TNC Forest Carbon Strategy Draft for Discussion

TNC Forest Carbon StrategyDraft for Discussion February 2010

Contents • Introduction • Current Situation • Overall TNC Strategy • Key Actions and Goals to 2013 • Leadership Team and Resource Needs • Key Risks and Challenges

Introduction • This document summarizes The Nature Conservancy’s strategy for achieving substantial reductions in carbon emissions from the forest sector, while creating benefits for communities and other stakeholders, protecting critical watersheds, and preserving biodiversity. • This is an integrated strategy including field projects, national programs, policy development, science and other activities. • The plan is at a strategic level, and is not a work plan or for each area of work; these more detailed plans are developed by each program within the forest carbon team. • The strategy addresses Reduced Emissions from Deforestation and Degradation, reforestation, and improved forest management (often called “REDD+”). The plan includes agricultural threats to forests such as expansion of oil palm and cattle ranching, but not agricultural practices themselves such as nitrogen emissions from cultivation practices and methane emissions from ruminants. The strategy also does not include TNC’s work on grasslands, wetlands, marine systems and other habitat types. • This strategy was developed through extensive discussion with field programs, global programs and senior management of the Conservancy, as well as dozens of consultations with external NGOs, governments, multilateral agencies, private corporations and investors, foundation and individual donors, and scientists.

Contents • Introduction • Current Situation • TNC Overall Strategy • Key Actions and Goals to 2013 • Leadership Team and Resource Needs • Key Risks and Challenges

We Are Here The Climate and Forest Challenge Atmospheric Concentrations of Carbon Dioxide • The destruction and degradation of tropical forests averages 13 million hectares annually, contributes approximately 15% of annual greenhouse gas emissions – more than the entire global transport sector – and threatens the livelihoods of local communities, critical watersheds and biodiversity. • The primary drivers of this trend include expansion of commercial agriculture (e.g. oil palm and cattle ranching), illegal and unsustainable logging practices, fires, subsistence agriculture and fuel wood harvesting. • Addressing emissions from the forest sector is critical to achieving the scientifically-recognized objective of limiting global temperature increases to two degrees Centigrade, in addition to providing important community and biodiversity benefits.

The Goal: 3 billion tons REDD+ by 2020 The Conservancy shares the view that halving deforestation and degradation by 2020 as an ambitious yet achievable goal, as part of a comprehensive approach to reducing emissions from all sectors CO2e Tons Millions 3 G tons

Theory of Change Best practices and support for implementation widely available Learning on Country Paths to Success Shape Global Policy Frameworks Funding and incentives for forest carbon in place (Public / Market) Scale Up Implementation to 2020 Goal Demonstrate REDD+ in Strategic Portfolio Attract Public and Private Capital Engage Govt, Industry on Supply Chains Carbon impact of global products reduced

Theory of Change: Description • Demonstrate REDD+ in a “strategic portfolio” of forest nations. REDD is an unproven and complex approach, and we must begin by showing how it can succeed in specific places, including sub-national pilots and national “readiness” activities. • Promote learning on country pathways to success. We must draw from successful examples to support implementation in a broader set of locations, and to inform policy makers on the appropriate design of laws and regulations. • Shape global policy frameworks. We must create the necessary public and market financial incentives to support the high cost of REDD+ implementation, working at the global level and in key countries. • Attract public and private capital. We must structure financial mechanisms and investment opportunities to direct the flow of funding and incentives to priority needs. • Engage governments and industry on supply chain practices. We must work to reform public policies and corporate procurement and production practices to promote the supply of lower-carbon products.

Costs and Funding Halving deforestation could cost $50 billion annually by 2020. Public funding will be dominant in the early years but market / pay-for-performance funding will likely be needed to achieve this magnitude of funding. Potential REDD Funding Potential REDD Implementation Costs Potential REDD Funding US$ Billions US$ Billions Market / Pay for Performance Market / Pay for Performance Readiness Public Stabilization Catalyst Source: TNC analysis from REDD+ Mechanism Proposal.

