60109 From: The President March 8, 2011 MEMORANDUM TO THE EXECUTIVE DIRECTORS Application of Bank Policies to Carbon Finance Activities Background and Context for the Proposal 1. Attached is a paper entitled: "Application of Bank Policies to Carbon Finance Activities. A previous draft of the paper was considered by CODE at its meeting on February 23, 2011. The attached paper takes into account the recommendations made at that meeting. 2. As explained in the paper, carbon finance has grown in importance, both as a result of the growth in carbon fund resources under Bank management and as part of the Bank's expanding involvement in climate finance in the context of the strategic framework for development and change. The Bank now manages 12 carbon funds and facilities worth over $2.5 billion. Much has been learned in the past ten years in using carbon finance. The proposals contained in the paper reflect the need to clarify the application of Bank policies to carbon finance in light of this experience. Proposal 3. The attached paper proposes new approaches in three areas, namely: i. supervision of carbon finance operations; ii. compliance with the Bank's environmental and social safeguard policies in the context of readiness activities carried out under the Readiness Fund of the Forest Carbon Partnership Facility (FCPF); and iii. opening of the Readiness Fund of the FCPF to delivery partners other than the Bank. 4. Item i is for information, items ii and iii require approval by the Executive Directors on an absence-of-objection basis. Next Steps 5. After consideration by the Executive Directors, and subject to approval of items ii and iii by the Executive Directors on an absence of objection basis, i. for item i, Management will issue detailed operational guidance in the form of an OpMemo; ii. for item ii, Management will insert an explicit reference to Strategic Environmental Assessments (SEAs), Strategic Environmental and Social Assessments (SESAs) and Environmental and Social Management Frameworks (ESMFs) in OP 4.01 (Environmental Assessment), issue detailed operational guidelines for FCPF readiness activities, and follow the SESA and ESMF approach to ensure compliance with Bank safeguard policies in FCPF Readiness activities; and iii. for item iii, Management will implement the pilot phase for multiple delivery partners and develop a common approach to social and environmental safeguards. Should the FCPF Participants decide to fully operationalize the multiple delivery partners arrangement, Management will then inform the Board on the agreed common approach and lessons learned from the pilot phase, and request the Board to approve, on an absence-of-objection basis, the adoption of the arrangement and authorize Management to process the necessary adjustments to the Readiness Fund of the FCPF, including amending the Charter establishing the FCPF. Recommendation 6. I recommend that the Executive Directors approve the proposals in paragraphs 20 and 27 of the attached paper. Robert B. Zoellick President By Mahmoud Mohieldin Managing Director March 2, 2011 Paper to the Board Application of Bank Policies to Carbon Finance Activities Introduction 1. Management is hereby informing the Board of Executive Directors of recent developments in the Bank's carbon finance activities and the ensuing need to consider new approaches in three areas, namely: i. supervision of carbon finance operations; ii. compliance with the Bank's environmental and social safeguard policies in the context of readiness activities carried out under the Readiness Fund of the Forest Carbon Partnership Facility (FCPF); and iii. opening of the Readiness Fund of the FCPF to delivery partners other than the Bank. Since item ii involves a policy clarification and item iii involves a significant change to the original structure of the FCPF as approved by the Board in September 2007, the Executive Directors are hereby requested to approve Management's proposal on a no-objection basis. 2. Carbon finance has grown in importance, both as a result of the growth in carbon fund resources under Bank management and as part of the Bank's expanding involvement in climate finance in the context of the strategic framework for development and climate change. The above-mentioned proposals stem from the lessons we have learned in using carbon finance, still a relatively new instrument, and from the experience we are gaining in expanding into new areas. They reflect the need to clarify the application of Bank policies to carbon finance in light of experience. As Management continues to gather further experience, it will continue to update the Executive Directors and seek guidance as necessary. Carbon Finance at the Bank: from the Prototype Carbon Fund to today's portfolio of twelve carbon funds and facilities 3. The Bank manages 12 carbon funds and facilities, with participation of 24 public sector and 61 private sector entities. The total committed capital has grown from about $150 million in 2000 to over $2.5 billion today. 