Attachment J.10 INITIAL ENVIRONMENTAL EXAMINATION (IEE).pdf

LAC/USAID COLOMBIA/INVEST FOR CLIMATE ACTIVITY

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

REQUEST FOR CATEGORICAL

EXCLUSION

PROJECT/ACTIVITY DATA

Project/Activity Name: Invest for Climate Activity Geographic Location(s) (Country/Region): USAID/Colombia/LAC Amendment (Yes/No), if Yes indicate # (1, 2...): No Implementation Start/End Dates (FY or M/D/Y): FY 2023 -FY 2028

If Amended, specify New End Date: N/A Solicitation/Contract/Award Number: TBD Implementing Partner(s): TBD Bureau Tracking ID: LAC-23-150 Tracking ID of Related RCE/IEE (if any): NA Tracking ID of Other, Related Analyses: NA

ORGANIZATIONAL/ADMINISTRATIVE DATA

Implementing Operating Unit(s):

(e.g. Mission or Bureau or Office)

COLOMBIA/SEED Office

Other Affected Operating Unit(s): N/A Lead BEO Bureau: LAC

Funding Operating Unit(s):

(e.g. Mission or Bureau or Office)

USAID/Colombia/RED

Funding Account(s) (if available): EG 12.2, EG 11, EG 13 Original Funding Amount:

If Amended, specify funding amount: N/A If Amended, specify new funding total: N/A

Prepared by: Juan Pablo Vallejo Date Prepared: 04/15/2023

ENVIRONMENTAL COMPLIANCE REVIEW DATA

Analysis Type: X Request for Categorical Exclusion

Environmental Determination(s): X Categorical Exclusion

Categorical Exclusion Expiration Date (if different from implementation end date):

N/A

Additional Analyses/Reporting Required: N/A Climate Risks Identified (#): Low __12____ Moderate __0____ High _0___ Climate Risks Addressed (#): Low __12___ Moderate __0____ High _0___

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

THRESHOLD DETERMINATION AND SUMMARY OF FINDINGS

PROJECT/ACTIVITY SUMMARY

Climate change is defined as long-term shifts in global temperatures and weather patterns.

Human-driven climate change is a global crisis, and it is disrupting ecological systems, affecting economic growth, and increasing poverty, conflict, and instability. In Colombia, increased intensity and duration of extreme weather events have negatively impacted communities, the economy, and the environment. For example, the 2010 La Niña caused Colombia to have economic losses equal to two percent of the country's Gross Domestic Product (GDP). It is important to address and mitigate the effects of climate change to ensure that other development efforts are successful and sustainable.

Climate finance refers to the use of public and private funding sources, like earmarked government funds, concessional loans, green bonds or insurance services to support climate mitigation and adaptation actions. USAID can leverage climate financing to increase funding in projects and businesses that address climate change and help limit global warming to 1.5 degrees Celsius, as called for under the Paris Agreement. Increasing different actors’ access to climate finance also helps countries advance their climate action plans to cut emissions and adapt to climate impacts, otherwise known as Nationally Determined Contributions (NDC).

Colombia has an ambitious NDC to reduce GHG emissions by 51 percent by 2030 and reduce the risks and impacts of climate-related events, like extreme flooding. According to the Colombian National Planning Department (DNP), Colombia´s NDC requires an annual investment of at least USD $ 2.3 billion to achieve a reduction in its carbon emissions by 51 percent, with most of this investment coming from the private sector. The DNP also estimates that an additional USD $1.6 billion is needed to help key sectors and regions prepare for future climate events, under a conservative scenario. While the total value of climate finance that Colombia needs to comply with its NDC is still to be determined, current public and private investment flows are insufficient.

In 2020, regional and national Colombian government climate-related expenditures were USD $369 million. Moreover, the actual emissions reduction and adaptation impact of these expenditures was not established.

USAID/Colombia’s experience has demonstrated that climate finance helps entrepreneurs, communities, and private sector actors reduce GHG emissions while enhancing licit livelihoods and local development. Through eight Reducing Emissions from Deforestation and Forest Degradation (REDD+) projects developed under the Paramos and Forests Activity, USAID has helped Colombia’s carbon market mobilize USD $26 million in climate finance for nineteen Afro- Colombian communities and one indigenous community. USAID’s Agribusiness Fund has also used climate financing to invest in climate smart projects and businesses that protect forests by harvesting non-timber forest products, and by providing solar energy to rural families.

The Invest for Climate Activity will leverage and mobilize public and private finance to support Colombia’s climate adaptation and mitigation targets in the following sectors: agriculture, forestry, and other land use (AFOLU); renewable energy and green transport. The activity will expand USAID’s work in mobilizing finance for businesses and projects that reduce GHG emissions, enhance climate resilience, while promoting local economic and social development.