Major Barriers to Success • Magnitude of funding / compensation needed to implement REDD+, as described on prior slide • Perception that offsets reduce pressure on emitters and dilute overall climate goals • Forest nations’ willingness and capacity to overcome the drivers of deforestation and deliver on emissions reductions • Environmental credibility of REDD+ emissions reductions (additionality, leakage, permanence, measurement systems) • Complexity of equitably sharing benefits with communities and other stakeholders

Key Opportunities A broad group of countries support REDD+ as an essential part of an eventual climate agreement, as reflected in the Copenhagen Accords and the near completion of the REDD+ negotiating text during the Copenhagen conference. Five nations committed $3.5 billion for interim REDD implementation from 2010-2013 until longer term programs are put in place. (US, Norway, Japan, France, UK, Australia). Estimates from Project Catalyst (McKinsey) and the UN Foundation indicate that REDD+ can deliver a disproportionate share of overall needed emissions reductions (24% of reductions versus 15% of the emissions sources). Advances in technology, measurement methods, and practical experience in implementing REDD projects (like Noel Kempff) over the past decade have led a growing community of scientists to conclude that the environmental integrity of REDD activities can be ensured with a high level of confidence and should no longer be considered a limitation to inclusion of REDD in a global solution to climate change.

Strategic Framework What are the Conservancy’s relative strengths and gaps? What is needed to achieve the theory of change? What are the strengths of other players? Conservancy Strategic Focus

Key Skills Needed • Forest conservation and restoration • National industrial development strategy • Applied science methodologies and practices for measuring carbon emissions • Community development / poverty issues • Learning and training • Policy design, constituency building and advocacy • Corporate/industry engagement on supply chain practices

Landscape of Players (examples) Industrial Development / Business Technical Winrock Imazon ICRAF McKinsey World Bank FCPF UNREDD Bilaterals Corporations Investors Funders Brazil Indonesia Mexico CRFN Forest Nations REDD+ WWF, CI, WCS, IPAM, EDF, NRDC CARE Oxfam Environmental NGOs Social, Community

TNC Capabilities Assessment Gaps • National industrial development strategy (e.g. World Bank and McKinsey are stronger) • Community development and poverty issues (e.g. Oxfam and World Education are stronger) • Learning and training (e.g. consulting firms like McKinsey are stronger) • Policy advocacy and communications (e.g. UCS and CI have greater capability) • Corporate and industry engagement on demand for high carbon products form the sourcing side (as opposed to the supply side described above as a strength) (e.g. WWF, CI, Greenpeace are stronger) • Geographically, among the major forest nations, the Conservancy is not as deeply invested in Africa, Indochina or southern Asia as other groups (e.g. WWF, CI, WCS) Unique Strengths • On-the-ground expertise with forest and agricultural dynamics and conservation in over 30 countries • $40 million portfolio of implemented forest carbon projects, including the only third-party verified REDD project in the world (Noel Kempff) • Applied science capability, credibility, and standards • Complex project and deal development • Highly influential network of supporters and influencers in the U.S. and globally • Policy capability informed by on-the-ground experience • Engagement with corporations to implement practical, low-carbon, business solutions on-the-ground in forest nations (particularly Brazil and Southeast Asia) • Geographically, among major forest nations, the Conservancy is deeply invested in Latin America (e.g. Brazil, Mexico, Andes), Indonesia, Pacific Islands, China Australia, and the U.S.

Partnerships In the gap areas, the Conservancy will defer to or partner with other organizations; or in some cases build deeper capability itself if necessary. Retail Partnerships • In a “retail” partnership, the Conservancy works with others on a specific program, strategy or project. • Retail partnerships are prevalent at the Conservancy and we will continue to actively pursue them for our forest carbon work. • For example, in the Berau Forest Carbon Program we are working with World Education on community issues, ICRAF and Winrock on carbon accounting issues, and WRI on oil palm issues, among others. And in our policy work we regularly work with other environmental groups like EDF and NRDC on advocacy activities. Wholesale or “Strategic Partnerships” • In a “strategic” partnership, the Conservancy works with a particular organization in a broader and deeper fashion than the retail partnership. For example, work on a specific need across multiple geographies (e.g. develop low carbon development strategies in three geographies), or create an integrated platform across two organizations (e.g. connect field work, policy design, constituency building and advocacy to promote US and global climate policies). • Strategic partnerships are much more complex to design and manage effectively and are therefore relatively rare, but have the potential for great impact if well executed. • The Conservancy will continue to evaluate opportunities for strategic partnerships, but proceed cautiously due to the risk and complexity of making these partnerships successful. • An initial assessment of the opportunities for strategic partnerships indicates that the greatest opportunities may be with non-traditional allies, such as a business consulting firm, then with other environmental organizations.

