Ecosystem-based Adaptation and Financing for Alpacas Herders and Vicuña (AbE-FAV)

Peru | Peruvian Trust Fund for National Parks and Protected Areas (Profonanpe)

29 October 2018

Please submit the completed form to sap@gcfund.org,

using the following name convention in the subject line and file name:

“CN-[Accredited Entity or Country]-YYYYMMDD”

Project/Programme Title: Ecosystem-based Adaptation and Financing for Alpacas Herders

and Vicuña (AbE-FAV)

Country(ies): ______________Peru _______________

National Designated Authority(ies)

(NDA): __________Ministry of Economy and Finance ___

Executing Entities:

Accredited Entity(ies) (AE):

__The Mountain Institute, Oikos, Coopecan_

__PROFONANPE_____________

Date of first submission/ version

number: [2018-10-26] [V.1]

Date of current submission/ version

number [2018-10-26] [V.1]

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 1 OF 4

A. Project / Programme Information (max. 1 page)

A.1. Project or programme ☒ Project

☐ Programme

A.2. Public or private

sector

☐ Public sector

☒ Private sector

A.3. Indicate the result areas

for the project/programme

Mitigation: Reduced emissions from:

☐ Energy access and power generation

☐ Low emission transport

☐ Buildings, cities and industries and appliances

☒ Forestry and land use

Adaptation: Increased resilience of:

☒ Most vulnerable people and communities

☒ Health and well-being, and food and water security

☐ Infrastructure and built environment

☒ Ecosystem and ecosystem services

A.4. Estimated mitigation

impact (tCO2eq over lifespan)

The project directly avoids the soil

organic carbon (SOC) emissions of

6,090 hectares of peatlands

containing an estimated 14.75

million tCO2eq in soil, plus 157,000

hectares of native grasslands that

containing a quantity of SOC to be

measured. The total area indirectly

impacted by the project is 52,811

hectares of peatlands containing an

estimated 380 million tCO2eq in

soil, plus 319,963 hectares of native

grasslands.

A.5. Estimated adaptation

impact (number of direct

beneficiaries and % of

population)

10,500 househods (13%)

dedicated to alpaca

herding from a total of

81,900 alpaca producer

households

A.6. Indicative total project

cost (GCF + co-finance)

Amount: USD

13,499,092

A.7. Indicative GCF

funding requested (max

10M)

Amount: USD

5,134,092

A.8. Mark the type of financial

instrument requested for the

GCF funding

☒ Grant ☐ Loan ☐ Guarantee Other: specify___________________

A.9. Estimated duration of

project/ programme:

a) disbursement period: 5 years

b) repayment period, if applicable:

N/A

A.10. Estimated project/

Programme lifespan 5 years

A.11. Is funding from the

Project Preparation Facility

needed?

Yes ☐ No ☒

A.12. Confirm overall ESS

category is minimum to no

risk1

☒ C or I-3

A.13. Provide rational for the

ESS categorization (100

words)

The proposal has been designed in full consultation with COOPECAN, a cooperative managed

with high labor standards that groups 17 organizations of alpaca and vicuña producers with more

than 1200 households who develop their economic activities in their own lands.

Project activities will mostly generate positive impacts on high Andes ecosystems, as well as on

project beneficiaries. Through a combination of technological innovations and ecosystem

restoration, water supply and quality will be secured allowing alpaca producers to sustainably

intensify their production. The environmental impact of the alpaca’s production increase will be

minor as this species has evolved with Puna ecosystems and due to their anatomic physiology,

they don’t degrade the Andean soils. Furthermore, the project will promote the improvement of

sustainable management of vicuñas (Vicugna vicugna) contributing to its population conservation.

Project results will contribute to secure land tenure rights of herders, and will affirm the cultural

heritage of South American herding societies through the co-development of technologies that will

make their economy formal and competitive. This will reduce rural migration by improving the

profits and the opportunity cost of the producers.

1 Refer to the SAP ESS Guidelines

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 2 OF 4

A.14. Has the CN been shared

with the NDA? Yes ☒ No ☐ A.15. Confidentiality2

☐ Confidential

☒ Not confidential

A.16. Project/Programme

rationale, objectives and

approach of

programme/project (100

words)

Alpaca herders are highly vulnerable to declining water availability, a current and ongoing result

of climate change. The solution proposed by the project is to increase water security through an

ecosystem-based adaptation (EbA) approach linked to a sustainable credit mechanism, while

avoiding the release of significant quantities of soil organic carbon (SOC) to the atmosphere.

Project specific objectives are: 1) Knowledge to support innovations; 2) Innovations to increase

resilience; 3) Sustainable financial mechanisms; 4) Consolidation of cooperative institutional

arrangements; 5) Communication to increase investment of society, private and public sectors in

the alpaca economy and puna ecosystem; (6) Management of Andean wild vicuña.

B. Project / Programme details (max. 3 pages)

B.1. Context and Baseline (max. 1 page):

Describe as relevant the climate vulnerabilities and impacts, GHG emissions profile, and mitigation and adaptation needs that the

prospective intervention is envisaged to address.

Peru is a country particularly threatened by direct and indirect climate change impacts. One of the reasons for this vulnerability has

to do with larger warming at higher altitudes which has accelerated glacier recession and with dependence on glacier water in southern

Peru and its role in the livelihood of pastoralists (Tyndall Center 2004, Urrutia 2009). There are at present 18 glacier ranges that are

receding fast (e.g. Huaytapallana near Huancayo city lost 59% of its area between 1976-2006). As a result of glacier recession,

wetlands and peatlands (bofedales) are fragmenting and becoming grasslands, which have lower capacity to retain and release water

(e.g. loss of 54% of peatlands in Cordillera Blanca between 1987-2010).