The Invest for Climate Activity will advance CDCS Development Objective 3, promote equitable and environmentally sustainable economic growth. It will do this by engaging with community, public, and private sector actors, including financial institutions, to develop, finance, and

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

implement initiatives that help Colombia achieve its climate mitigation and adaptation objectives.

The activity will also contribute to CDCS IR 3.1, expanded licit livelihood opportunities, and CDCS IR 3.2, more competitive licit economies. The activity will contribute to IR 3.1 by: 1) providing business development assistance; 2) improving financial access for climate smart projects and businesses; and 3) increasing climate smart investment to expand markets. The activity will contribute to IR 3.2 by: 1) improving public and private actors’ access to information on climate smart opportunities; 2) reducing the risks and costs associated with climate smart investment;

and 3) supporting climate smart value chain development.

This activity also aligns with USAID’s Climate Strategy objective of advancing equitable and ambitious actions to confront the climate crisis. It will do this by mobilizing funds for Colombia’s mitigation and adaptation goals. In particular, the activity will contribute to Climate Strategy IR 1.2 reduce emissions, IR 1.3 build resilience, IR 1.3 mobilize finance, IR 2.1 Transform Key Systems and Essential Services, and IR 2.2 shift market signals.

Finally, the activity will support sustainability by promoting local ownership, leveraging local resources and expertise, and contributing to several key issues such as youth, gender and women’s empowerment, local actors, and private sector engagement.

ENVIRONMENTAL DETERMINATIONS

Per USAID Environmental Procedures, certain classes of actions may qualify for a Categorical Exclusion, pursuant to 22 CFR Section 216.2(c)(l) and (2), for which an Initial Environmental Examination, or an Environmental Assessment is not required. The activities described qualify for a categorical exclusion per 22 CFR 216 as follows:

1. Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.);

2. Section 216.2(c)(2)(iii) Analyses, studies, academic or research workshops and meetings;

The Mission Environmental Officer (MEO) and the Contracting Officer's Representative -COR/ Agreement Officer's Representative AOR will oversee the implementation of appropriate environmental guidelines. Reports on these matters will be submitted by the Mission to LAC/BEO in Washington periodically.

The following table summarizes the environmental determinations applicable to the specific projects/activities:

TABLE 1: ENVIRONMENTAL DETERMINATIONS

Projects/Activities Categorical Exclusion Citation (if applicable)

Deferral

Objective 1: Financial institutions invest in climate smart projects and businesses.

IR 1.1. Build financial institutions’ capacities that will result in mainstreaming climate into their investment and business decision-making.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

Section 216.2(c)(2)(iii) Analyses, studies, academic or research workshops and meetings.

IR 1.2 Design and facilitate the implementation of financial mechanisms that lower the cost of capital for climate investments and catalyze investments at scale, through collaboration with Development Financial Institutions (DFI).

The Activity Fund will function as a catalyst of additional investments by supporting financial institutions and non-financial organizations that are able to provide technical assistance on green banking, climate finance, business development and project preparation services for public, private and community actors.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, academic or research workshops and meetings.

Objective 2: There is a robust and inclusive pipeline of viable climate-smart projects and businesses.

IR 2.1: Accelerate an inclusive group of climate-smart businesses and strengthen their commercial viability by making them financially viable, legally established, and sustainable;

and, by supporting their engagement with capital suppliers.

The Activity will identify climate-smart businesses at different stages of maturity and with different risk/return profiles, and provide development support services, including technical assistance and training to develop business plans, financial data, improve management performance, and technical support to overcome other types of barriers, to help them become self-sufficient with access to the financial sector.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, IR 2.2: Take a systems approach and work with local communities, Non- Government Organizations (NGO), public, international, and private actors, including businesses supported under IR 2.1, to support the design and preparation of climate-smart projects with the potential to reach climate impacts at scale.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, Objective 3: There is an improved enabling environment for climate-smart investment.

IR 3.1: Work with the Colombian government to develop and improve regulations, policies and mechanisms

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

that foster transformational change and facilitate public and private climate finance by shifting market incentives towards climate-smart investments and increasing public funding allocated to climate goals.

affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, academic or research workshops and meetings.