TNC Summary Strategy • Cornerstone: demonstrate how REDD+ can be implemented at scale in a strategic portfolio of specific places with high environmental integrity • sub-national demonstration and national readiness • Draw from the demonstration experience to support a broader group of countries in building national programs • Leverage the forest country experience to shape policy: • promote practical and effective laws and regulations • provide confidence to funders to invest $billions needed • Partner and build capabilities to address key TNC gaps • Low carbon development, community / poverty, learning, industry practices and public policies for demand drivers, non-TNC geographies

Phasing to 2020 Goal (Overall, not Just TNC) Initial REDD+ Policy and Demonstration 2010 - 2013 Scale REDD+ Implementation / Refine Policy 2014-2020 High-Level Goals • Selected sub-national pilots and national readiness plans developed and beginning implementation • Learning and training programs created to support broader implementation • Adoption of initial policy frameworks and regulations in the U.S. and globally • Initial public funding commitments invested • By 2013, the trajectory of forest sector emissions is bending down High-Level Goals • Scale REDD+ implementation: • to national level efforts • to additional countries • Learning and training programs support scale efforts • Refine policies and regulations • Tighten overall emissions reductions targets • Refine policies and regulations to reflect ongoing experience • Major market / pay-for performance funding expands to complement public funding; role of private investment expands • By 2020, forest sector emissions are half the 2010 level The remainder of the plan focuses on actions and goals to 2013.

Key Accomplishments to Date The Conservancy’s work over the next three years will build on a strong track record of leadership and accomplishment in forest carbon. A $40 million portfolio of forest carbon projects in Bolivia, Belize, Brazil, Paraguay and the United States that are projected to reduce or sequester more than 17 million tons of CO2e; Development of the world’s first and only REDD project that has been verified by a third party based on international standards (Noel Kempff Climate Action Project in Bolivia); Review and development of leading forest carbon market standards, including: the Climate, Community & Biodiversity (CCB) Standard; the Voluntary Carbon Standard (VCS); the U.S. Regional Greenhouse Gas Initiative; and the California Climate Action Reserve; A unique role as the only NGO investor in the World Bank-managed Forest Carbon Partnership Facility, and a seat on the Facility’s governing body; Creation of a training program on REDD basics that has been delivered to over 150 people and is being distributed via partners (FCPF, UN-REDD) and an internet course to meet the high demand for its content; and Active leadership in policy forums on forests internationally, including a key role in the U.S. Climate Action Partnership.

Resources Assumptions The remainder of the plan considers two resource scenarios – what can be done with current resources and what we can accomplish with a substantial expansion of capacity. Current Resources • Approximately 70 FTEs, current staffing level Expanded Resources • Additional 50 FTEs, invested in key strategic focus areas and locations, as described on the following pages

1. Demonstrate REDD+ Strategic locations for the Conservancy to demonstrate REDD+ are driven by key criteria. Criteria Priorities Deforesting Tropical Countries • Top priorities for large scale and national demonstration: • Indonesia, Brazil Amazon • Next priorities: (DRAFT, subject to further discussion) • Mexico, PNG • Peru, Panama, Colombia • Other areas with REDD+ activity: • Belize, Bolivia, Chile, Ecuador, Guatemala Reforestation and Improved Forest Management • U.S. • China • Brazil, Atlantic Forest • Magnitude of opportunity for emissions reductions or sequestration • Biodiversity value • Leadership commitment to REDD+ and governance • TNC capacity and commitment in country • Strength of other organizations • Global strategic value • Portfolio diversity – realms, deforestation drivers, country size

Magnitude of emissions Source: Climate Analysis Indicators Tool (CAIT) Version 7.0. (Washington, DC: World Resources Institute, 2010).