Herders in the high Andes are particularly threatened by glacier recession and the increase in precipitation extremes. There are 81,900

households managing 4.2 million alpacas and 208,000 vicuñas on 18 million hectares of grasslands and 0.5 million hectares of

peatlands (bofedales) The desiccation of peatlands in the highlands of Peru triggers the emission of soil organic carbon (SOC). There

are approximately 361,2 x 106 metric tons of SOC stored underground. Desertification poses a similar threat to 18 million hectares

of grasslands, which also contain large pools of SOC.

Please indicate how the project fits in with the country’s national priorities, action plans and programs and its full ownership of the

concept.

The proposal is in line with Peru’s recently approved Framework Law of Climate Change (30754), National Strategy for Climate

Change (ENCC) and multiple policy implementation tools, like Ecosystem Service Public Investment Projects (PIPs) or the

Mechanisms of Compensation for Ecosystem Services (MRSE) legislation promoted by the Ministry of Environment. The proposal’s

focus on cooperatives is aligned with Ministry of Economy and Finance (MEF) policies to promote competitiveness, export policies,

and the formalization of the rural economy. The project builds on the ecosystem-based adaptation (EbA) framework embraced by the

Ministry of Agriculture in its "Water Sowing and Harvesting" program, which will be implemented through the Sierra Azul Fund.

The proposal is also aligned with the Law for the Promotion and Development of Family Farming, which aims to revitalize small-

holder production. The adaptation work with vicuña is aligned with the Agreement for the Conservation and Management of the

Vicuña. We have consulted with these national ministries and have incorporated in the design of this project relevant objectives of

the regional climate plans of the Ayacucho, Apurimac, Cuzco, and Puno regions.

Describe the main root causes and barriers (social, gender, fiscal, regulatory, technological, financial, ecological, institutional, etc.)

that need to be addressed. Where relevant, please describe the key characteristics and dynamics of the sector or market.

The climate change adaptation strategy for alpaca producers through a transformation of their economy must first improve its

integration to markets through the dissemination of sucessful cooperative strategies, like those implemented by COOPECAN. While

Peru is the world's leading producer of alpaca fiber (80% of global production at US $68.3 million in 2017), the majority of benefits

accrue to a small number of Peruvian companies that process and market 95% of the fiber produced in Peru. A second root cause to

be addressed is the low productivity of traditional systems (150 animals yield $480 dollars net annual income with a grazing pressure

of 1 alpaca per hectare of grassland). This situation triggers negative synergies involving male migration, less opportunities for

women, overpopulation of alpaca herds to compensate for low income, and intensified desertification. Although irrigation and high-

yielding fodder crops, combining grasses and legumes, have been shown to triple annual net income over a four-year period with

sharp reductions in grazing pressure on the open range, there are no investment credit instruments in the private or public financial

sectors to support technological change. More specifically, the guarantees and collaterals, and the maturity periods that are not adapted

to investments in the alpaca sector. Transforming alpaca production requires strengthening the capacities of women and improving

living conditions to encourage young people to stay in the puna. Financial policy developments are necessary to foster the use of the

kind of credit instruments we are consolidating and to reduce the red tape involved in obtaining permits to market vicuña fiber. The

data and best practices on social, economic, financial, and gender approaches deployed by this project will also inform Peru’s NDC’s

Multi-Sectorial Working Group.

2 Concept notes (or sections of) not marked as confidential may be published in accordance with the Information Disclosure Policy

(Decision B.12/35) and the Review of the Initial Proposal Approval Process (Decision B.17/18).

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 3 OF 4

Wild vicuña have one of the most expensive fibers in the world. However, it is currently exploited without proper consideration of

climate change impacts, animal health and welfare, genetic diversity, or the connection to ecosystem services, nor planning the current

expansion of its population. Vicuña herds have recovered from about 5,000 individuals in the late 1960s to over 200,000 in 2016; this

sucessful “charismatic” species could serve as a strong driver of Andean biodiversity conservation in the era of climate change.

B.2. Project / Programme description (max. 1 page)

Describe the expected set of components and activities to address the above barriers identified that will lead to the expected outcomes.

The project includes six components that support adaptation of Andean herders to reduce climate change related risks: 1. Knowledge

and capacities for adaptive management of the puna ecosystem: Generation and systematization of basic information (biophysical

and social) to inform decision makers and to be used transversally in the other four components. 2. Innovations to improve families’

well-being and ecosystem resilience: Design of instruments and innovations for water security, reduction of emissions, fiber

production, articulation with international markets, and increased added value of alpaca products. Based on affordable technologies,

institutional agreements and cooperative governance, land use planning and better management of common resources. 3. Green

financial mechanism to improve productivity and competitiveness of herders: Inclusion of the private sector in the construction

of climate resilient infrastructure and alpaca productivity / profitability through the implementation of a specially adapted microcredit

program for alpaca herders. The financial mechanism will facilitate the future creation of a revolving fund to give sustainability to

the program. 4: Institutional innovations in the Peruvian alpaca sector: Strengthening organizational aspects of cooperatives and

communities in the management of common resources. Articulation of the proposal to different government programs, including the

implementation of the Mechanisms for Compensation for Ecosystem Services (MRSE) and the development of a carbon credit scheme

(alpaca credit) in the voluntary market. 5. Communication to increase investment of private and public sectors in the alpaca

economy and puna ecosystem: Positioning the contribution of the alpaca and vicuña herders to the country’s climatic resilience as

a model of "green economy". Sharing of the instruments, experiences and practices developed in the project. Mobilization of the

private sector to invest in the environmental services provided by alpaca/vicuña herders and their sustainable soil management

practices. 6. Management of Andean wild vicuña: Improvements in wild vicuña management, fiber processing, and articulation

with international markets. Establishment of vicuña communal conservation areas. Development of an expansion plan for the vicuña

with the inclusion of biological corridors to maintain the genetic diversity of the specie.