4. The first ten funds and facilities established by the Bank are used to purchase greenhouse gas emission reductions from projects in developing countries and countries with economies in transition, using the flexibility mechanisms (Clean Development Mechanism and Joint Implementation) of the Kyoto Protocol to the UN Framework Convention on Climate Change (UNFCCC). Over the past ten years, the Bank's carbon finance portfolio has grown to include about 200 projects in 56 countries, in a wide range of sectors such as renewable energy, energy efficiency, solid waste management, industrial processes, and land-use change and forestry. Through these performance-based payments, the World Bank is helping to mitigate climate change and support the poverty reduction and sustainable development priorities of our client countries. While much has been learned in the past ten years about the use of the mechanisms, carbon finance remains a relatively new financing instrument and continues to evolve rapidly. 1 March 2, 2011 5. In response to client countries' new emphasis on climate action, the World Bank is stepping up its support for climate change related activities and in particular for climate finance, of which carbon finance is an important component. While the future for carbon finance may depend in part on the outcome of the negotiations concerning the UNFCCC and the Kyoto Protocol, new opportunities have emerged to establish carbon finance vehicles and support the increasingly wide-ranging and ambitious mitigation activities of the Bank's client countries. For example, in 2007 the Board approved the establishment of the Forest Carbon Partnership Facility (FCPF) and the Carbon Partnership Facility (CPF)1. The former is dedicated to reducing emissions from forest loss in developing countries, while the latter focuses on developing approaches to scale up the use of carbon finance to support mitigation efforts. Both facilities are operational and are making valuable contributions to the development of carbon-based incentives for mitigation action. Beyond these two facilities, the Bank is expanding its support for strengthening client countries' capacity to use carbon market instruments through the recently launched Partnership for Market Readiness (PMR) and is exploring the creation of new initiatives to help least-developed countries access carbon finance on a larger scale. A new approach for the supervision of carbon finance operations 6. Carbon finance transactions carried out under Emission Reductions Purchase Agreements (ERPAs) differ significantly from lending and other more conventional Bank instruments to the extent that they release money after it has been verified that emissions of greenhouse gases have actually been reduced. Financial flows start only once the underlying project has been successfully implemented and has become operational. Thus, the due diligence carried out by the Bank on a carbon finance operation consists of two distinct parts: i. due diligence on the underlying project, with particular attention being paid during preparation and appraisal that the investment will be implemented in conformity with the Bank's environmental and social safeguard policies. This work is carried out by the Bank's Regional operational units that later supervise implementation of the project, to ensure that it remains in compliance with environmental and social safeguards up to project completion; and ii. due diligence on the carbon asset that serves as the basis for the carbon finance transaction through the negotiation of an ERPA. This due diligence work is carried out by the Bank's Carbon Finance Unit in conformity with the regulatory process established by the UNFCCC. As mentioned above, financial flows under the ERPA start only after project completion and once emission reductions have been generated and verified. Supervision of the ERPA therefore consists of ensuring that the project delivers the emission reductions contracted for in the amount and according to the schedule stipulated in the ERPA. 7. ERPAs are usually entered into before the project is implemented and extend for years after project completion to cover a specified period of emission reduction generation and 1 As set out in R2007-0188 dated November 2007. The Board had earlier endorsed the proposed approach for further engagement of the Bank in carbon finance as described in "The Role of the World Bank in Carbon Finance: An Approach for Further Engagement" (R2005-023 dated November 2005). The Executive Directors have since been kept abreast of carbon finance activities in the Bank through progress reports (SecM2007-0382 and Carbon Finance Annual Reports) and a recent Technical Briefing on carbon markets (OM2010-0051). 2 March 2, 2011 associated payments. They are typically of relatively long duration (up to 20 years), potentially creating much longer supervision responsibilities for the Bank than for projects financed through Bank lending operations. The operational guidelines that have been in place for the supervision of carbon finance operations until now have mirrored those for lending operations, not taking into account the fact that the nature of supervision changes over the life of the ERPA: during project implementation and before any ERPA payments are made, supervision is very similar to that of a lending operation; following project completion and as long as there are no outstanding material issues related to project implementation, including with regard to environmental and social safeguards, supervision switches to the verification of the emission reductions and other obligations under the ERPA. For projects where an Environmental Management Plan is prepared in accordance with World Bank Operational Policies, these obligations under the ERPA include a requirement for the project entity to set out in an annual report evidence satisfactory to the Bank that the project is in compliance with the Environmental Management Plan. 8. Now that a significant share of the Bank's carbon finance portfolio consists of transactions for which the underlying projects have already been completed and which have entered the operational stage successfully, it has become apparent that supervision procedures need to be adapted for carbon finance operations to reflect their special nature, similar to what has been done for guarantee operations. 