Appropriate scale of effort Smaller More Feasible Larger More Impact Single Land Use (e.g. Protected Area; Concession) District / Municipality State / Province National • It’s critical to work at multiple scales simultaneously, including sub-national and national • Near to medium term demonstration results are best achieved at the level of a limited-size political jurisdiction (e.g. District or Municipality in Indonesia and Brazil). These entities are often millions of hectares – the size of small countries – and offer the opportunity to demonstrate success in the context of working with governments to address multiple threats across multiple land uses, which is a good microcosm for what it will take to succeed at the national level. At the same time, this scale is much more manageable to succeed versus large States or Provinces or nations as a whole. • In parallel with the demonstration programs, “readiness” efforts at the State/Province and national levels are also important. • The relative effort at these different scales will shift over time, beginning with predominant focus on the demonstration scale in the early years and shifting towards the larger and eventually national scales over time. • The Conservancy does not see a high strategic value in undertaking REDD projects at the scale of single land use, although some of these projects may be pursued opportunistically, with rigorous carbon accounting standards, to generate funding for conservation projects.

The REDD+ “Value Chain” District / Municipal Level State / Province Level National Level Forest Sector Dynamics Low Carbon Development Strategy Carbon Accounting • REL • MRV Community Involvement & Benefit Sharing Legal & Institutional Framework Funding Leadership and Project Management Multiple players are often involved, for example: • REDD Countries • Bilaterals • FCPF / World Bank • UN REDD • CI, WWF, other NGOs • McKinsey • Winrock

Engagement models for TNC Lesser TNC Role and Investment Deeper TNC Role and Investment 3. Lead major Components With Partners 2. Lead Forest Dynamics Component 4. Lead Overall Effort 1. Ad hoc adviser • Participate in national REDD dialogue • Bring in-country on the ground forest conservation experience to shape REDD framework and low carbon development strategy • Contribute as possible to other elements of readiness value chain (PNG Example?) • Lead studies and strategy related to forest dynamics as member of readiness team • Contribute as possible to other elements of readiness value chain (IFCA Example?) • Lead forest sector analysis and other areas with key partners, e.g. • Low carbon development strategy with McKinsey • Carbon accounting with Winrock • Community involvment with CARE • Legal and Institutional with Baker Mckenzie • Lead / project manage overall effort on behalf of government • Lead selected components and contract partners for other components • Could partner on project leadership, e.g. with McKinsey • TNC programs can participate as ad hoc adviser in many locations • Focus deeper lead efforts in highest priority demonstration locations

Countries Planning to Enhance Forest Stocks Scaling up reforestation and IFM in the U.S., China and Brazil Atlantic Forest will require expanding beyond property-based projects to regional or national approaches tied to national emissions reductions commitments. Large Scale Efforts Small Scale Efforts • Comprehensive set of activities: • Public lands management • Public programs and incentives (e.g. Grain for Green in China, watershed committees in Brazil, Conservation Reserve Program in the U.S.) • Scalable offset models • Tie forest sector emissions reductions to national climate commitments to build the investment case for forests • Opportunity for material improvements in national carbon stocks • Offset projects for individual properties • Carbon accounting for each project • High transaction costs, unfavorable economics, leakage issues, unlikely to scale

Demonstrate REDD+ (Current Resources) Key Actions Outcomes • Demonstrate REDD+ in Indonesia • Focus: Lead Berau Forest Carbon Project (BFCP) • Advise E. Kalimantan, other Provinces, National level • Demonstrate REDD+ in Brazil • Focus: Lead Sao Felix Xingu demo project • Advise partners on Contraguicu demo project • Advise Sates of Para and MatoGrosso • Advise national government leadership • Initiate actions in other tropical forest countries • Lead components in Mexico and PNG, • Develop World Bank FCPF • Launch Carbon Fund • Improve readiness activities • Shape future funds structure • Enhance forest carbon sinks in the U.S., China, and Brazil Atlantic Forest • Develop plan for U.S. forest carbon sinks • Develop plan for China forest carbon sinks • Update and implement Atlantic Forest Reforestation plan • Raise private carbon finance for selected Conservancy conservation projects • Valdivia, Lower Mississippi Valley, others • Provide guidance, standards and review of Conservancy of forest carbon projects. • BFCP funded with ~$60 million and begins implementation by 2011 • Province-level REDD plan developed for East Kalimantan • SFX program designed, funded and begins implementation by 2011 • Contraguicu program designed, funded and begins implementation by 2011 • State-level REDD plans developed for Para and Mato Grosso States • Initial plans developed and activities implemented in Mexico and PNG • Carbon Fund becomes operational with $100 MM • Plans developed for U.S., China, with initial activities implemented • $10 million raised for Conservancy projects • Guidelines, standards, and process in place to ensure high environmental quality of forest carbon projects