Please explain why this project or programme is ready for scaling up and has the potential for transformation. Has it been piloted in

the country or region? Are the proposed interventions well documented for their costs and benefits?

COOPECAN has over 4 years of experience testing the technology in multiple locations that are severy affected by climate change,

including loss of glaciers and reduction of water base flow. We have conducted a cash-flow analysis that demonstrates the feasibility

of a microcredit investment program to support adoption of irrigation systems and improved fodder crops. In a traditional herding

system of e.g., 150 animals and no change in herd size, it is possible to shear 75 alpacas per year. Under the intensified production

system, it is possible to shear 150 alpacas per year and to increase the herd size of the herd. The new technologies have been tried by

approximately 60 households, whose experience indicates that larger herds of 250 animals can be sustainably managed in these area

if the farmers have access to 0,5 lts/sec of water during the dry season to irrigate 2,16 hectares. Thus, farmers are able to sustainably

intensify production by securing wáter supplies through a combination of technological innovations and ecosystem restoration, which

also increases their resilience to climate change impacts.

A key element that supports the scalability of the program is the emergence in Peru of cooperatives that follow best business

management principles. For example, using this approach, COOPECAN exports have grown from approximately $200,000 in 2008

to $3,849,538 in 2017. COOPECAN’s operation is vertically integrated to the value chain: it processes fiber into wool tops (and yarn

by late 2018) and sells directly to international markets. Their assets provide the necessary guarantee to the investment credit program.

While the pilot phase will focus on consolidating the work initiated by COOPECAN, future phases aim to expand lessons to other

cooperatives and associations with similar organizatonal and business strengths.

Vicuña is an element of the proposed climate change adaptation strategy because sustainable intensification of alpaca production

protects and extends the habitat of wild vicuña. The scalability of the vicuña management component is based on evidence (SERFOR

2016) that the vicuña population is growing and spreading to new regions in tandem with a drastic reduction in sheep (14.2 million

head) since 1961 (INEI 2012). The proposal’s theory of change posits that intensifying alpaca prodution systems and securing water

supply through ecosystem restoration reduces pressure on open ranges and increases habitat for vicuña. This condition opens up the

opportunity to develop new strategies to manage wild vicuña and increase the net income obtained by highland communities that

have been granted righs (“Spanish “Entidades Titulares’) to manage and benefict from vicuña fiber. Promoting the diversity of the

species and increasing its resilience helps to maintain overall ecosystem biodiversity and services.

Describe in what way the Accredited Entity(ies) is well placed to undertake the planned activities and what the implementation

arrangements with the executing entity(ies) and implementing partners will be.

PROFONANPE is the accredited entity which will act as implementing entity, conducting the project supervision and evaluation,

and providing guidance to executing entities as appropriate. The Mountain Institute (TMI) and Oikos will be the executing entities of

components 1, 2, 4, 5 and 6. The cooperative COOPECAN will be closely involved in component 2 and will be the executing entity

for component 3 (microcredits), which will be financed by the Interamerican Development Bank (IDB). The Alliance is planning to

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 4 OF 4

work with additional partners like the Faculty of Veterinary Medicine of the National University of San Marcos and other local

institutions.

Please provide a brief overview of the key financial and operational risks and any mitigation measures identified.

Financial risks are low to the extent that feasibility studies, based on 4 years of experience with the technology, indicate that credits

can be repaid. Additionally, we have evidence that these technologies are currently being adopted by households that have available

capital. The EbA component of the project aims to reduce the risks to the water supply, which is key to the sustainability of the entire

production system. There is evidence that the restoration of ecosystems and the construction of low-cost nature-based systems are

cost-effective actions that replenish subsurface water and secure supply in the dry season.

B.3. Expected project results aligned with the GCF investment criteria (max. 1 page)

Please describe and provide an estimate of the [aligned with the GCF investment criteria: impact potential, paradigm shift,

sustainable development, needs of recipients, country ownership, and efficiency and effectiveness.

The TMI-Oikos Alliance responds to a request by COOPECAN to adapt to climate change by securing water supplies for its members

through ecosystem restoration and socio-technological innovations that support productivity, credit instruments, and improved

competitiveness of alpaca producers and vicuña titulars. Pilot work to be conducted with COOPECAN responds to the needs of

81,900 households dedicated to alpaca production.