IR 3.2: Improve the generation of climate finance information, by improving financial institutions' capacities to understand and apply inclusive climate metric reporting and the use of Colombia’s Green Taxonomy. Similarly, the Activity will assist the Colombian government with updating regulations requiring financial institutions to report inclusive climate metrics, following international principles and standards.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, CLIMATE RISK MANAGEMENT

This section summarizes the methodology used and findings of the CRM Screening, in accordance with ADS 201mal. The Invest for Climate activity, in consultation with the CIL, considered the potential effect of climate risks/stressors on the sustainability of the activity (changing precipitation patterns, rising temperature, floods, droughts, fires, landslides, etc.) in addition to the impact of activities on the climate (increased greenhouse gas emissions, land use changes, etc.) The activity is not expected to generate any significant greenhouse gas emissions. The activity will focus on capacity building and knowledge transfer activities to improve accountability and transparency systems and processes. As the activity is focused primarily on technical assistance and capacity building, it will not significantly contribute to greenhouse gas emissions in the country. Moreover, ongoing monitoring will ensure that implementation of project activities does not increase greenhouse emissions. See Section 2.2 for the complete CRM table.

BEO SPECIFIED CONDITIONS OF APPROVAL

None.

IMPLEMENTATION

In accordance with 22CFR216 and Agency policy, the conditions and requirements of this document become mandatory upon approval. This includes the relevant limitations, conditions and requirements in this document as stated in Section 3 of this RCE and any BEO Specified Conditions of Approval.

This activity will be implemented by a contractor, possibly comprising a consortium of actors, and will be awarded through a full and open competition procurement process. The Invest for Climate Activity will be implemented through a contract and USAID/Colombia will designate a Contracting Officer’s Representative (COR).

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

USAID APPROVAL OF RCE

PROJECT/ACTIVITY NAME: Invest for Climate activity

Bureau Tracking ID: LAC-23-150

Approval: Cleared electronically 6/30/2023 Jeremiah Carew, Deputy Mission Director Date

Clearance: Cleared electronically 6/23/2023 Jessica Rosen, SEED Office Director Date

Clearance: Cleared electronically 6/16/2023 Maria Elena Santana, Mission Environmental Officer

(MEO/CIL)

Date

Clearance: Diana Shannon, cleared electronically 6/16/2023 Diana Shannon, Regional Environmental Advisor [REA] Date

Concurrence: Signed electronically 7/6/2023 Bethzaida Colon, LAC Bureau Environmental Officer (BEO) Date

DISTRIBUTION: Mission Project Staff

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

1.0 PROJECT AND ACTIVITY DESCRIPTION

1.1 PURPOSE AND SCOPE OF RCE

This document establishes that all proposed tasks under the Invest for Climate Activity belong to classes of actions eligible for Categorical Exclusions as set out in Agency regulations (22CFR 216.2(c)) and that there are no foreseeable significant direct or indirect impacts that would preclude them from receiving a Categorical Exclusion. Upon approval of this document, the Categorical Exclusions are affirmed for the project/activity. This analysis also documents the results of the project/activity level Climate Risk Management process in accordance with USAID policy (specifically, ADS 201 mandatory reference 201mal). This RCE is a critical element of a mandatory environmental review and compliance process meant to achieve environmentally sound activity design and implementation. This new standalone RCE document has been prepared to cover ongoing activities under this project.

This Initial RCE for the Invest for Climate Activity is prepared in accordance with USAID Environmental Procedures 216, ADS Chapter 204 Environmental Procedures and MO# 2011-02 Environmental Procedures, under the Development Objective Three - Promote equitable and environmentally sustainable economic growth- contained in USAID/Colombia’s 2020-2025

CDCS.

1.2 PROJECT OVERVIEW

The purpose of Invest for Climate activity is to leverage and mobilize public and private finance to support Colombia’s climate adaptation and mitigation targets in the following sectors:

agriculture, forestry, and other land use (AFOLU); renewable energy and green transport.

Climate change is defined as long-term shifts in global temperatures and weather patterns.

Human-driven climate change is a global crisis, and it is disrupting ecological systems, affecting economic growth, and increasing poverty, conflict, and instability. In Colombia, increased intensity and duration of extreme weather events have negatively impacted communities, the economy, and the environment. For example, the 2010 La Niña caused Colombia to have economic losses equal to two percent of the country's Gross Domestic Product (GDP). It is important to address and mitigate the effects of climate change to ensure that other development efforts are successful and sustainable.

Climate finance refers to the use of public and private funding sources, like earmarked government funds, concessional loans, green bonds, or insurance services to support climate mitigation and adaptation actions. USAID can leverage climate financing to increase funding in projects and businesses that address climate change and help limit global warming to 1.5 degrees Celsius, as called for under the Paris Agreement. Increasing different actors’ access to climate finance also helps countries advance their climate action plans to cut emissions and adapt to climate impacts, otherwise known as Nationally Determined Contributions (NDC).

