Division 5.3.1.4 Technical methodology for the project selection procedure

Projects fall into four broad categories:

• Payments for Ecosystem Services (PES): projects involving payments for the flows of benefits resulting from natural capital, usually a voluntary small scale bilateral transaction with a well identified buyer and seller of an ecosystem service. They are based on the beneficiary pays principle, whereby payments take place to secure critical ecosystem services.

• Green Infrastructure (GI): GI is a strategically planned network of natural and semi-natural areas with other environmental features designed and managed to deliver a wide range of ecosystem services. It incorporates green spaces (or blue if aquatic ecosystems are concerned) and other physical features in terrestrial (including coastal) and marine areas. On land, GI is present in rural and urban settings. GI projects have the potential to generate revenues or save costs based on the provision of goods and services including water management, air quality, forestry, recreation, flood/erosion/fire control, pollination, increased resilience to the consequences of climate change.

• Biodiversity offsets: these are conservation actions intended to compensate for the residual, unavoidable harm to biodiversity caused by development projects. They are based on the polluter pays principle, whereby offsets are undertaken for compliance or to mitigate reputational risks. Projects aimed at compensating damages done to Natura 2000 sites according to Article 6(4) of the Habitats Directive are not eligible for financing under the NCFF.

• Innovative pro biodiversity and adaptation investments: these are projects involving the supply of goods and services, mostly by SMEs, which aim to protect biodiversity or increase the resilience of communities and other business sectors.

The aim is to identify and finance projects with a sufficiently broad geographical and sectorial coverage, while testing various financial mechanisms, to ensure replicability across the EU during the operational phase. Eligibility rules for projects and investment policy for the Facility (setting caps on sectors and geographical coverage, as well as minimum criteria to be met and principles to be adhered to, e.g. the mitigation hierarchy^f1) have been defined in the Delegation Agreement.

Eligibility criteria will be in line with the nature and biodiversity and climate change adaptation objectives enshrined in the LIFE Regulation, while taking into account Member States' policy priorities in the field of biodiversity protection and climate change adaptation.

Eligible natural capital management projects should be justified by an economic assessment on the basis of a classic cost-benefit-analysis — i.e. that the net present cost of the project over its life is less than the net present value of the expected benefits, including externalities. In addition to the standard criteria imposed by the EIB for all operations, there will be additional criteria defining the type of projects and sectors covered.

At a minimum, final recipients of the financial instrument must be legal entities and/or natural persons investing in natural capital management projects that can:

• demonstrate that they have a positive impact on ecosystem condition and resilience and on the provision of ecosystem services through a targeted environmental impact assessment,

• pioneer new business models for natural capital management, amongst the typologies identified above, i.e. green infrastructure, payments for ecosystem services, biodiversity offsets, or innovative pro-biodiversity/adaptation businesses or corporates,

• fulfil one of the following criteria:

  • promote the conservation, restoration, management and enhancement of ecosystems, including through ecosystem-based solutions applied to the sectors of land, soil, forestry, agriculture, aquaculture, water and waste,

  • promote ecosystem-based approaches that enable businesses and communities to address identified risks associated with current and projected impacts of climate change, including through urban, rural, and coastal green infrastructure projects.

Projects need to be located in at least one of the EU Member States to be eligible.

When projects are indirectly financed via contribution to funds managed by intermediary financial institutions, the selection of such institutions would be driven by demand and in accordance with the principles of sound financial management, transparency, non-discrimination and the fulfilment, inter alia, of the following requirements:

1. (i)

   to be a private sector or market-based financial institution;

2. (ii)

   to commit and demonstrate operational capacity to distribute the financial instrument;

3. (iii)

   to demonstrate capacity to reach final recipients targeted by the EU or Member State biodiversity or climate change adaptation policies;

4. (iv)

   to undertake the obligations and requirements associated with the distribution of the financial instrument;

5. (v)

   to comply with relevant standards and applicable legislation on the prevention of money laundering, fight against terrorism and tax fraud;

6. (vi)

   to provide information required by the European Court of Auditors to allow the discharge of its duties; and

7. (vii)

   to be acceptable as a borrower to the EIB in accordance with its credit policy.