The number of direct beneficiaries includes the 500 households that will receive the initial investment microcredits from IDB

(maximum $5,000 each). After this initial period we expect that most part of the 1,980 members of COOPECAN who will benefit

from restored ecosystems and a more secure water supply. Additional beneficiaries include 8,565 families in the 24 districts where

COOPECAN operates through dissemination of project results, local government investment in ecosystem restoration/conservation,

and 29 additional alpaca production cooperatives that have the potential to benefit from the green financial mechanism developed by

the project. Another direct beneficiary will be 10 community associations that are Vicuña Titular Management Entities located in the

24 districts where COOPECAN operates. The total area indirectly impacted by the project is 52,811 hectares of peatlands and 319,963

hectares of grasslands in 24 districts. For each package of 500 credits implemented, the project improves the condition of 6,090

hectares of peatlands containing an estimated 14.75 million tCO2eq in soil, plus 157,000 hectares of native grasslands restored to

improve natural water regulation. Indirect beneficiaries include a total of 65,000 households dedicated to alpaca herding in 5 regions

of southern Peru and millions of inhabitants of the lower basin areas and the puna biomes of Peru, Bolivia, Argentina, and Chile.

The paradigm shift is the re-design of alpaca production systems for sustainable intensification, a process which is currently conducted

by the local leaders who govern COOPECAN. This shift to sustainable intensification creates the opportunity to use investment

microcredits, which are a self-sustaining mechanism for scaling up the adoption of the new technology. A substantial increase in net

income motivates herders to cooperate in the management of common goods, like grasslands and water, that are necessary to sustain

this growing economy. In summary, the paradigm shift is that adaptation can be scaled up through social and technological

innovations that support a competitive increase in net annual income, the use of credit, and ecosystem service restoration.

Archeologist K. Lane, who wrote “Engineered Highlands” (2009), has shown that pre-Hispanic herding systems used intensified

production technologies based on use of water to improve the productity of puna landscapes. The approach of this project involves

the promotion of cooperatives and other associations of producers to facilitate the incorporation of alpaca herders in fiber, meat,

quality breeds, and other alpaca market value-chains to be explored (meat, skins, cheese). The expansion of producer associations

improves the capacity of households to cooperate and adapt to climate change. The sustainable intensification of alpaca production

systems will help herders capture the value emerging from improvements in ecosystem services (water, carbon, wild vicuña, and

other biodiversity gains).

Women’s roles in the alpaca production system include technical leadership in the selection and categorization of alpaca and vicuña

fiber. They also play a crititcal role in accounting functions at the level of their households and cooperative. Their managerial skills

will be strengthened to enable them to participate more fully in the governance of the cooperative. We will also re-inforce the ‘Pro-

Youth’ program of COOPECAN, which aims to affirm the values, cultural identity, and self-steem of Andean herders as members of

a competitive and promising occupation. Sustainable intensification frees women from time-demanding tasks associated with

traditional herding. The project creates positive synergies between increased productivity/net income for households on the one hand,

and the conservation of community grasslands, peatlands, water, and habitats for vicuña and other wildlife on the other.

This proposal is aligned with the intermediate objectives presented by the "Multi-Sector Work Group of Nationally Determined

Contributions" (NDCs), particularly Goal 5, “Promotion of private investment in adaptation” to explore innovative instruments that

increase private investment and the objectives. (i) Water: promote and support projects that increase the supply of water in the context

of climate change through more efficient use of water, increasing the capacity of soils to retain water, compensation for ecosystem

services and infrastructures to store water; and (ii) Agriculture: Reduce the negative impact of climate change on the most vulnerable

populations in the agrarian sector, promoting ‘smart agriculture’, early warning systems, soil conservation and insurance services.

Additionally, the proposal is consistent with government policies such as the formalization of employment, financial inclusion in the

agricultural sector, and the international commitments for Neutrality in Land Degradation and Biodiversity Management. The

maintenance of organic carbon stocks in the soil and the increase of carbon sequestration in the soil is aligned with the Nationally

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 5 OF 4

Appropriate Mitigation Actions (NAMAs). The maintenance and conservation of wetlands, as well as the creation of water reservoirs,

are in accordance with National and Regional Adaptation Plans.

Estimated cost per tCO2 eq. (total investment cost/expected lifetime emission reductions)

This is a mainly adaptation project wich also includes an applied research component (objective 1) that will help estimate the expected

lifetime emissions reductions attributable to the intensification of alpaca production systems. It will also identify/assess the feasibility

of carbon credits to increase the income of herders shifting to the new paradigm.

Expected volume of finance to be leveraged as a result of the GCF’s financing,disaggregated by public and private sources. COOPECAN will implement a project of USD $2.0 million funded by the Inter-American Development Bank (IDB). This project

has a loan component of $1.5 million and $500,000 as a pre-investment in technical assistance to support producers taking investment

credits. The credit instrument is proposed as a self-sustaining mechanism to foster adaptation among alpaca producers. IDB will

support scaling up of this credit mechanism through public and private financial systems. In addition, the project has a target of USD

$1 million in MRSE funds from potable water facilities in the project area.

C. Indicative financing / Cost information (max. 2 pages)

C.1. Financing by components (max ½ page)

Please provide an estimate of the total cost per component and disaggregate by source of financing.

Component Indicative cost

(USD)

GCF financing Co-financing

Amount

(USD)

Financial

Instrument

Amount

(USD)

Financial

Instrument

Name of

Institutions

1. Knowledge and capacities to manage puna ecosystems

745,589 745,589 grant

2. Innovations to increase herders’ resilience

2,871,500 2,071,500 grant 400,000

400,000

Grant

Assets and

workforce

IDB

COOPECAN

3. Financing for productivity and competitiveness of alpaca herders

7,470,000 1,500,000

5,970,000

Loan

Assets and

workforce

IDB

COOPECAN

4. Institutional Innovations in the alpaca sector

553,511 553,511 grant

5. Communication: alpaca herders and puna ecosystems positioned in society

519,011 519,011 grant

6. Management of Andean wild vicuña

1,000,000 1,000,000 grant

7. Project management costs

339,481 244,481 grant 95,000

TBD

Grant

TBD

IDB

COOPECAN

Indicative total cost

(USD)

13,499,092 5,134,092 1,995,000

>6,370,000

IDB

COOPECAN

For private sector proposal, provide an overview (diagram) of the proposed financing structure.