Colombia has an ambitious NDC to reduce GHG emissions by 51 percent by 2030 and reduce the risks and impacts of climate-related events, like extreme flooding. According to the Colombian National Planning Department (DNP), Colombia´s NDC requires an annual investment of at least USD $ 2.3 billion to achieve a reduction in its carbon emissions by 51 percent, with most of this investment coming from the private sector. The DNP also estimates that an additional USD $1.6 billion is needed to help key sectors and regions prepare for future climate events, under a

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

conservative scenario. While the total value of climate finance that Colombia needs to comply with its NDC is still to be determined, current public and private investment flows are insufficient.

In 2020, regional and national Colombian government climate-related expenditures were USD $369 million. Moreover, the actual emissions reduction and adaptation impact of these expenditures was not established.

USAID/Colombia’s experience has demonstrated that climate finance helps entrepreneurs, communities, and private sector actors reduce GHG emissions while enhancing licit livelihoods and local development. Through eight Reducing Emissions from Deforestation and Forest Degradation (REDD+) projects developed under the Paramos and Forests Activity, USAID has helped Colombia’s carbon market mobilize USD $26 million in climate finance for nineteen Afro- Colombian communities and one indigenous community. USAID’s Agribusiness Fund has also used climate financing to invest in climate smart projects and businesses that protect forests by harvesting non-timber forest products, and by providing solar energy to rural families.

The Invest for Climate Activity will advance CDCS Development Objective 3, promote equitable and environmentally sustainable economic growth. It will do this by engaging with community, public, and private sector actors, including financial institutions, to develop, finance, and implement initiatives that help Colombia achieve its climate mitigation and adaptation objectives.

The activity will also contribute to CDCS IR 3.1, expanded licit livelihood opportunities, and CDCS IR 3.2, more competitive licit economies. The activity will contribute to IR 3.1 by: 1) providing business development assistance; 2) improving financial access for climate smart projects and businesses; and 3) increasing climate smart investment to expand markets. The activity will contribute to IR 3.2 by: 1) improving public and private actors’ access to information on climate smart opportunities; 2) reducing the risks and costs associated with climate smart investment;

and 3) supporting climate smart value chain development.

This activity also aligns with USAID’s Climate Strategy objective of advancing equitable and ambitious actions to confront the climate crisis. It will do this by mobilizing funds for Colombia’s mitigation and adaptation goals. In particular, the activity will contribute to Climate Strategy IR 1.2 reduce emissions, IR 1.3 build resilience, IR 1.3 mobilize finance, IR 2.1 Transform Key Systems and Essential Services, and IR 2.2 shift market signals.

Finally, the activity will support sustainability by promoting local ownership, leveraging local resources and expertise, and contributing to several key issues such as youth, gender and women’s empowerment, local actors, and private sector engagement.

1.3 PROJECT DESCRIPTION

Development Hypothesis

The Invest for Climate Activity’s theory of change links the activity’s objectives with the intended outcome: IF the supply of climate finance by financial and government institutions increases in conjunction with increased demand for this finance by climate smart projects and businesses, and Colombia’s enabling environment encourages more climate smart investment, THEN Colombia will leverage the funds needed to advance its climate adaptation and mitigation targets.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

Objective 1: Financial institutions invest in climate-smart projects and businesses.

The Invest for Climate Activity will work with financial institutions, including commercial, investment and development banks; insurance companies and other institutional investors; micro-financial institutions; guarantee funds, trust funds, and impact and philanthropic funds, to catalyze transformational and systemic change in the financial systems to accelerate and scale climate investments. In particular, the Contractor will strengthen financial institutions' understanding of, and capacity for, green lending, climate risk and carbon accounting in their lending practices and financial services and will provide capacity building support and technical assistance to expand existing or develop new risk-mitigation and concessional capital instruments.

Intermediate Result 1.1: Financial institutions have the capacity to use climate finance instruments.

Invest for Climate will build financial institutions’ capacities that will result in mainstreaming climate into their investment and business decision-making. This includes providing capacity building to financial institutions in green finance and inclusive banking fundamentals and products, in developing the tools to incorporate climate risk management and carbon accounting into their lending practices; and to measure and report on the carbon intensity and climate resilience of lending portfolios. This capacity building process will be financed jointly between the Activity and Financial Institutions.

Furthermore, the Contractor will support financial institutions in developing a green lending arm to expand and scale the supply of financial products, including insurance products to cover climate-related losses, and financial products that mobilize funding for inclusive climate mitigation and adaptation projects and businesses at scale.