9. Given the unique nature of REDD+ projects, this two-phase approach to supervision will specifically exclude operations under the Carbon Fund of the FCPF. Therefore, until supervision guidelines are developed specifically for operations under that fund, the normal Bank supervision policy and procedures will apply. 10. Management wishes to inform the Board that it has therefore decided to adopt the following approach for carbon finance operations, excluding the FCPF, with supervision being carried out in two phases: i. the first phase from effectiveness of the ERPA to project completion, during which the Bank will be responsible for supervision of the underlying project, including compliance with the Bank's environmental and social safeguards, in accordance with supervision procedures applicable to loans. This phase may be extended in the event material issues remain outstanding during the project's operational stage and until they have been resolved satisfactorily; and ii. a second phase, from project completion to termination of the ERPA, during which the Bank will monitor compliance with the obligations of the party to the ERPA, including verifying the evidence provided by the project entity that the project is in compliance with the Environmental Management Plan. The Bank's Operational Policy and Procedures on Project Supervision (OP/BP 13.05) will not apply during this second phase. 11. Management also wishes to inform the Board that, following consideration of this two- phase approach by the Board, Management will issue detailed operational guidance in the form of an OpMemo, which will include details of the Bank's responsibilities during the second phase. Safeguards for Readiness Activities under the FCPF 12. The FCPF, which became operational in June 2008, is a global partnership focused on reducing emissions from deforestation and forest degradation, forest carbon stock conservation, the sustainable management of forests and enhancement of forest carbon stocks (REDD+). The 3 March 2, 2011 FCPF Readiness Fund assists tropical and subtropical forest countries in developing the systems and policies for REDD+ ("getting ready for REDD+" or "readiness"), while the FCPF Carbon Fund intends to provide them with performance-based payments for emission reductions. The FCPF has so far selected 37 REDD+ countries into the partnership. Current pledged funding to the Facility stands at around $350 million, including approximately $200 million for the Readiness Fund and approximately $150 million for the Carbon Fund.2 13. The Readiness Fund provides readiness preparation grants to REDD+ countries (up to $3.6 million each) for the following activities: i. preparing a national REDD+ strategy; ii. establishing a reference level for forest emissions and forest cover; iii. designing a national REDD+ monitoring system; and iv. setting up national REDD+ management arrangements. These readiness activities do not entail any investment projects on the ground, or any carbon finance transactions. 14. As per the Charter establishing the FCPF, readiness activities that are to be supported by the World Bank must comply with Bank safeguard policies regarding the management of environmental and social impacts (also see the special case of multiple delivery partners described in paras 21-27). 15. Readiness for REDD+ is the phase when strategies/policies are formulated and investments prepared. It is therefore the appropriate moment for the client country to assess the potential strategic environmental and social impacts that may ensue from a future REDD+ activity or project (including policy reforms), put the necessary systems in place and develop safeguards instruments that will apply to subsequent REDD+ investments and carbon finance transactions to minimize any potential negative impacts and enhance positive ones. 16. The strategic, national and multi-sectoral nature of REDD+ readiness activities requires a strategic approach to risk management. The risk of engaging in such a strategic process is that countries may then articulate policies that would either not comply with Bank policies or be unacceptable to the Bank. Nevertheless, Management believes that the benefits of remaining engaged in the REDD+ process are considerable, despite the potential reputational risks. Indigenous Peoples' rights, land tenure, public participation, and the sharing of benefits are some of the main challenges encountered so far in the FCPF. Policies of concern to REDD+ deal with land administration, nationwide land use planning, forest management, extractive industries, and