The parmeters and main results of the cash flow model (CFM) for the COOPECAN alpaca producer who innovates in the proposed

technology are:

• The CFM considers an annual rate of interest to the producer of 7.35% (3.35% for external financial services and 4.0% for COOPECAN to cover the cost of providing and recovering loans from its members)

• Each borrower must have a group of 150 alpacas and at least 0,5 lts/sec of water during the dry season to install a micro-reservoir of 30 m3. S/he must also be ready to cultivate 2.16 hectares of improved fodder crops using

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 6 OF 4

sprinklers, install one portable fence to keep animals contained at night to fertilize the parcel, have space to process hay, and build one shed to protect newborns from frosts.

• There is a gradual increase of credit beneficiaries in the implementation of technologies until reaching 500 partners in the year 2024.

• Income of the producer includes fiber, meat, skins, and sale of animals for reproduction.

The differential flow to the producer (with vs without project) includes a pre-investment in technical assistance provided by

COOPECAN valued at $2,250 per producer, and generates after 8 years a net balance of $5,208 with a Net Present Value of $8,154,

an Internal Rate of Return of 46%, and a Benefit/Cost ratio of 3.6.

The credit program for the first pilot group of 500 members has a maximum exposition of capital of USD $1,161,538 in year 7. The

maximum amount of garantees is USD 1,742,308 in the same year.

C.2. Justification of GCF involvement (max 1/2 page)

Explain why the Project/ Programme requires GCF funding, i.e. explaining why this is not financed by the public

and/ or private sector(s) of the country.

Traditional alpaca herders compensate for low productivity by over-stocking the land. As a result, high-altitude grasslands and

wetlands are degraded, often to the point of desertification. Climate change is accelerating this process. Governemnt services to this

sector (technical assistance or credits for investment in technology) are not provided because of the high costs associated with remote

areas, dispersed populations, and lack of information about the environmental services provided by high mountain areas. However,

private sector producers who are organized in cooperatives (like COOPECAN) have developed rural networks for the collection of

fiber. These networks provide a solid foundation for the development of credit services linked to technical assistance. The loan

financed by the IDB will start with a pilot mechanism to reach out to a first group of 500 alpaca producers. The grant components to

be financed through the GCF serve to consolidate a system of innovation embedded in the credit instrument to be provided by

COOPECAN (which establishes an independent credit branch). Within a period of 10 years, the recuperation of credit and interest

earned will provide COOPECAN the financial resources to cover the costs of technical assistance. Additionally, the implementation

of Mechanisms of Retribution for Ecosystem Services (MRSE) and/or future carbon credits (Alpaca Credit) could also become

sustainable sources of funds to cover the costs of technical assistance. In summary, the GCF project creates conditions that facilitate

the ability of alpaca producers themselves to generate the capital resources to invest in technological, economic, and environmental

change.

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 7 OF 4

C.3. Sustainability and replicability of the project (exit strategy) (max. 1/2 page)

Please explain how the project/programme sustainability will be ensured in the long run and how this will be monitored, after the

project/programme is implemented with support from the GCF and other sources.

The main strategy for climate change adaptation through sustainable intensification of alpaca production is the development of an

investment credit program for alpaca herders. The increase in productivity resulting from intensification allows herders to repay the

credit over a five-year period.

The capital recovered is then re-invested in the system. In order to consolidate economic sustainability, the project emphasizes

participatory research, development of a system to sustain technological innovation, the strengthening of organizational aspects of

cooperatives, and policy developments that support all these components. Ecosystem restoration activities conducted by alpaca

herders during the project will generate information and the conditions to promote future participation in voluntary carbon credit

markets, and Mechanisms of Retribution for Ecosystem Services (MRSE), especially those related to water and land management.

The implementation of MRSE will, in the long-term, support the economic sustainability of the credit instrument. At the same time,

it will strengthen the climatic resilience of the inhabitants of both highland and lowland communities.

The proposal also comprises the establishment of a baseline of economic, social, and environmental parameters (water flow, soil

conservation, organic carbon sequestrated in soils) in order to monitor and value the improvements of these parameters resulting from

project interventions. The cost-effectiveness of each intervention will be assessed and used to guide scaling up of the project.

Improvements in productivity and net income will be monitored by COOPECAN since they operate the network of fiber collection,

technical assistance, and credit programs to producers. Monitoring activities will be sustainable post-project because the resulting

information is integral to the proposed business model.

Improvements in vicuña and wildlife management reinforces the sustainability of the project. The development of a participatory

management plan for wild vicuña that uses this valuable specie with vigorous inclusion of the communities that have rights to care

for vicuña and collect its fiber will follow well-established principles of common use resources. These include i) participatory design

of local rules to manage the species and its habitat; (ii) local self-monitoring of the condition of the herds and habitat of vicuña; (iii)

fair share for communities of costs and benefits of improved management; and iv) proper involvement of government agencies or

other external stakeholders as appropriate. The project will also improve on the current articulation of vicuña associations to

international markets and support proper compensation for the environmental services they protect. The project cooperates with the

Forest and Wildlife Service (SERFOR), the national agency in charge of monitoring vicuña populations and habitats.

.