Demonstrate REDD+ (Expanded Resources) With additional resources the Conservancy could invest more deeply in key strategic areas, assume a stronger leadership role in country implementation, and achieve much greater results on a more rapid timeframe. • Advance Berau demonstration, and leadership role to support the Provinces and National level efforts to achieve 26% target (5 FTEs) • Advance Sao Felix and Contraguicu demonstrations, and leadership role to support Para and Mato Grosso States, and National level efforts to achieve 36% target (6 FTEs) • Leadership role in readiness in [one to three of PNG, Mexico, Peru, Panama, Colombia] (4 FTEs) – Draft countries, subject to further discussion. • Implement plans for enhancing carbon stocks in the U.S., China, and Atlantic Forest, including additional national-level support in China (5 FTEs).

2. Promote Learning Opportunities for Leverage • Documentation of experiences • Development of intellectual capital / learning from experiences • Workshops, conferences, training sessions • Sophisticated knowledge management system for sharing and disseminating learning • Advisory capability to provide advanced support to countries on readiness and REDD+ implementation Key TNC Challenges • Very limited available capacity • Not a demonstrated TNC capability • In the near term, TNC can marginally expand its learning efforts • In the longer term, we will need to invest more deeply and build or partner to develop the skill set and capacity for meaningful leverage

Promote Learning (Current Resources) Key Actions Outcomes • Document and disseminate Conservancy experiences with forest carbon • Develop additional casebooks and other materials on Conservancy forest carbon programs (e.g. Berau, Sao Felix, Atlantic Forest • Develop intellectual capital and learning from Conservancy and external forest carbon experience • Prepare guidance on approach to implement forest carbon in key areas (REDD program design, REDD Carbon Accounting, and Reforestation / IFM projets and programs) • Conduct workshops, conferences and training to share knowledge • Conduct internal training sessions through Climate College • Expand REDD training for external audiences via online courses and outsourced capability • Sponsor annual REDD readiness and implementation symposium with internal staff and selected external participants • Case books and other documents completed for major Conservancy projects • Guidance completed and periodically updated for key areas • Two Climate College sessions completed per year • Broader access available to REDD training capability via online version and third party delivery • Conservancy sponsors REDD readiness and implementation symposium annually

Promote Learning (Expanded Resources) With additional resources the Conservancy could invest more deeply in existing efforts and build, with partners, a sophisticated knowledge management and advisory capability to share knowledge and support countries on REDD+ implementation. • Invest more deeply in existing areas (2 FTEs): • Case books • Intellectual capital development • Training, workshops, learning exchanges • Engagement with countries through the FCPF • Create “Center for REDD Implementation” (5 FTEs): • Sophisticated knowledge management system • Advisory capability to support country implementation

3. Shape Policy Current Situation • Global / UN framework • Copenhagen disappointing, but accords include some useful elements which will serve as the basis for action over next year+ • Country emissions reductions commitments • Interim funding commitments (see below) • Future action to shift to non-UN forums; no major agreement expected in Mexico; most action expected at country level • Momentum for forests • $3.5 billion commitment 2010-13 ($1 billion from US) • $30 billion for all sectors 2010-13 • Progress on REDD text • U.S. • Political environment challenging for cap and trade, although still an Administration priority and continued corporate support (USCAP) • Alternative options possible, e.g. energy bill without cap and trade • State / regional initiatives moving forward 2010 Strategy • Remain engaged with global policy, but shift focus to include non-UN forums (e.g. G20, MEF) • Pursue realization of interim global funding commitments for REDD • $3.5 billion / $1 billion from U.S. • U.S. appropriations process • Pursue opportunities for national level progress, vis a vis Copenhagen commitments (e.g. U.S., Brazil, China, Indonesia) • In U.S., • continue focus on cap and trade • prepare contingency plans in the event of no cap and trade • Continue constituency building efforts in key U.S. States • Pursue California and regional initiatives