infrastructure, among other sectors. Standard project-level environmental and social impact assessment is not appropriate at this strategic, countrywide, multi-sectoral level. In keeping with accepted instruments in the field of environmental assessment, the Bank has therefore elaborated how to use a Strategic Environmental and Social Assessment (SESA) in the context of REDD+ readiness. The strength of a SESA for REDD+ is that it combines analytical work and consultation in an iterative fashion to inform the preparation of the REDD+ strategy. The SESA helps to ensure compliance with the Bank's safeguard policies by integrating key environmental and social considerations relevant to REDD+, including all those covered by the safeguard policies, at the earliest stage of decision making. The SESA helps governments formulate their REDD+ strategy in a way that reflects inputs from key stakeholder groups and addresses the main 2 The initial capitalization targets approved by the Board were $100 million for the Readiness Fund and $200 million for the Carbon Fund, respectively. In 2009, in response to growing interest from forest countries in the FCPF, the capitalization target of the Readiness Fund was raised to $185 million. 4 March 2, 2011 environmental and social issues identified. The SESA includes an Environmental and Social Management Framework (ESMF) as a distinct output, which provides a framework for managing and mitigating the environmental and social risks related to investments and carbon finance transactions in the context of the future implementation of REDD+. The future investments and carbon finance transactions will still require specific environmental and social assessments, but these will benefit from the strategic context created by the SESA and ESMF. 17. To help draw attention to the use of SESA as an Environmental Assessment (EA) instrument used in the context of REDD+ readiness (or various strategic activities other than REDD+ readiness) and so as to better reflect internationally accepted practice, Management proposes to insert an explicit reference to Strategic Environmental Assessments (SEAs), SESAs and ESMFs in OP 4.01 (Environmental Assessment). SEAs and SESAs are already in use by the Bank given that they are recognized as tools for assessing and mitigating the environmental impacts of certain types of interventions (namely policies, plans and programs). Their acceptance internationally is reflected in the practices of governments and international institutions, including the Bank, and is set forth in laws and practices around the world. Bank teams and project implementing agencies also increasingly rely on frameworks in the context of compliance with OP 4.01 in situations where the project consists of a program or series of sub-projects, the specific scope or location of which has not yet been identified. Moreover, the use of strategic assessments was recommended by the Mid-Term Review of the Bank's Forestry Strategy in 2007. The current absence of specific reference to SEAs, SESAs or ESMFs in OP 4.01, however, has led to a lack of clarity and consistency in the use of these instruments in Bank operations. 18. The proposed inclusion does not constitute a policy change given that OP 4.01 already recognizes that an EA can examine environmental impacts associated with a particular strategy. 19. Management also wishes to clarify the Bank's responsibilities with regard to parallel co- financing, joint co-financing and third-party financing of REDD+ readiness activities. Such activities typically involve a range of international partners given the technical complexity and financial needs involved, hence Bank teams need to know what policies and procedures they are required to follow. The proposal is to adopt the same principles as are usually applied in Bank- financed projects, namely that as a general matter, in parallel co-financing situations, each donor follows its own rules, while generally in joint co-financing, the most stringent rules apply to all donors. 20. Management therefore requests the Board to approve the insertion of references to SEAs, SESAs and ESMFs in OP 4.01, and wishes to inform the Board that the Bank will use SESAs and ESMFs to ensure compliance with Bank safeguard policies in FCPF Readiness activities when the Bank is the Delivery Partner. Management also wishes to inform the Board that it proposes to carry out REDD+ readiness activities under arrangements in which: i. in the context of parallel co-financing situations, where a REDD+ readiness activity is financed by a different donor and is not included in the Bank's grant agreement, the Bank will not apply its procedures and safeguards, even though the activity may have been reviewed by the Participants Committee of the FCPF and by the Bank as part of the country's readiness proposal; ii. in the context of joint co-financing situations, where there is co-mingling of funds, including from the Bank, for a single REDD+ readiness activity, the donors and the government will agree on which procedures and safeguards will apply, in accordance with the principle that the most stringent rules apply to all donors; and 5 March 2, 2011 iii. in the case of third-party financing of a future REDD+ activity or project that uses and/or relies on a Bank-financed ESMF, the preparation of the appropriate safeguards instruments for such third-party investments will fall under the full responsibility of the implementing agency. Opening of the Readiness Fund of the FCPF to delivery partners other than the World Bank 21. As per the Charter establishing the FCPF, the World Bank is currently the only implementing entity (or "delivery partner") under the Readiness Fund of the FCPF. However, with two and a half years of operational experience, it appears that there are a variety of situations where it is difficult for the Bank to deliver these REDD+ readiness services, including where the Bank has no program or where the Bank finances no forest sector operations in the country. 