C.4 Stakeholders engagement in the project or programme (max ½ page)

Please describe how engagement among the NDA, AE, EE and/or other relevant stakeholders in the country has taken place so far

and what further engagement will be undertaken as the concept is developed into a funding proposal.

The Mountain Institute (TMI) and Oikos formed an alliance titled Lands of Vicuñas (Tierras de vicuña) with the intention to develop

an initiative specifically related to climate change adaptation and improvement of the economic, social and environmental resilience

of the Peruvian Traditional Andean Pastoralist peoples. In 2016, the Lands of Vicuñas alliance invited COOPECAN to join the

initiative to develop a project titled "Ecosystem-based Adaptation and Financing for Alpacas Herders and Vicuña " (AbE-FAV). TMI

has cooperated with IUCN in Peru in the implementation of Mountain Ecosystem Based Adaptation projects since 2013. Oikos,

together with the San Marcos University, has developed several programs related to biodiversity management, wildlife management

and climate change. This proposal has been designed based on lessons learned in these projects.

The AbE-FAV project was created with the goal of capitalizing on COOPECAN's successful experience in producers’ vertical

integration of alpaca herders in the value chain of this sector, its technological innovation program, and the cooperative governance

improvements they have achieved.

The alpaca herders were involved in the concept note design through the participation of COOPECAN as one of the partners of the

proposal. COOPECAN is a cooperative formed and managed by alpaca producers. The institutional structure of COOPECAN is

composed by a general manager hired by the board of directors that is formed by alpaca producers. At the same time the board of

directors, consults and communicates their decisions to the general assembly of alpaca producers that is formed by representatives of

the different institutions associated to COOPECAN and individual associates. In order to promote the institutional development

COOPECAN trains its future leaders through its pro-youth and pro-president program, where there is not any gender discrimination.

These programs are formed by representatives that have been elected in their own communities.

In addition, TMI, OIKOS and COOPECAN have presented a first version of the AbE-FAV project to officials of the Ministry of

Environment and Ministry of Economy and Finance (Peru's National Designated Authority).

Meaningful consultation and informed participation process will be conducted during full proposal design, in the framework of a

stakeholder engagement plan.

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 8 OF 4

C.5 Monitoring and Evaluation and reporting plans (max ¼ page)

Please explain how the M&E will be conducted as part of the project or programme (routine and concurrent monitoring, interim and

final evaluations, and annual reports)

To guarantee the quality and measurement of the impacts of the intervention, a monitoring and follow-up system will be established

using indicators of process, result and structure, according to PROFONANPE’s guidelines. To ensure the collection and analysis of

data, appropriate tools will be designed. At the beginning of the project, a baseline will be established as a reference to measure the

progress made. Mid term and final evaluations will be carried out by external consultants, as well as annual audits. Reports resulting

from these assessments, together with the bi-annual progress reports prepared by the project team will be reviewed by Profonanpe

and shared with the GCF. A periodical safeguard assessment and report will be done throuthout the project.

D. Annexes

☒ ESS screening check list (Annex 1)

☒ Map indicating the location of the project/programme (as applicable)

☒ Evaluation Report of previous project (as applicable)

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 9 OF 4

Annex 1: Environmental and Social Screening Checklist

Part A: Risk Factors

The questions describe the “risk factors” of activities that would require additional assessments and information. Any “Yes”

response to the questions will render the proposal not eligible for the Simplified Approval Process Pilot Scheme. Proposals

with any of the risk factors may be considered under the regular project approvals process instead.

Exclusion criteria YES NO

Will the activities involve associated facilities and require further due

diligence of such associated facilities? ☐ ☒

Will the activities involve trans-boundary impacts including those that

would require further due diligence and notification to downstream riparian

states?

☐ ☒

Will the activities adversely affect working conditions and health and safety

of workers or potentially employ vulnerable categories of workers including

women, child labour?

☐ ☒

Will the activities potentially generate hazardous waste and pollutants

including pesticides and contaminate lands that would require further

studies on management, minimization and control and compliance to the

country and applicable international environmental quality standards?

☐ ☒

Will the activities involve the construction, maintenance, and rehabilitation

of critical infrastructure (like dams, water impoundments, coastal and river

bank infrastructure) that would require further technical assessment and

safety studies?

☐ ☒

Will the proposed activities potentially involve resettlement and

dispossession, land acquisition, and economic displacement of persons and

communities?

☐ ☒

Will the activities be located in protected areas and areas of ecological

significance including critical habitats, key biodiversity areas and

internationally recognized conservation sites?

☐ ☒

Will the activities affect indigenous peoples that would require further due

diligence, free, prior and informed consent (FPIC) and documentation of

development plans? 3

☐ ☐

Will the activities be located in areas that are considered to have

archaeological (prehistoric), paleontological, historical, cultural, artistic,

and religious values or contains features considered as critical cultural

heritage?

☐ ☒

3 The concept note has been designed with COOPECAN’s managers who represent the alpaca producers of the 5 regions

where the project will intervene (Apurimac, Ayacucho, Arequipa, Cusco and Puno). COOPECAN is conformed by 8

associations of alpacas and vicuñas herders, as well as individual partners. As it is a cooperative that is represented and

made by the alpaca herders themselves, the decisions made by the board of directors are consulted with the general assembly

of producers.

According to the database of indigenous peoples of the Ministry of Culture, it is likely that some of the alpacas herders

belong to the Quechua and Aymara indigenous peoples. However, this information cannot be corroborated at this point,

given that the reference/list of the peasant communities that are recognized as indigenous is not available.