Shape Policy (Current Resources 1 of 2) Outcomes Key Actions • Advocate for U.S. climate policy with strong emissions reductions commitments and financial incentives for REDD+ • Mobilize constituencies in key U.S. States in support of Federal climate policy • Advocate for comprehensive national cap and trade program, directly and with key coalitions (USCAP, TFCC) • Prepare for alternative scenarios without cap and trade legislation • Advocate for FY10 and FY11 appropriations for REDD+, with Congress and Administration • Work with US agencies to develop prototype standards and regulations for REDD+, and to support Conservancy vision for U.S. sinks • Engage in rule-making and implementation of California cap and trade program, and other regional U.S. efforts • Comprehensive U.S. cap and trade legislation enacted in 2010, or at least by 2013 • REDD+ funding of $1 billion through 2013 - w th or without comprehensive cap and trade enactment in 2010 • Groundwork laid on REDD+ standards and regulations to allow for more rapid implementation of cap and trade when it is enacted • U.S. public land management programs, Farm Bill programs, and domestic offset proposals advance TNC vision for U.S. forest carbon sink • California climate program includes practical and realistic regulations for forest carbon which can serve as a model for U.S. legislation

Shape Policy (Current Resources 2 of 2) Outcomes Key Actions • Advocate in appropriate international forums for strong emissions reductions commitments and financial incentives for REDD+ • Remain engaged in UNFCCC, MEF, G20 and other forums on evolving multilateral framework • Pursue realization of interim funding commitments of $3.5 billion, and advocate for expanded commitments as part of the $30 billion three-year overall climate funding commitments in the Copenhagen Accords • Advise and support selected nations on the development of their REDD+ programs (see Demonstrate REDD+); and assist these countries in shaping their international climate positions. • Identify strategic countries for deeper international policy engagement (e.g. Indonesia, Brazil, U.S., China priorities from Demonstrate REDD+, and also possibly additional countries like Costa Rica) • Advise and support on REDD+ design and implementation (see Demonstrate REDD+) • Shape country commitments and positions in international forums (Note: current resources very limited so efforts will be preliminary under Current Resources scenario) • International agreement (non-binding) reached by 2013 with collective commitments that will limit global warming to 2 degrees Centigrade, and includes adequate financial incentives to halve deforestation by 2020 (at least $20 billion annually by 2020) • Interim package of at least $3.5 billion is invested in priority REDD+ activities from 2010 to 2013. • Selected set of strategic countries identified as TNC priorities • Selected TNC staff re-aligned to support priority countries • Initial efforts to support countries in designing effective national plans and international policy positions

Shape Policy (Expanded Resources) With additional resources the Conservancy could invest more deeply in key existing efforts: • Policy design for U.S. and international REDD+ framework, and public funding strategies and mechanisms (2) • Constituency building for U.S. climate legislation (2) • Rule-making to implement legislation in California and with U.S. agencies to create models for U.S. policy (1) • Advise and support key countries on REDD+ programs and international policy positions (5 FTEs already included in Demonstrate REDD+): • Brazil, Indonesia, China (possibly others like Mexico) • Advise on national program design and implementation • Shape country commitment and positions in international forums

4. Attract Capital Current Situation • Public Funding • $3.5 billion commitment for REDD+ from 2010-13 ($1 billion from US) • $30 billion for all climate sectors 2010-13, including the $3.5 billion (opportunity to increase REDD+ share) • $100 billion annual goal by 2020 (loose commitment), including public and private s • Priorities, mechanisms, and institutions unclear for disbursement of funds • Private investment • Currently extremely small for REDD+ • Experimentation will continue, but unlikely to grow significantly in the near term given policy uncertainty and other risks • Will need to be the predominant source of funding to achieve 2020 goal of halving deforestation, assuming public funding will not be adequate Strategy • Advise on the priorities, mechanisms, and institutions to implement the interim REDD+ public funding commitments • Create a pubic funding architecture that can effectively accommodate larger flows in the future • Structure the public funding programs to pave the way for private finance (as opposed to being a separate public funding side-show) • Work with private corporations and investors to create selected models or how private investment can fund REDD+ at scale • Solicit funding for Conservancy priorities and programs

