaterhouseCoopers AG WPG Potsdamer Platz 11 D Berlin Kristina Jahn Tel.: +49 / 30 / PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the German firm PricewaterhouseCoopers AG WPG and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

27 Back-up PricewaterhouseCoopers Slide 27

28 The PwC-Study: Comparison of country risks and general conditions The general conditions in the different countries can be deemed relatively stable; in addition, foreign direct investments can be insured via state guarantee programmes + generally favourable FDI environment + sustainable economic growth - exchange rate risks - land-use conflicts - vulnerability to regional disturbances + stability + strategic location - land reform PricewaterhouseCoopers Slide 28

29 Conservation with a positive return on investment? Sustainable forestry rights Potential profits from CO 2 emission Carbon and Energy: Potential to sell emission reductions from renewable energy (replacing the consumption of fossil-fuels with the use of waste wood) Restrictions to forestry sink projects in Europe and under the Kyoto Protocol Potential to sell emission reductions to entities that want to offset their emissions voluntarily (e.g. the World Bank, World Economic Forum) PricewaterhouseCoopers Slide 29

30 Conservation with a positive return on investment? Analysis of the case studies shows that investments in conservation can yield a satisfactory return on investment Initial situation of project portfolio 100% equity financing Investment of approx million Euros Utilised area totalling 217,000 hectares Ecotourism Forestry Key driver for profitability: average utilisation and price Project returns before tax of 10 % and 25 % respectively Key driver for profitability: harvest rates, sales price, concession fee Project return before tax of 13 % if harvesting concessions are provided timely + potential revenues from sale of CO 2 -emission rights PricewaterhouseCoopers Slide 30

31 Conservation with a positive return on investment? Success factors: A good location, secure land-use rights and sector-specific know-how Ecotourism Attractiveness and accessibility as a tourist destination Minimum size Exclusivity and long-term security of land-use / or access rights Provision of high-quality tourism services Know-how in tourism and hospitality industry Sustainable forestry Choice of the right site (re climate, infrastructure, proximity to main distribution channels) FSC-certification Concession-fees fixed as a percentage of revenues Flexibility to adjust to changes in demand through an integrated value chain PricewaterhouseCoopers Slide 31

32 Structuring Biodiversity Enterprise Funds PricewaterhouseCoopers Slide 32

33 Conclusion Barriers that need to be overcome Innovative, highly complex instrument, lack of proven track record Biodiversity hotspots are often located in countries with undeveloped legal and financial infrastructure Difficulty to attract experienced fund management Expertise required to generate a triple-bottom-line SMEs are often family-owned not receptive to outside equity Difficulty to develop economies of scale Limited exit opportunities (IPOs) Low returns on investments, dependence on donor subsidies PricewaterhouseCoopers Slide 33