Milestone


05

Develop Business Case and Financial Model

Introduction

You’ll have started building your business case and financial model in earlier steps – laying out your vision, the market proposition and estimating costs and income. This step offers a review, in addition to providing details on information needed to build out the financial model and business case more fully. Both of these key documents will be iterated throughout project development, and may be altered during project delivery as new information emerges. These documents are interlinked and, if developed correctly, will ensure your project’s viability and also help you with discussions with stakeholders including sellers, buyers and future investors.

The financial model will also enable you to better understand the type of structure your project may take to attract investment (i.e., an environmental bond, a loan, an equity investment) and what sort of returns you can afford to pay/offer.

Milestone 1: Initial Project Scoping

The initial task is often to understand the site(s) you want to use and the land use change needed for nature restoration or creation. This includes considering the goals of the land managers involved, the vision within the wider catchment or neighbouring area, and whether there are permits or planning consent needed for any proposed changes.

At this stage, you can also conduct a high-level assessment to determine which revenue streams can be generated from ecosystem services,  i.e. carbon credits, flood reduction cost savings, biodiversity units, which will be crucial for identifying buyer interest.

Finally, it is useful to have an idea of the costs of the project and potential grant funding that may be available to support initial development.

Introduction

Initial ownership of the ecosystem services will belong to the landowners or, in some cases, the tenants of the sites that the project is using. However, these can be passed onto others, such as third-party project developers, with lease arrangements. In some cases, there may be a sole seller of ecosystem services. This would be the case with a site or landholding large enough that it delivers the volume of ecosystem services needed to cover the costs of the project.

However, in order to achieve scale and impact, a project will likely involve multiple sellers, such as neighbouring land managers and landowners. Scale of land is often needed to deliver significant environmental outcomes, and also to attract private finance. Project developers must plan how they initially contact and engage with these sellers going forward.

Introduction

At this point, you will have understood the vision for the project and you’ll have chosen a particular ecosystem service or set of services to be sold. The next step will be to carry out detailed analysis – baselining each ecosystem service and quantifying what will be able to be delivered from the interventions, as well as planning how to monitor and maintain these interventions. You will need to rely heavily on ecological expertise for this more scientific milestone.

At this step, standards, verification and accreditation methods will be considered in more depth.

Introduction

Based on your earlier market analysis in initial project scoping, you will have identified one or more groups of beneficiaries who may be willing to ‘buy’ or pay for the ecosystem service(s) to be created, restored or maintained. Buyers vary – as do their requirements – but At this step, greater buyer engagement is now needed to develop a deal that channels financing.

 

 

Introduction

You’ll have started building your business case and financial model in earlier steps – laying out your vision, the market proposition and estimating costs and income. This step offers a review, in addition to providing details on information needed to build out the financial model and business case more fully. Both of these key documents will be iterated throughout project development, and may be altered during project delivery as new information emerges. These documents are interlinked and, if developed correctly, will ensure your project’s viability and also help you with discussions with stakeholders including sellers, buyers and future investors.

The financial model will also enable you to better understand the type of structure your project may take to attract investment (i.e., an environmental bond, a loan, an equity investment) and what sort of returns you can afford to pay/offer.

Introduction

A governance structure will inform the way in which the project is run when fully operational and for what purpose. It identifies appropriate decision making processes, who is responsible for what actions, and what controls are in place to make sure that the project is meeting its stated goals, all while abiding by the risk appetite of its engaged stakeholders. The legal entity to host the project will be a key driver in this, and the appropriate choice of entity will be dependent on several factors that are outlined below.

Your governance structure should align with and underpin your business case, as a necessary component of how the project will deliver its environmental outcomes and other strategic targets.

Introduction

It is important to note that not all projects will need up-front investment, but for those that do, this section provides a framework for thinking around the development of the investment model. This does not constitute financial advice – as the GFI is not licensed to do so. However these considerations are based on the insight offered by project developers and other market stakeholders.

An investor will be a new core stakeholder in your project, and it’s just as important to think of what you require from investors, as much as what they require from you – so that you can build a positive and collaborative relationship with them.

This entails defining the investment ask (in line with the financial model), the strategy for approaching the right investors, and the negotiation of terms that can then be formalised in contract development (Milestone 8).