Attract Capital (Current Resources) Key Actions Outcomes • Shape the global architecture and spending priorities for REDD+ • Engage in multi-country discussions on the priorities, mechanisms and institutions for implementing public funding for REDD+, including the initial $3.5 billion commitment for REDD+ in Copenhagen • Advise and support multilateral institutions such as the FCPF, FIP and others on the priorities, design and implementation of their funding programs. • Advise and support bilateral agencies , including U.S. agencies, on the priorities, design and implementation of their funding programs. • Advise and support REDD+ countries on their priorities and interests for REDD+ funding • Direct public funding to Conservancy priorities • Engage multilateral institutions, bilateral agencies and REDD+ countries to direct public funding to Conservancy priority countries and efforts, including to TNC programs • Raise private finance for Conservancy priorities • Engage with corporations and investors to raise early stage private finance for TNC strategic portfolio, and to demonstrate scalable private investment models • The $3.5 billion commitment to REDD+ is invested in high priority countries and efforts, through practical and effective mechanisms and institutions • Mechanisms and institutions are developed that can effectively implement large magnitudes of future public funding • The public funding architecture invests in readiness and early implementation in a manner that supports a medium term transition to greater market / pay-for-performance funding for REDD+ • Conservancy strategic portfolio of REDD+ demonstration areas receives disproportionate public funding • Conservancy programs in strategic portfolio receive substantial public funding • $10 million in private financing invested in Conservancy priority programs • Models are created for how private finance can support REDD+ at a meaningful scale, once the anticipated policy environment and other risk issues are addressed

Attract Capital (Expanded Resources) With additional resources the Conservancy could invest more deeply in our public funding staff globally and in priority countries in order to more effectively shape the global architecture and direct funding to Conservancy priorities and programs. • Public funding staff on global team, including Europe and Japan (3 FTEs) • Public funding staff in priority countries (e.g. Brazil, Indonesia, other priority countries) (4 FTEs)

5. Engage on supply chain Current Situation Strategy • Addressing the demand for products that drive deforestation is critical for the theory of change, for example illegal and unsustainable timber products, oil palm, beef, soy • Three key areas of engagement: • Solutions provider for producers to enable them to supply sustainable, low-carbon products • Public and industry policy engagement: • Public policy / trade (e.g. Lacey Act) enforcement, FLGT) • Industry forums (e.g. FSC, HVCF, Forest Dialogue, RSPO, Responsible Soy) • Public policy / trade • Engagement with individual corporations on designing and implementing sustainable low-carbon procurement and production policies • Very broad area, lots of players involved, TNC currently has limited capability. • Focus on solutions provider role in priority locations, building on Conservancy success with timber products in Southeast Asia and soy and cattle ranching in Amazon • Build a small core team to: • Track public and industry policy initiatives; selectively leverage Conservancy strengths to support these efforts • Work with partner programs on demand-side corporate engagement (e.g. WWF, CI); selectively leverage Conservancy strengths to support these efforts • TNC focus on solutions provider to corporations and producers in the field versus driver of supply chain pressure

Engage on supply chain (Current Resources) Key Actions Outcomes • Engage with corporations and producers in priority REDD+ countries to create models for sustainable, low-carbon commodity production • In Amazon, work with cattle and soy producers on forest code compliance, including registration process and financial and other incentives (e.g. loan facilities) to support producer compliance • In Indonesia and other Southeast Asian countries, work with timber producers on moving towards legal, reduced impact, and certified logging practices. • Participate in industry forums such as FSC and HCVF, and support Lacey Act enforcement. • Twelve municipalities in Para and Mato Grosso States of the Amazon are brought into compliance with the forest code. • Lending facility operating effectively within development bank of Brazil (BNDES) to finance forest code compliance costs • Five timber concessions in East Kalimantan, Indonesia become FSC certified • No specific outcomes given limited current capacity

Engage supply chain (Expanded Resources) With additional resources the Conservancy could invest more deeply in our solutions provider capability, and build a small core team to selectively leverage Conservancy strengths to influence public policies, industry policies and corporate practices that promote sustainable, low-carbon commodity production. • Deepen solutions provider capability, including creation of oil palm capability; enhancement of cattle, soy and timber capabilities; networking of these capabilities internally and with partners (5 FTEs) • Create core team within global programs (2 FTEs): • Track public and industry policy initiatives; selectively leverage Conservancy strengths to support these efforts • Work with partner programs on demand-side corporate engagement (e.g. WWF, CI); selectively leverage Conservancy strengths to support these efforts

