Annex 4 | Value for Money
The MFF Programme’s value for money is assessed based on the United Kingdom’s Foreign, Commonwealth and Development Office’s (FCDO) ‘4E’ approach, which provides a framework for analysis based on four indicators: Economy, Efficiency, Effectiveness, and Equity1. The assessment of the indicators is meant to provide insight into the connection between input, outcome and impact achieved through the programme, and means to maximise impact per input invested.
The programme’s value for money remains as envisaged in the business case.
In its third year, the MFF programme focused on growing its pipeline and on implementing the new Forestry Strategy 2.0, which was passed in Q1 of 2023. Particular attention was paid to developing a pipeline of opportunities in Africa and within the broader scope of the new strategy.
Economy
Travel expenditure remain higher than during the covid period. Such expenditures are, however, necessary to identify and evaluate investment opportunities and to monitor portfolio companies. Traveling expenses were minimized by maintaining cost-saving ways of working at a distance that were piloted during the pandemic and remain in use. The program strived to combine multi-purpose trips within the same country and regions, such as to minimize traveling costs and carbon impact. This approach applied to short- distance travels by train, such as FMO’s travel to London for MFF’s Half Year Meeting.
Fee rates used for consultants under the TA facility have remained fixed at the levels agreed in early 2022 (despite a period of high inflation). Furthermore, the TAF programme management structure has continued to evolve with an intention to deliver value for money, as the Facility Director position has been eliminated and this time converted in a cost-neutral manner to time for other (less expensive) positions. Time delivered by IDH has been invoiced at cost, such that the overall level of effort for IDH funded activity is in effect greater than the number of days paid for in relation to TA support to &Green.
Efficiency
The expansion of the MFF pipeline took place rapidly, both in terms of expanding the size of the pipeline and in terms of expanding its geographic and sectoral diversity. This was made possible by efficiently using FMO’s existing network, and by carrying a series of targeted on-site business development visits. We are pleased to see these results as the expansion of the pipeline, notably in the African continent, was identified as a priority objective for 2023 during the 2022 Annual review. The expansion of the pipeline enabled MFF to comfortably meet its output targets for CIPS and FPs, produced, and allows the program to have a good start in 2024. For the Development Contribution (DC) facility, the successful contracting of Treevive in 2022 helped to better define the DC investment process within FMO and has enabled a more efficient process in 2023, where two DC opportunities progressed to the contracting phase.
As mentioned in other parts of the Annual Report, contracting however remains challenging and lengthy within the forestry sector. Contracting in forestry can be lengthy. Amongst other, particular effort is placed on ensuring the implementation of ESG standards and the financial feasibility of the business models. Contracting will be a priority in 2024, and the program is expected to make its target by year end.
FMO and the UK Government agreed in 2023 to add a mandate for the MFF TA Facility to deliver pre-investment TA to pipeline opportunities. This will help MFF deliver on the program outputs more efficiently, using TA as means of early-stage engagement and strengthening of promising opportunities. The sector more broadly is also expected to benefit as TA projects are translated into knowledge products, further advancing the program’s aims to catalyse investment. For TA to existing clients, in 2023 IDH was able to implement a number of TA projects with &Green investees, leveraging existing knowledge and relationships that existed between IDH and the fund manager and investees. Several projects are also being executed under one ‘Task Order’ reducing administrative effort, overall resulting in a more efficient use of TA resources. In 2023, the LCIP delivered a much greater volume of Knowledge Products, Convening and Events deliverables in 2023 compared to the program targets set, and this higher delivery rate is expected to continue in subsequent years.
Effectiveness
The MFF program aims to scale the forestry sector by mobilizing additional financing into high impact companies and funds. In line with this ambition, a major achievement of 2023 was the mobilization of USD 189.35 mln by &Green Fund in concessional financing from the Green Climate Fund (GCF). This funding was provided as part of &Green’s strategy to build a blended finance structure to mobilize private investments. Further mobilization is thus expected as a result. Moreover, in the DC portfolio, Treevive is currently in the contracting phase to secure an additional investment of EUR 2.5 mln. This would be the equivalent of what was provided to them by MFF in 2022. It is early in the program for extensive outcome level results to be observed, however, these developments illustrate MFF’s catalytic impact.
Equity
In 2021 a gender section was added in the MFF Programme Evaluation Form that complements CIP reporting processes. This section ensures that gender equality and gender strategies / policies are a part of potential investees’ evaluation at an early stage. In 2022, an additional section on gender requirements has been drafted in the MFF Investment Criteria. The section is meant to further incentivize Investment Officers to discuss opportunities to promote gender equality with clients. Equity and fairness (beyond gender equity) is also an E&S standard commonly assessed and promoted by FMO’s investment teams. In 2023 these sections continued to be used in the MFF investment process.
In terms of Equity, FMO follows the IFC Performance standards for environmental and social sustainability and we require our investees to adhere to these standards. As part of these requirements, our clients must for instance undertake a Stakeholder Engagement Planning exercise and a Social Mapping in areas influenced by projects. These exercises aim at identifying and working with vulnerable groups, identifying potential negative impacts, as well as positive opportunities to work with local communities. In addition to the development of a Stakeholder Engagement Plan, IFC PS4 requires the development of a Community Health and Safety Management Plan that aims to outline activities that can be implemented to address inequalities. Throughout their monitoring, clients must report on socio-economic indicators, adjust practices to avoid the worsening of inequality or identified new risks, and implement programs that address identified issues, and that aim at reducing inequalities and promoting inclusiveness.