Through this IR, the contractor will hold financial institutions to high performance standards upon reception of the technical assistance and support provided by the Activity. Finally, to achieve this IR, the Contractor will learn from and collaborate with existing initiatives such as the International Finance Corporation (IFC)’s Green Banking Academy.

Intermediate Result 1.2: Financial institutions and climate investments have a reduced cost of accessing capital.

One barrier to accessing and scaling finance for climate-smart investments is the high cost of capital due to factors such as lower expected financial returns, and high-risk profiles of these investments. Under this IR, Invest for Climate seeks to design and facilitate the implementation of financial mechanisms that lower the cost of capital for climate investments and catalyze investments at scale, through collaboration with Development Financial Institutions (DFI).

The Contractor will work with DFIs and other actors to structure innovative financial instruments offered to financial institutions to help de-risk climate investments. This in turn will increase the financial sector’s investment appetite for climate initiatives. In addition, the Contractor will assist in the creation of financial products that leverage first-loss tranches for climate projects, and that decrease investment risks for senior tranches funded by private investors.

To lower the cost of capital by reaching investments of larger scale, Invest for Climate will partner with corporations and financial actors that have committed to net-zero targets to pilot innovative value chain finance mechanisms that enable micro, small and medium suppliers to transform the production cycle, reduce emissions, and improve climate resilience.

To facilitate and increase the appetite of the financial sector by reducing risk, costs and incentivizing the provision of climate finance at scale, the Contractor will use the Activity Fund.

The Contractor may give priority to performance and results-based grants from the Activity Fund, taking into consideration that Grant funds will be used exclusively as catalyzers of additional investments and will be invested in training and technical assistance. The Activity Fund will support the greatest extent possible. Financial institutions and non-financial organizations that are able to provide technical assistance on green banking, climate finance, business development and project preparation services for public, private and community actors.

Objective 2: There is a robust and inclusive pipeline of viable climate-smart projects and businesses.

Invest for Climate will support the development of a robust pipeline of market-based and inclusive climate-smart projects and businesses that reach mitigation and adaptation objectives at scale, by identifying and accelerating climate-smart businesses and projects that reduce emissions in the AFOLU sector, promote clean energy and/or enhance climate resilience and adaptation, within the contract’s target geography. The Contractor will seek to reach scale, impact, and commercial sustainability by nurturing vertical or horizontal aggregation of climate-smart projects or businesses.

Intermediate Result 2.1: Climate-smart businesses are accelerated.

Invest for Climate will accelerate an inclusive group of climate-smart businesses and strengthen their commercial viability by making them financially viable, legally established, and sustainable;

and, by supporting their engagement with capital suppliers. The contractor will design sustainable methodologies to reach businesses at scale, in lieu of providing business development services and support to single business units.

To achieve this result, the Contractor will identify climate-smart businesses at different stages of maturity and with different risk/return profiles, and provide development support services, including technical assistance and training to develop business plans, financial data, improve management performance, and technical support to overcome other types of barriers, to help them become self-sufficient with access to the financial sector.

Businesses will also receive assistance to quantify their impact in reducing, capturing, or removing GHG emissions, including their impact in reducing climate vulnerability and increasing climate resilience in the regions where they operate, so that businesses can report their climate impacts to their investors and other stakeholders.

The Contractor must identify opportunities to support aggregated businesses, for example, by supporting business associations and cooperatives in the agricultural sector, aggregated community projects, portfolios of solar mini-grids, electrification of mass transport systems or commercial fleets, in lieu of single business units, so that greater impact and scale is achieved through the contract.

The Contractor will prioritize engaging marginalized communities, including youth, women, ethnic communities, migrants and members of the lesbian, gay, bisexual, transgender, queer and intersex (LGBTQI+) community throughout the approaches described under IR 2.1 and 2.2, so that they are able to implement climate-smart projects and businesses according to their needs and interests.

Intermediate Result 2.2: Viable climate-smart projects are structured.

The Contractor will take a systems approach and work with local communities, Non-Government Organizations (NGO), public, international, and private actors, including businesses supported under IR 2.1 to support the design and preparation of climate-smart projects with the potential to reach climate impacts at scale, generate revenue, and that have positive social and economic impacts. Projects that provide public goods without the capacity to generate revenues, for example, a project to improve flood protection in a vulnerable community, will also receive support for their design and preparation.

The Contractor is encouraged to work with national development banks and public institutions to identify feasible climate-smart projects that could receive technical assistance in their preparation, and that have high possibilities of receiving funding from those institutions. If government institutions lack a pipeline of climate projects, the Contractor may work with these actors to establish a project preparation facility, for example for priority climate adaptation projects that will reduce climate risks to target populations, regions, and/or business sectors.