Key Supporting Functions • Marketing and communications • Awareness and support of TNC efforts with funders and key influencers • Advancing the policy agenda • Engagement with internal constituencies • Philanthropy • Private fundraising with individuals, foundations, and corporations • Legal • Project design, transactional support, and contracts • Human Resources • Recruitment, staff development, other • Finance and Administration • Budgeting, grant support, general admin support

Key TNC 2013 Outcomes (Expanded Resources) • The Berau Forest Carbon Program is funded and implemented, reducing emissions by 2 million tons annually and providing a model for Province and National REDD+ implementation in Indonesia. • The Sao Felix Xingu program is funded and implemented, providing a model for State and National REDD+ implementation in Brazil. • The U.S., China and Brazil Atlantic Forest are implementing reforestation and improved forest management strategies to achieve material improvements in forest carbon stocks nationally. • The Conservancy's "Center for REDD Implementation" provides a learning platform for documenting experiences, sharing knowledge, and providing direct advisory support to forest nations to design and implement REDD+ programs. • U.S. climate legislation is enacted including emissions reductions of at least 20% from 2005 by 2020 and at least $15 billion annually in funding and financial incentives for REDD+ by 2020. • An international framework (non-binding) is agreed to with collective commitments to limit warming to 2o C, and includes financial incentives to halve deforestation by 2020 ($30 billion annually by 2020), and $10 billion per year in public funding by 2015. • Public funding commitments are effectively dispersed and implemented in priority REDD+ locations and activities through efficient funding mechanisms and institutions, and models for private / market REDD+ funding have been established. • Annual net deforestation and degradation is reduced by 20% from historical levels, avoiding annually 1.2 billion tons CO2 emissions and 2.6 MM hectares of deforestation

Key TNC FY 2011 Priorities Fund and initiate implementation of the Berau Forest Carbon Project, and provide limited support to planning efforts in East Kalimantan and at the National level. Complete the business plan and team for the Sao Felix Xingu project, Brazil, and provide limited support to the States of Para and MatoGrosso. Develop a Conservancy point of view on pathways to REDD+ success and initiate an annual REDD+ learning exchange (“REDDex”) Achieve passage of U.S. cap and trade legislation, and reach agreement on a global framework for emissions reductions and REDD+ funding Influence the design of the mechanisms for the $3.5 billion Copenhagen commitment and future public funding, and direct a substantial portion of funds to Conservancy priorities and programs

What The Forest Carbon Strategy Will Not Do • Demonstrate deep REDD+ implementation in more than three to five countries • Actively develop a “pipeline” of single-land-use projects (although we will opportunistically monetize carbon value in selected TNC projects) • Build a team to advise corporations on their procurement practices • Pursue emissions reductions opportunities from agricultural practices such as nitrogen from cultivation practices and methane from ruminants (although we will address agricultural threats to forests such as expansion of oil palm and cattle ranching). • Pursue opportunities in grasslands, wetlands, marine systems and other habitat types

Leadership Team The forest carbon strategy is led by an experienced and diverse team across the organization. Global Climate Team • Greg Fishbein, Managing Director of Forest Carbon • Jon Hoekstra, Sarene Marshall, Duncan Marsh, Eric Haxthausen, Jody Thomas Global Policy and Public Funding Team • Glenn Pricket, Andrew Deutz, Bob Bendick, Sascha Muller-Kraenner Latin America • Miguel Calmon, Ian Thompson, Fernanda Carvahlo, Irene Suarez, Lenin Corrales and Maarten Keppelle Asia Pacific • Jack Hurd, Dicky Simorangkir, Wahjudi Wardojo, Lex Hovani, Gerald Miles North Asia / China • Shuang Zhang, Zhang Xiaoquan

Estimated Staff: Current & Expanded Resources • The forest carbon team currently includes approximately 68 full time equivalent staff across the organization. • Under the Expanded Resources scenario, this would grow by approximately 50 staff.

TNC Forest Carbon Strategy Draft for Discussion