Livelihoods Carbon Fund 3 (LCF3) The Livelihoods Carbon Fund 3 (LCF3) is an innovative and replicable investment-model that invests in community-based solutions to restore natural ecosystems, and establish agroforestry and regenerative agriculture systems in developing countries that will generate certified carbon offsets to climate-responsible corporates and contribute towards SDGs while delivering a steady and positive financial return to financial investors. Note: Disbursement data provided is cumulative and covers disbursement made by the project Agency. Throughout the investment horizon of 10 to 20 years for each LCF project, local communities can tap into carbon projects’ co-benefits as well as an upside sharing mechanism for the distribution of carbon offsets generated beyond targets. Co-benefits of LCF carbon projects can be categorized as either social or economic benefits. The projects are undertaken on smallholder farmers’ land, to which LCF holds no title, and the trees financed by LCF are the property of these same smallholder farming households. Similarly, when LCF projects finance mangrove planting, both the trees and the areas where restoration projects are undertaken typically are communal property such that planting and restoration directly benefits local communities. The specific social, economic and environmental impacts generated by LCF3 varies, depending on the type of carbon project and the local context. However, based on outcomes from LCF1 and LCF2, several types of socio-economic benefits can be anticipated.LCF1 and LCF2 projects provide numerous examples of co-benefits associated with restoration of degraded ecosystems and positive impact for livelihoods. One such example is launching of a social enterprise in India to home-deliver organic produce in Calcutta from restored mangroves of the Sundarbans. Another is doubling the milk productivity of farmers in Kenya organized in dairy cooperatives to secure more favorable bulk contracts for sale to a national major milk distributor. These types of benefits are entirely captured by the project’s communities and local stakeholders and are not part of the return to LCF investors.In addition to significant direct benefits from ecosystem restoration, communities and Project Developers are entitled to share the potential upside, on a 50-50% basis, carbon credit generation. Performance-based upside-sharing arrangements have been defined in the fund’s legal documentation.Proceeds from the performance-based mechanism will be distributed to the Project Developers to fund further development actions to the benefit of the communities. As stated in the LCF3 Prospectus: The Project Developers shall be entitled to an incentive, based on their real over-performance in the project, as defined by the Board. Any incentive allocated to the Project Developer shall be fairly shared by the Project Developer with the local communities, upon rules to be determined by the Board, taking account of the input of the Advisory Committee. The relevant excess VERs may therefore be directly allocated to the local communities by the Fund as agreed with the Project Developer.In addition to benefits from investment in ecosystem restoration, enhanced livelihoods, and upside-sharing from carbon credits, LCF3 anticipates the following types of socio-economic benefits to accrue to communities:Increased access to knowledge and training: One of the key levers to keeping offset generation cost under control is to optimize direct project costs by maximizing penetration rate within the project area. Therefore, within the project boundary, the expected participation rate of project beneficiaries to training/knowledge/resources made available under the project is expected to be at least 60%, incidentally creating favorable conditions for positive spillovers.Strengthening of local institutions and governance: LCF3 carbon projects can be sustainable in the long-term only if community restoration efforts during the 3-5 years implementation phase of a project are coupled with conservation activities spanning across at least 15 years. For such conservation activities to take place, communities require mobilization in formal or informal organizational structures to collectively steer the management of their natural resources. For example, some communities may take the collective decision to refrain from wild grazing which poses a direct threat to newly planted fruit and timber saplings, and also indirectly impacts water availability for agriculture through hill-top deforestation. To safeguard restored natural ecosystems, Project Developers may institutionalize protection at the local level by entering into agreements with village governments and community groups specifying their commitments towards ecosystem protection and community development.Participation of women in governance bodies: Across these various project governance bodies (village committees, cooperatives, etc.), the share of female participation fostered by LCF3 projects will be at least 50%, as female participation across these bodies is a key success factor in the long-term sustainability of LCF3 projects. In fact, a recently scientific study published in the Nature Climate Change journal has highlighted the benefits of equal gender participation in decisions pertaining to the management and conservation of natural resources.Increased resilience to climate change: With a project portfolio expected to include at least 16,500Ha of mangrove and coastal habitat restoration and conservation, LCF3 is expected to enhance the resilience and adaptation of coastal communities when faced with extreme weather events as exacerbated by climate change (empirical and field-based studies have shown that 30 trees per 100 square meters may reduce the maximum flow of a tsunami by more than 90 percent).Decreased exposure to health hazards and injuries: Health hazards from open, three-stone fires, or rudimentary stoves that burn wood and/or charcoal include chronic and acute illnesses such as early childhood acute lower-respiratory infections (including pneumonia) and obstructive pulmonary disease. Carbon avoidance activities in LCF3 through rural energy/improved cookstove initiatives are expected to benefit 217,500 people through lower exposure to health hazards and injuries over a period of at least 7 years.Improved food security: By promoting the transformation of degraded agricultural lands and landscapes into sustainable production systems for food and commodities through investments in smallholder agriculture, LCF3 helps to bridge the financial gap for smallholder farmers, while effectively contributing to food security, food sovereignty, and nutrition of rural households and communities.Increased financial benefits for community members: Through LCF3's investments, 70,000 people are expected to enter into a sourcing agreement with one or several commercial entities, enabling them to capture more value across the value of chain of agricultural produce or services promoted under LCF3 projects. These commercial linkages may be directly facilitated through LCF3 creating and/or providing support to 650 collective organizations such as farmers cooperatives, collective storage spaces, natural resource management committees, business incubators, remunerated planting groups, etc. During its community outreach activities, LCF3 projects highlight the potential benefits associated with joining collective organizations supported by LCF3 to secure the membership of at least 100,000 beneficiaries. Overall, as carbon financing is not expected to provide sufficient funding capacity for all value chain required investments across the portfolio of LCF3 projects, the fund expects to finance, on a project-by-project basis, some value chain-related project activities through third party co-financing (e.g., with the support of development agencies, philanthropic organizations, etc.).Overall, LCF3 initiatives help to build resilient and productive ecosystems, delivering enhanced services and restoring the socioeconomic benefits of ecosystems to local populations, while increasing their resilience to adverse climate change events, promoting fair/equitable development, and reconciling biodiversity use with economic growth.