Similarly, vicuñas management will be carried out with the Vicuña Titular Management Entities in territories of peasant

communities, that may or may not belong to any of the aforementioned indigenous peoples. In this sense, the requirement

of a free, prior and informed consent will have to be confirmed with the social evaluation that must be done during the full

proposal. This last will in turn, determine the corresponding development plans that will be done according to GCF

Indegenous Peoples policy.

It should be noted that, according to the screening, the impact on indigenous peoples would be positive, given that it is

expected that the ecosystem improvements implemented in the proposal will enhance water security of the entire basin,

benefiting indigenous and non-indigenous populations who live in high or low parts of the basin.

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 10 OF 4

Part B: Specific environmental and social risks and impacts

Assessment and Management of Environmental and

Social Risks and Impacts YES NO TBD

Has the AE provided the E&S risk category of the project in

the concept note? ☒ ☐ ☐

Has the AE provided the rationale for the categorization of

the project in the relevant sections of the concept note or

funding proposal?

☒ ☐ ☐

Are there any additional requirements for the country? ☐ ☒ ☐

Are the identification of risks and impacts based on recent

or up-to-date information? ☒ ☐ ☐

Labour and Working Conditions YES NO TBD

Are the proposed activities expected to have impacts on the

working conditions, particularly the terms of employment,

worker’s organization, non-discrimination, equal

opportunity, child labour, and forced labour of direct,

contracted and third-party workers?

☒ ☐ ☐

Will the proposed activities pose occupational health and

safety risks to workers including supply chain workers? ☐ ☒ ☐

Resource Efficiency and Pollution Prevention YES NO TBD

Are the activities expected to generate (1) emissions to air;

(2) discharges to water; (3) activity-related greenhouse gas

(GHG) emission; and (5) waste?

☐ ☒ ☐

Are the activities expected to utilize natural resources

including water and energy? ☐ ☒ ☐

Will there be a need to develop detailed measures to reduce

pollution and promote sustainable use of resources? ☐ ☐ ☒

Community Health, Safety, and Security YES NO TBD

Will the activities potentially generate risks and impacts to

the health and safety of the affected communities? ☐ ☒ ☐

Will there be a need for an emergency preparedness and

response plan that also outlines how the affected

communities will be assisted in times of emergency?

☐ ☒ ☐

Will there be risks posed by the security arrangements and

potential conflicts at the project site to the workers and

affected community?

☐ ☒ ☐

Land Acquisition and Involuntary Resettlement YES NO TBD

Will the activities likely involve voluntary transactions

under willing buyer-willing-seller conditions and have these

been properly communicated and consulted?

☐ ☒ ☐

Biodiversity Conservation and Sustainable

Management of Living Natural Resources YES NO TBD

Are the activities likely introduce invasive alien species of

flora and fauna affecting the biodiversity of the area? ☐ ☒ ☐

Will the activities have potential impacts on or be dependent

on ecosystem services including production of living natural

resources?

☒ ☐ ☐

Indigenous Peoples YES NO TBD

Are the activities likely to have indirect impacts on

indigenous peoples? 3 ☒ ☐ ☐

Will continuing stakeholder engagement processes and a

grievance redress mechanism be integrated into the

management / implementation plans?

☒ ☐ ☐

Cultural Heritage YES NO TBD

Will the activity allow continuous access to the cultural

heritage sites and properties? 4 ☒ ☐ ☐

4 The project scope comprises sites with cultural, historical and artistic values. For example, the vicuña fiber harvesting

activity (capture and shearing) is an ancestral pre-Hispanic technique known as "chaku", which is carried out by peasant

communities. However, the activities proposed in the project will not generate adverse impacts on this cultural heritage.

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 11 OF 4

Will there be a need to prepare a procedure in case of the

discovery of cultural heritage assets? ☐ ☒ ☐

Sign-off: Specify the name of the person responsible for the environmental and social screening and any other approvals

as may be required in the accredited entity’s own management system.

Cynthia Céspedes

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 12 OF 4

ANNEX 1: Departments of project implementation and pastoral alpaca-vicuña areas

Simplified Approval Process CONCEPT NOTE Template V.1.1 GREEN CLIMATE FUND | PAGE 13 OF 4

ANNEX 2:Vicuña Home Range in the Peruvian Andes

ANNEX 3: Incremental cash-flow analysis of the alpaquero - Coopecan Perú

Assumptions

Pre-investment financed with donation: amount to be reviewed by items and sources: AIF and others.

Incremental Analysis with Project (per Coopecan producer, in Soles)

Ítem Detail 2018 2019 2020 2021 2022 2023 2024 2025 2026 1 Investment of the Project by

Producer -7,313

2 Incremental revenues per producer

0 1,114 2,441 10,762 20,524 28,692 27,831 28,170 28,074

3 Incremental operating expenses per producer

0 -244 -277 -6,520 -10,362 -11,324 -11,265 -11,205 -11,145

4 Amortizations of Credit ** 0 -599 -1,634 -3,118 -4,408 -4,059 -3,344 -2,586 0 5 Net Balance of the Period -7,313 271 530 1,125 5,754 13,310 13,222 14,379 16,929

* NOTE: We prorate the investment only among those who implement the technology to estimate the real return ** NOTE: It only incorporates the amortization of the credit and not the capital, because the latter is delivered and then recovered