 

Introduction

When all relevant stakeholders have been engaged and their terms of engagement are clarified as much as possible, this is the time to develop the legal contracts and close the deal. This stage is last because legal fees are expensive, and it is generally advised to determine as much as possible in previous stages before

Note: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice on how to manage engagement with lawyers and the process of contract development.

The Green Finance Institute is not a firm of solicitors or connected in any way with the courts. The information and opinions we provide in this section and across the Toolkit do not address your individual requirements and are for informational purposes only. They do not constitute any form of legal advice. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from taking any action.

Introduction

Community engagement is highly advisable for any project that aims to sell ecosystem services, to ensure fair outcomes for local communities and the long-term success of the project. Project developers can build connections with local stakeholder groups early on to spot both risks and opportunities.

Introduction

Project developers and enterprises will need to keep a continuous check on how current and future policy may affect the project, and also opportunities for the project to inform policy. The role of private finance for nature across the UK is being encouraged by the UK government and its devolved administrations, and new rules, standards and markets are being developed.

 

This milestone contains three subsets of considerations or ‘themes’ that project developers may want to explore at this stage. Click on each of these themes to the right in order to read more.

You can also read case studies of projects that have successfully completed this milestone of development and view a summary of the common activities undertaken at this stage below.

Case Studies

Checklist

Useful Links

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Next Milestone
Developing the financial model

Financial models in projects of this type are usually structured as in spreadsheet form. Building up a full picture of costs and income is necessary to then identify any need for investment and test the project’s financial robustness.

Overall Considerations

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What is the anticipated timeline of my project?

The model should span the complete lifetime of the project, up to when no costs, incomes or investment payments are being transacted and the site is no longer contractually required to be kept in its target state. For some projects, this could be 100 years or more.

Timescales across your forecast can vary to represent the frequency of these monetary flows, for example the model could start with monthly periods to represent the remaining project development costs, weekly periods when habitat restoration or construction work begins, and then yearly periods when the site is under maintenance and monitoring.

 

Will I need a financial advisor?

You may choose to engage with a financial advisor that has experience in building financial models for nature-based projects and other relevant commercial experience. Examples of such advisors are included in the case studies of this milestone.

 

 

Assessing costs

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What development costs have been incurred to date? What development costs remain?

It is often helpful to split the total costs of the project between the development and the delivery phases of the project, as these phases carry different types of risk that are often met by separate sources of funding.

That being said, some projects may work on a complete ‘cost recovery’ basis where the costs of development must be repaid from the project itself. For example, if a project has received combined ‘design and build’ construction quotes from its project partners. This may not be necessary if you have received non-repayable funding for specific activities.

If you have significant project development work remaining, you should also be forecasting the resources needed to make sure the project does not stall in development. These costs could include technical surveys, impact assessment reports, the development of contracts or set-up costs for legal entities.

 

What are my future costs? When are these occurring?

Costs of the project must be mapped across the project’s timeline, including one-off exceptional and recurring costs. If you are unsure exactly when these costs are outgoing, then it’s advisable to take a conservative view and assume the earliest potential date to ensure there are no unexpected shortfalls in funding. The actual date of outgoing costs may be different to the delivery of the service being provided, depending on the payment terms agreed.

Where possible, these costs should be directly reflective of any agreements or quotes that the project developer has obtained with partners and service providers. These costs will also rest on certain assumptions that should be listed out within the model for testing (see below).

 

Am I considering all types of costs across my project’s lifetime?

The bulk of costs in nature-based projects are usually tied to the upfront interventions, such as the habitat restoration work. However, project developers must estimate costs across maintenance, monitoring, operational, legal, governance, communications, community engagement and reporting activities as well.

Anticipating different costs across the lifetime of a project can be challenging. In this case, consider speaking with others who have run similar projects, or third-party project developers.

 

Should I include income forgone?

Income foregone is a type of cost usually associated with the landholder of the site(s) being used in the project. It represents the opportunity cost to them of this land use as opposed to their economic alternatives. For instance, any agricultural production that has been sacrificed.

Income foregone can be a straightforward figure that the landowner requires from the project as a lease payment, in which case you can include this as an additional line under the cost section. More complex situations might involve the comparison of financial models between the project and the ‘business as usual’ land use scenario for the landholder.

The landholder will need to decide what their bespoke needs are from the project and how much risk they want to take, which can be agreed in contractual arrangements with the project developer, if these individuals are separate.