The Contractor will also provide technical assistance to local actors, prioritizing members of marginalized communities including youth and women and ethnic communities, to structure projects according to the technical requirements of each finance source. The type of technical assistance for project preparation includes conducting pre-feasibility and feasibility studies, addressing legal, technical, and financial components of a project.

The Contractor will prioritize the support to projects at scale, or to implement aggregated approaches for climate adaptation and mitigation. The Activity will also engage with international funds, DFIs, and other sources of financial resources, including those supported under IR 1.1 and

1.2 to direct capital towards projects supported under this IR.

Objective 3: There is an improved enabling environment for climate-smart investment.

Invest for Climate will support the Colombian government develop and improve policies that catalyze transformational and systemic change in the market and financial systems, to enhance the enabling environment for private and public finance, and that support the expansion and use of economic instruments for climate change like carbon markets, green bonds, and tax incentives.

It will also support governmental and financial institutions, implement climate reporting standards and regulations, and modernize climate finance reporting systems.

IR 3.1: Public policies enable public and private climate finance.

Through this IR, the Contractor will work with the Colombian government to develop and improve regulations, policies and mechanisms that foster transformational change and facilitate public and private climate finance by shifting market incentives towards climate-smart investments and increasing public funding allocated to climate goals.

The Contractor will provide technical support to the Colombian government for the implementation of the National Climate Finance Strategy and will support the design and operationalization of public financial mechanisms to channel public funding into priority climate adaptation and mitigation projects.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

The Contractor will support the Colombian government, including the financial regulator, the Ministry of Finance and the policy-making institutions that work on adaptation, and in the AFOLU and clean energy sectors to identify, develop and present regulatory reforms to facilitate the enabling environment for private sector financing and financial instruments development to serve climate-smart projects and businesses with an inclusive approach.

Invest for Climate will also assist the Colombian government with the analysis and identification of additional economic instruments such as green taxes, tax incentives/subsidies or deposit-refund systems that shift market incentives towards greater climate-smart investments and provide technical assistance to strengthen the regulatory framework for voluntary carbon markets to ensure they comply with the principles of integrity, transparency, and equity.

IR 3.2: Public and private institutions report climate metrics.

In coordination with the interventions under IR 1.1, and with the objective of improving the generation of climate finance information, the contractor will improve financial institutions' understanding and application of inclusive climate metric reporting. Similarly, the Contractor will assist the Colombian government with updating regulations requiring financial institutions to report inclusive climate metrics, following international principles and standards such as the IFRS, TCFD, TNFD, SBTi explained under Objective 1.

To strengthen the capacity of public financial management systems to analyze the climate impact of public investments, the Contractor will support government institutions such as the Ministry of Finance (MoF) and the National Planning Department (DNP) to fully implement mechanisms to track climate contributions of public investments, like climate trackers. In addition, it will support the modernization of the Climate Finance Monitoring, Reporting and Verification (MRV) System, to allow for systematic reporting from financial institutions, private sector, and public entities.

TABLE 2: DEFINED OR ILLUSTRATIVE ACTIVITIES AND SUB-ACTIVITIES

Objective 1: Financial institutions invest in climate smart projects and businesses.

IR 1.1. Build financial institutions’ capacities that will result in mainstreaming climate into their investment and business decision-making. Provide capacity building to financial institutions in green finance and inclusive banking fundamentals and products. Support development of tools to incorporate climate risk management and carbon accounting into lending practices and measure and report on the carbon intensity and climate resilience of lending portfolios.

IR 1.2. Design and facilitate the implementation of financial mechanisms that lower the cost of capital for climate investments and catalyze investments at scale: Collaborate with Development Financial Institutions (DFI) to structure innovative financial instruments offered to financial institutions to help de-risk climate investments. Assist DFIs in the creation of financial products that leverage first-loss tranches for climate projects, and that decrease investment risks. Award grants to support financial institutions and non-financial organizations that can provide technical assistance for public, private and community actors.

Objective 2: There is a robust and inclusive pipeline of viable climate-smart projects and businesses.

IR 2.1: Accelerate an inclusive group of climate-smart businesses and strengthen their commercial viability by making them financially viable, legally established, and sustainable: Provide technical assistance and training for climate-smart businesses to develop business plans, financial data, improve management performance, and technical support to become self-sufficient in accessing the financial sector. Deliver technical support to businesses to identify and accelerate opportunities for innovation

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

and technological advancements through existing policy incentives, like green or innovation tax incentives.