22. The governing bodies of the FCPF (Participants Assembly and Participants Committee) have decided, subject to the Bank's Board approval, to pilot the use of up to six potential Delivery Partners in addition to the Bank. Eligible Partners are the three UN-REDD Programme agencies (Food and Agriculture Organization, United Nations Development Programme and United Nations Environment Programme) and the three regional development banks (African Development Bank, Asian Development Bank and Inter-American Development Bank). The FCPF Participants Committee noted that all six are implementing agencies under the GEF and add value to the FCPF, and either meet, or their divisions handling FCPF activities, will meet by 2012, the GEF minimum fiduciary standards; and they intend to apply at least the same level of standards that are being applied under GEF projects. The Participants Committee further agreed to implement a pilot arrangement relying on Multiple Delivery Partners in up to five pilot countries.3 23. It is proposed that each Delivery Partner would follow its own fiduciary framework and policies and procedures in supervising the use of the funds transferred from the Bank, with the Bank acting as trustee of the Readiness Fund. Thus, the Bank would not be responsible for ensuring that these grants comply with the Bank's policies and procedures, including on environmental and social safeguards. 24. Notwithstanding the above, the FCPF Participants Committee has set up a Task Force to help develop a common approach to social and environmental safeguards to be followed by all the FCPF Delivery Partners, with a view to ensuring consistency across Delivery Partners. This common approach will complement the Delivery Partners' policies and procedures. The Task Force aims to complete its work and report to the Participants Committee in June 2011. 25. The current plan is that the Participants Committee, at its June 2011 meeting, will review the Task Force's recommendations and the lessons of the reliance on Delivery Partners other than the Bank in the five pilot countries and then decide whether and how to operationalize the arrangement of Multiple Delivery Partners under the Readiness Fund. This will require an amendment to the Charter establishing the FCPF. In the meantime, the FCPF Participants Assembly has adopted a resolution creating the legal basis for the implementation of the pilot arrangement. 3 See Participants Committee Resolution PC/7/2010/4 of November 3, 2010 in Attachment 1 and Participants Assembly Resolution PA/3/2010/2 of December 9, 2010 in Attachment 2. 6 March 2, 2011 26. Given that this represents a significant change to the original structure of the FCPF, Management is seeking concurrence of the Board for this arrangement, in accordance with the undertaking at the time of Board approval in September 2007. 27. The Board is therefore requested to approve the opening of the Readiness Fund of the FCPF to delivery partners other than the Bank. Such approval is requested in two steps: i. The Board is requested to approve the pilot phase as described above now; and ii. After the Participants in the FCPF have adopted a common approach to social and environmental safeguards and should the Participants decide to fully operationalize the Multiple Delivery Partners arrangement, Management will inform the Board on the agreed common approach and lessons learned from the pilot phase, and request the Board to approve, on an absence of objection basis, the adoption of the arrangement and authorize Management to process the necessary adjustments to the Readiness Fund of the FCPF, including amending the Charter establishing the FCPF. Attachments 1- FCPF Participants Committee Resolution PC/7/2010/4 of November 3, 2010 2- FCPF Participants Assembly Resolution PA/3/2010/2 of December 9, 2010 7 March 2, 2011 Attachment 1 FOREST CARBON PARTNERSHIP FACILITY (FCPF) SEVENTH PARTICIPANTS COMMITTEE MEETING November 2-3, 2010 Washington, DC Resolution PC/7/2010/4 Piloting Multiple Delivery Partners Whereas, 1. The Participants Committee (PC), through its Resolution PC/6/2010/6 on Multiple Delivery Partners (Resolution), requested the Facility Management Team (FMT) to establish a working group (Working Group). 