1 Investment in Project: CRIAs* + Technical Consulting

$450,000

2 TC

3.25

3 Total Investment in Soles:

S/. 1,462,500

4 Number of beneficiaries:*

200

5 Investment of the Project by Producer S/. 7,313

VAN S/. 26,501 VAN $8,154 TIR 46% B/C 3.6

Annex 4: Credit Program for 500 partners – COOPECAN

Interes rate 3.25% Year Total Total 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Soles USD 1 Disbursements Soles 500,000 900,000 1,350,000 800,000 825,000 1,200,000 900,000 400,000 325,000 - - - - 7,200,000 2,215,385

2 Revenues (Soles) - 16,250 345,500 729,625 434,500 899,938 712,938 1,322,688 1,171,688 1,122,313 688,188 392,063 154,875 7,990,563 2,458,635 2.1 Capital (Soles) - - 300,000 650,000 350,000 800,000 600,000 1,200,000 1,075,000 1,050,000 650,000 375,000 150,000 7,200,000 2,215,385 2.2 Interest (Soles) - 16,250 45,500 79,625 84,500 99,938 112,938 122,688 96,688 72,313 38,188 17,063 4,875 790,563 243,250 Exchange rate (S /. For 1 US $) 3.25

Dólars Credit Capital Exposure

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

-

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Credit Capital Exposure (S/.) 500,000 1,400,000 2,450,000 2,600,000 3,075,000 3,475,000 3,775,000 2,975,000 2,225,000 1,175,000 525,000 150,000 - - Credit Capital Exposure (US$) 153,846 430,769 753,846 800,000 946,154 1,069,231 1,161,538 915,385 684,615 361,538 161,538 46,154 - - Value of the guarantee (dolars) 230,769 646,154 1,130,769 1,200,000 1,419,231 1,603,846 1,742,308 1,373,077 1,026,923 542,308 242,308 69,231 - -

Guarantee coverage rate 150% Year of maximum exposure

ANNEX 5: Evolution of the number of partners, promoters and technical advisory

NUMBER OF PARTNERS PHASES I, II and III PHASE I (PILOTO) PHASE II PHASE III

FLOW OF PARTNER PRODUCERS: 10 YEARS

Base Line

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

Innovative partners

Number of partners phase 1 60 60 60 60 60 60 60 60 60 60 60 60 Members that enter in year 1 36 36 36 36 36 36 36 36 36 36 36 Members that enter in year 2 72 72 72 72 72 72 72 72 72 72 Members that enter in year 3 32 32 32 32 32 32 32 32 32 Members that enter in year 4 175 175 175 175 175 175 175 175 Members that enter in year 5 93 93 93 93 93 93 93 Members that enter in year 6 39 39 39 39 39 39 Members that enter in year 7 126 126 126 126 126 Members that enter in year 8 123 123 123 123 Members that enter in year 9 114 114 114 Members that enter in year 10 144 144 TOTAL INNOVATIVE PARTNERS 60 96 168 200 375 468 507 633 756 870 1014 1014

Investor partners with loans 60 96 168 200 375 468 507 633 756 870 1014 Observer members 1910 1874 1802 1770 1595 1502 1463 1337 1214 1100 956 Total partners 1970 1970 1970 1970 1970 1970 1970 1970 1970 1970 1970

Increase in innovative partners per year 36 72 32 175 93 39 126 123 114 144 % increase of innovative partners 60% 75% 19% 88% 25% 8% 25% 19% 15% 17%

TECNICOS Y PROMOTORES - FASE I , II Y III Pilot FASE II FASE III AYACUCHO, CUSCO, PUNO, AREQUIPA Base Line 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 COOPECAN technicians with Project 2 2 2 2 3 3 3 3 3 3 3 Number of promoters by technician 3 4 4 5 6 7 8 9 10 11 Number of partners by promoter 15 8 10 12 12 13 13 15 15 16 18 Total de socios atendidos 30 48 80 96 180 234 273 360 405 480 594

Base Line 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Tecnicos de COOPECAN con Proy 2 2 2 2 3 3 3 3 3 3 3 Nº de promotores por tecnico 3 4 4 5 6 6 7 9 10 10 Nº de socios por promotor 15 8 11 13 13 13 13 13 13 13 14 Total of attended partners 30 48 88 104 195 234 234 273 351 390 420

TOTAL OF INVESTORS INNOVATIVE PARTNERS 60 96 168 200 375 468 507 633 756 870 1014

Number of technicians 4 4 4 6 6 6 6 6 6 6 Number of promoters per technician 3 4 4 5 6 7 8 9 10 11 Number of partners per promoter 8 11 13 13 13 13 14 14 15 16

Pilot FASE II FASEIII Total number of promoters per year 12 16 16 30 36 39 45 54 60 63 Numero de meses de promotores POR AÑO 180 240 240 450 540 585 675 810 900 945 Numero de meses de promotores por FASE 660 1,575 3,915

Socios inversionistas con crédito 60 96 168 200 375 468 507 633 756 870 1014 Socios observadores 1920 1884 1812 1780 1605 1512 1473 1347 1224 1110 966 Total de socios 1980 1980 1980 1980 1980 1980 1980 1980 1980 1980 1980

ANNEX 5: Evolution of the number of partners, promoters and technical advisory

2500

2000

1500

1000

500

1 2 3 4 5 6 7 8 9 10 11 Socios inversionistas con créditos Socios observadores Total de socios

Coopecan: Micro-credit program (Extention Phase II and III )

Investment partners vs. observers 2500

2000

1500

1000

500

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Socios inversionistas con crédito Socios observadores Total de socios

18 16 14 12 10

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

ANNEX 6: Co-financing of coopecan