IR 2.2: Support the design and preparation of climate-smart projects with the potential to reach climate impacts at scale, generate revenue, and that have positive social and economic impacts: Support National Development Banks and public institutions in the identification of feasible climate-smart projects that are prone to receive technical assistance in their preparation. Support the establishment of a project preparation facility, for priority climate projects.

Objective 3: There is an improved enabling environment for climate-smart investment.

IR 3.1: Work with the Colombian government to develop and improve regulations, policies and mechanisms that foster transformational change and facilitate public and private climate finance.

Provide support to the Colombian government for the implementation of the National Climate Finance Strategy. Support the design and operationalization of public financial mechanisms to channel public funding into priority climate adaptation and mitigation projects and developing regulatory reforms to facilitate the enabling environment for financing climate smart projects and businesses.

IR 3.2: Improve financial institutions' understanding and application of inclusive climate metric reporting. Assist the Colombian government with updating regulations requiring financial institutions to report inclusive climate metrics, following international principles and standards. Assist government institutions to fully implement mechanisms to track climate contributions of public investments.

2.0 ENVIRONMENTAL ANALYSIS

2.1 JUSTIFICATION FOR CATEGORICAL EXCLUSION

The activities under the Invest for Climate Activity are among the classes of actions listed in 22CFR216.2(c)(2) and have no foreseeable significant direct or indirect adverse effect on the environment. Therefore, under 22CFR216.2(c)(1), neither an IEE nor an EA will be required for these activities. Instead, a Categorical Exclusion is recommended for the activity described above in Section 1.3 as follows:

TABLE 3: RECOMMENDED DETERMINATION FOR CATEGORICAL EXCLUSION

Projects/Activities Categorical Exclusion Citation (if applicable)

Deferral

Objective 1: Financial institutions invest in climate smart projects and businesses.

IR 1.1. Build financial institutions’ capacities that will result in mainstreaming climate into their investment and business decision-making.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, IR 1.2 Design and facilitate the implementation of financial mechanisms that lower the cost of capital for climate investments and catalyze investments at scale, through collaboration with Development Financial Institutions (DFI).

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, The Activity Fund will function as a catalyst of additional investments by supporting financial institutions and non-financial organizations that are able to provide technical assistance on green banking, climate finance, business development and project preparation services for public, private and community actors.

academic or research workshops and meetings;

Objective 2: There is a robust and inclusive pipeline of viable climate-smart projects and businesses.

IR 2.1: Accelerate an inclusive group of climate-smart businesses and strengthen their commercial viability by making them financially viable, legally established, and sustainable;

and, by supporting their engagement with capital suppliers.

Identify climate-smart businesses at different stages of maturity and with different risk/return profiles, and provide development support services, including technical assistance and training to develop business plans, financial data, improve management performance, and technical support to overcome other types of barriers, to help them become self-sufficient with access to the financial sector.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, IR 2.2: Take a systems approach and work with local communities, Non- Government Organizations (NGO), public, international, and private actors, including businesses supported under IR 2.1, to support the design and preparation of climate-smart projects with the potential to reach climate impacts at scale.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, Objective 3: There is an improved enabling environment for climate-smart investment IR 3.1: Work with the Colombian government to develop and improve regulations, policies and mechanisms that foster transformational change and facilitate public and private climate finance by shifting market incentives towards climate-smart investments and increasing public funding allocated to climate goals.

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, IR 3.2: Improve the generation of climate finance information, by improving financial institutions' capacities to understand and apply

Section 216.2(c)(2)(i) Education, technical assistance, or training programs except to the extent such programs include activities directly affecting the environment (such as

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

inclusive climate metric reporting and the use of Colombia’s Green Taxonomy. Similarly, the Activity will assist the Colombian government with updating regulations requiring financial institutions to report inclusive climate metrics, following international principles and standards.

construction of facilities, etc.)

Section 216.2(c)(2)(iii) Analyses, studies, USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

2.2 CLIMATE RISK MANAGEMENT

TABLE 4. PROJECT CLIMATE RISK MANAGEMENT SUMMARY TABLE

Tasks/Defined or Illustrative Interventions

Climate Risks1 Risk Rating2 How Risks are Addressed3 Opportunities to Strengthen Climate Resilience4

IR 1.1. Build financial institutions’ capacities that will result in mainstreaming climate into their investment and business decision-making: Provide capacity building to financial institutions in green finance and inclusive banking fundamentals and products. Support development of tools to incorporate climate risk management and carbon accounting into lending practices and measure and report on the carbon intensity and climate resilience of lending portfolios.

Disruption of services due to extreme climate change impacts on damage to infrastructure or interruption in services.

Low Risk Incorporate changes in precipitation patterns when planning meetings, workshops, surveys, training, routes, field visits and monitoring requirements to reduce risks and ensure strategies withstand climate variability.