2. The Working Group met on September 15-16, 2010 and prepared draft recommendations for consideration by the PC, in which the Working Group requested the FMT to propose several pilots for the purpose of pioneering multiple delivery partners. The Participants Committee, I. Potential Delivery Partners 1. Decides that for the purpose of piloting the arrangement of multiple delivery partners, the following entities will be the potential delivery partners (Potential Delivery Partners) under the Readiness Fund alongside the World Bank: The African Development Bank The Asian Development Bank The Inter-American Development Bank The United Nations Development Programme The United Nations Environment Programme The Food and Agriculture Organization The selection of those Potential Delivery Partners is based on the following considerations: (i) These entities are either the implementing entities or executing agencies under the GEF and either they meet, or their divisions handling FCPF activities will 8 March 2, 2011 meet by 2012, the GEF minimum fiduciary standards; and they intend to apply at least the same level of standards that are being applied under GEF projects; and (ii) These entities bring expertise and value added for REDD+. 2. Encourages entities, such as bilateral agencies, that provide similar REDD+ services as those from the Potential Delivery Partners and the World Bank, to coordinate, to the extent possible, with the FCPF and its framework and guidelines established under the FCPF's readiness process. II. Pilots 3. Noting that at this meeting the FMT proposed two countries, namely Cambodia and Panama, for the purpose of piloting the multiple delivery partner arrangement (Pilot Countries), invites the FMT to submit up to five Pilot Countries, including Cambodia and Panama, by November 17, 2010, including justification and proposed delivery partner, for PC approval of each proposed Pilot Country by December 1, 2010. Every effort shall be made to reach a consensus on the proposed Pilot Countries. If all efforts to reach consensus have been exhausted, and no decision has been made, the Pilot Country is deemed approved by the PC unless one-third of the PC members object to a proposed Pilot Country. 4. Notes that the multiple delivery partners piloting arrangement is meant to apply to the formulation of Readiness Preparation Proposals (R-PP), with resources of US$200,000 (R-PP Formulation Grant), and the preparation of Readiness Packages, with resources of US$3.4 million (Readiness Preparation Grant). 5. Decides that the following elements should be taken into account for selecting Pilot Countries: (i) Situations where other delivery partners are more effective than the World Bank to deliver REDD+ services to the relevant REDD Country Participants, with priority being given to countries in which the World Bank has no presence; (ii) Requests and needs of the REDD Country Participants; and (iii) Maximization of learning, such as utilizing different potential delivery partners; III. Delivery Partners' policy and procedures 6. Recognizes that each delivery partner would follow its fiduciary framework and policies, guidelines and procedures in supervising the use of the funds transferred by the Trustee of the Readiness Fund. IV. Common Approach 7. Recognizes that the R-PP template, which is being enhanced in collaboration with the UN-REDD Programme, and the Draft Guidelines on Stakeholder Engagement in REDD+ Readiness, prepared jointly with the UN-REDD Programme, together establish the basic 9 March 2, 2011 framework to guide the formulation of R-PPs by REDD Country Participants, including by helping them factor in environmental and social considerations. 8. Requires REDD Country Participants and their delivery partners to use the R-PP template and follow the Draft Guidelines on Stakeholder Engagement in REDD+ Readiness for the purpose of R-PP Formulation Grants. 9. Decides to establish a Task Force (Task Force) to develop a common approach for the provision of readiness support for REDD countries, drawing on the ongoing work of the FCPF and its application of environmental and social safeguards, including strategic environmental and social assessments, as well as good practices on delivery of REDD services to REDD countries, including comparative analysis of the environmental and social policies of the Potential Delivery Partners. 10. Requests the FMT, i. In consultation with the Bureau of the PC, to invite designated representatives of the PC members, including REDD Country Participants, Donor Country Participants, Carbon Fund Participants and Observers, and designated representatives of potential delivery partners referred to in paragraph 1 above, to participate in the Task Force; ii. To convene the first meeting of the Task Force in November 2010, to elaborate, among other items, the terms of reference of the Task force (TOR) and its work program, taking into account the appendix to the draft recommendations of the Working Group in the draft report of the Working Group to the PC; iii. To prepare a draft TOR and the work program and circulate to the members of the Task Force prior to the first meeting of the Task Force and submit the completed TOR to the PC for information. 11. Requests the Task Force to report to the PC at its eighth and completes its work prior to the ninth meeting of the PC with a view to approval of the common approach by the PC at its ninth meeting. 