N/A

Planning vulnerability due to damage caused by extreme climate events.

Low Risk Provide technical support to local communities and institutions to incorporate changes in weather patterns and vulnerable areas in all planning tools to reduce risks and ensure planning strategies that withstand climate variability. This technical support will improve access to climate information to support decision making.

N/A

1 List key risks related to the defined/illustrative interventions identified in the screening and additional assessment.

2 Low/Moderate/ High 3 Describe how risks have been addressed in activity design and/or additional steps that will be taken in implementation. If you chose to accept the risk, briefly explain why.

4 Describe opportunities to achieve multiple development objectives by integrating climate resilience or mitigation measures

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

IR 1.2. Design and facilitate the implementation of financial mechanisms that lower the cost of capital for climate investments and catalyze investments at scale: Collaborate with Development Financial Institutions (DFI) to structure innovative financial instruments offered to financial institutions to help de-risk climate investments. Assist DFIs in the creation of financial products that leverage first-loss tranches for climate projects, and that decrease investment risks. Award grants to support financial institutions and non-financial organizations that can provide technical assistance for public, private and community actors.

Disruption of services due to extreme climate change impacts on damage to infrastructure or interruption in services.

Low Risk Incorporate changes in precipitation patterns when planning meetings, workshops, surveys, training, routes, field visits and monitoring requirements to reduce risks and ensure strategies withstand climate variability.

N/A

Planning vulnerability due to damage caused by extreme climate events

Low Risk Provide technical support to local communities and institutions to incorporate changes in weather patterns and vulnerable areas in all planning tools to reduce risks and ensure strategies that withstand climate variability. This technical support will improve access to climate information to support decision making.

N/A

IR 2.1: Accelerate an inclusive group of climate-smart businesses and strengthen their commercial viability by making them financially viable, legally established, and sustainable: Provide technical assistance and training for climate-smart businesses to develop business plans, financial data, improve management performance, and technical support to become self-sufficient in accessing the financial sector. Deliver technical support to businesses to identify and accelerate opportunities for innovation and technological advancements through existing policy incentives, like green or innovation tax incentives.

Disruption of services due to extreme climate change impacts on damage to infrastructure or interruption in services.

Low Risk Incorporate changes in precipitation patterns when planning meetings, workshops, surveys, training, routes, field visits and monitoring requirements to reduce risks and ensure strategies withstand climate variability.

N/A

Planning vulnerability due to damage caused by extreme climate events

Low Risk Provide technical support to local communities and institutions to incorporate changes in weather patterns and vulnerable areas in all planning tools to reduce risks and ensure strategies that withstand climate variability. This technical support will improve access to climate information to support decision making.

USAID 216 RCE TEMPLATE VERSION 2, APRIL 2018

IR 2.2: Support the design and preparation of climate-smart projects with the potential to reach climate impacts at scale, generate revenue, and that have positive social and economic impacts: Support National Development Banks and public institutions in the identification of feasible climate-smart projects that are prone to receive technical assistance in their preparation.

Support the establishment of a project preparation facility, for priority climate projects.

Disruption of services due to extreme climate change impacts on damage to infrastructure or interruption in services.

Low Risk Incorporate changes in precipitation patterns when planning meetings, workshops, surveys, training, routes, field visits and monitoring requirements to reduce risks and ensure strategies withstand climate variability.

N/A

Planning vulnerability due to damage caused by extreme climate events

Low Risk Provide technical support to local communities and institutions to incorporate changes in weather patterns and vulnerable areas in all planning tools to reduce risks and ensure strategies that withstand climate variability. This technical support will improve access to climate information to support decision making.

N/A

IR 3.1: Work with the Colombian government to develop and improve regulations, policies and mechanisms that foster transformational change and facilitate public and private climate finance.

Provide support to the Colombian government for the implementation of the National Climate Finance Strategy. Support the design and operationalization of public financial mechanisms to channel public funding into priority climate adaptation and mitigation projects and developing regulatory reforms to facilitate the enabling environment for financing climate smart projects and businesses.

Disruption of services due to extreme climate change impacts on damage to infrastructure or interruption in services.

Low Risk Incorporate changes in precipitation patterns when planning meetings, workshops, surveys, training, routes, field visits and monitoring requirements to reduce risks and ensure strategies withstand climate variability.

N/A

Planning vulnerability due to damage caused by extreme climate events

Low Risk Provide technical support to local communities and institutions to incorporate changes in weather patterns and vulnerable areas in all planning tools to reduce risks and ensure strategies that withstand

USAID 216 RCE TEMPLATE…