12. Decides that Readiness Preparation Grants for the Pilot Countries shall follow the common approach referred to in paragraph 9, without prejudice to paragraph 6. However, if the common approach is not adopted at the ninth meeting of the PC and in the event that the PC has reviewed the R-PP and allocated the Readiness Preparation Grant to a Pilot Country, paragraph 6 shall apply in order to avoid the delay of execution of the Readiness Preparation Grant by a Pilot Country. V. Review of Piloting Arrangement 13. Will review the lessons and experience gained through the pilots at each meeting with a view to making a decision, no later than its tenth meeting, on whether, how and under what circumstances to operationalize the arrangement of multiple delivery partners under the Readiness Fund, and determine whether it is necessary to arrange for an evaluation of the piloting arrangement by independent third party. VI. Effectiveness of Piloting Arrangement 14. Notes that the piloting arrangement referred to in Section II will start only after: 10 March 2, 2011 (i) the PA Resolution on the Multiple Delivery Partners (PA3/2010/1) has entered into effect; and (ii) The World Bank has completed its internal approval process. VII. Budget 15. Requests the FMT to address financing need, including additional budget proposal to the PC, for the purpose of the work by the Task Force referred to in paragraph 9, and report to Task Force on such proposal at its first meeting. 11 March 2, 2011 Attachment 2 FOREST CARBON PARTNERSHIP FACILITY (FCPF) PARTICIPANTS ASSEMBLY Terms Applicable to the Arrangement for Piloting Multiple Delivery Partners Resolution PA/3/2010/2 Whereas, 1. The Participants Committee (PC), through its Resolutions PC5/2010/4 and PC6/2010/6, recognized and reconfirmed the need to increase the number of delivery partners under the Readiness Fund to include other entities alongside the World Bank. 2. The working group established by the PC in accordance with Resolution PC6/2010/6 (Working Group), in its recommendations to the PC at its seventh meeting (Annex II, paragraph 5 of the Working Group's first meeting report), stated: "In view of the piloting phase of the multiple delivery partners, the FMT should consider presenting a draft resolution to the Participants Assembly for its consideration and subsequent adoption, as opposed to proposing amendments to the Charter as specified in paragraph 6 of Resolution PC6/2010/6, in order to provide the legal basis for carrying out the pilots referred to in paragraph 2 above." 3. The FMT presented the draft Resolution and explained the sequence and the process for adopting this Resolution. The Participants Assembly decides that: 1. In the event that the PC adopts the recommendation of the Working Group for piloting multiple delivery partners under the Readiness Fund, the terms and conditions contained in the Appendix to this Resolution shall apply, subject to the World Bank internal approval. 2. The FMT shall circulate this Resolution, with appropriate adjustment if necessary, to all the Participants immediately after adoption of the PC Resolution that approves piloting multiple delivery partners. This Resolution shall become effective if there is no objection from any Participant within thirty days after the circulation of this Resolution by the FMT. 12 March 2, 2011 Appendix Terms Applicable to the Arrangement for Piloting Multiple Delivery Partners 1. Application and Relationship with the Charter Establishing the FCPF The provisions set out in this Annex shall apply to the pilots for the purpose of multiple delivery partners (Delivery Partners) under the Readiness Fund approved by the Participants Committee and shall take precedence over the relevant provisions in the Charter Establishing the FCPF (Charter) 2. Delivery Partners (a) The activities to be carried out by the Delivery Partner shall include, but not limited to, providing technical support to REDD Country Participants, entering into Grant Agreements, and supervising the activities under the Grant Agreements. (b) Each Delivery Partner shall follow its applicable policies and procedures in managing and supervising the use of the funds transferred to the Delivery Partner by the Trustee of the Readiness Fund. (c) Without prejudice to subparagraph (b) above, the Delivery Partner shall be accountable to the Participants Committee for funds transferred by the Delivery Partner to a REDD Country Participant and, where applicable, in accordance with the decisions adopted by the Participants Committee. 3. Trustee of the Readiness Fund For the purpose of the funds transfer to the Delivery Partners, the Trustee of the Readiness Fund shall perform the following functions: (a) The Trustee of the Readiness Fund shall, subject to the availability of resources in the Readiness Fund and the terms of the Donor Participation Agreements, make commitments and transfers to the Delivery Partners of such resources, in accordance with the decisions and approval of the Partnership Committee for allocation of the Readiness Fund resources. Commitments and transfers of the Readiness Fund resources to the Delivery Partners will be made in the manner agreed between the Trustee and the Delivery Partners. (b) Upon transfer of funds to the Delivery Partners, the Trustee of the Readiness Fund shall have no responsibility for the use of the Readiness Fund resources transferred and activities carried out therewith. The Trustee of the Readiness Fund shall require, and accept from, the Delivery Partners certain periodic financial reports, as agreed between the Trustee and the Delivery Partner. 13