 

How am I accounting for inflation over the lifetime of the project’s costs?

Certain costs will be exposed to inflation, such as operating and maintenance contracts with inflation-linked increases built in. The expected inflation rate will be one of many assumptions within your financial model and should be applied to those costs that aren’t fixed by legal agreement.

Two commonly used indicators of inflation are the Consumer Prices Index (CPI) and the Retail Price Index (PRI). Depending on what costs you are referring to, one indicator may be more appropriate to use. Alternatively, you may want to use a more specific index of expected inflation where possible – for example if there is a price index for a certain raw material that will be used throughout the project.

The financial model can contain multiple inflation rates that are applied to different costs, revenues and time periods.

 

 

Assessing Income

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What is my income? When is that income expected?

As with costs, income should be mapped across the lifetime of the project, including public funding, such as grant schemes, and the sale of ecosystem services and products, such as biodiversity units or sustainably produced commodities.

 

What is the project’s ‘selling strategy’ for its ecosystem service(s)?

This includes the particulars of how the private financing element will be achieved. For example, if the ecosystem service can be unitised, what price per unit is the project expecting to achieve and how many units does the project want to sell over certain periods of time, what price growth does the project expect will be achieved over this timeframe and is this growth linked to inflation, or a demand-side driver such as supportive reform in buyers’ regulation?

Consider including an overview of these key details in the project’s business case (see below).

 

What is that income conditional on from the buyers’ / funders’ perspective?

Each source of income will have certain conditions attached to it. Government grant schemes may require the grant proceeds to be used only on certain costs. Private buyers may only purchase the ecosystem services when delivery of the interventions has been verified by a third party.

Meeting each of these conditions is an assumption of your financial model that needs to be tested alongside the assumptions in the project’s selling strategy (see below).

 

How does each stream of income affect the ability to generate additional income sources?

For example, if you commit to sell carbon credits from a project initially but plan to later sell biodiversity units when there is a more established market, how can you prove that this second ecosystem service is financially additional? I.e., that the payments for these biodiversity units will be delivering an additional environmental outcome beyond what will have happened with only the sale of the carbon credits?

Consider also the implications for the landowner or manager in signing up to other legal agreements that target environmental outcomes, such as agri-environment schemes, with use of the same site.

 

What is the regulatory risk to each source of income?

Environmental markets are a relatively nascent space and some market actors face uncertainty around the regulations that underpin them. For example, a number of existing regulations create unclear boundaries between what is a regulated requirement on a landholder and what is a voluntary agreement, which can affect the legal additionality of a project.

Project developers must continually check on the latest policy and regulatory developments that relate to their project, as these could have serious impact on how sources of income are agreed and channelled.

 

What tax treatment will each source of income receive?

Examples of tax treatments that are currently applied in nature-based projects include Income and VAT Tax treatment of landowner payments for ecosystem services, and the Inheritance and Capital Gains Tax treatment of land used to supply ecosystem services, including non-commercial woodland and habitat banks. Some land use changes will also have indirect tax implications, such as the loss of agricultural tax relief for land taken out of agricultural production. If you are unsure of what tax implications your project will have, consider speaking to a financial or tax advisor with experience in the land sector.

 

 

Managing the Financial Model

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How often is financial data being collected and reviewed?

As the project progresses, new financial data will become available that should be included in the model, such as realised costs of restoration or updated quotes relating to service agreements.  Management accounts should be maintained by an accounting professional with quarterly variance (actual vs budget) analysis reported to the project’s board or steering group.

 

What systems are being used to store financial records and help with accounting?

Consider where you are storing the project’s financial model and who may need access to it, such as senior decision makers or financial advisors. This could be a simple excel file kept on a SharePoint site, or a more formal software package that is designed to streamline invoice and accounting information.

 

Identifying the need for investment and testing the financial model

As you build a more complete picture of the financial model, you can identify if there is a need for upfront investment. Testing – such as sensitivity analysis (see below) – will also demonstrate the financial viability of the project and show where it is vulnerable to certain risks and assumptions. You can use this information to improve the project’s resiliency, potentially with the use of up-front investment.

 

Considerations

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What does the overall cashflow look like across the lifetime of the project?

After mapping all costs and incomes, you will be able to see the project’s free cash flow – how much cash the project has to hand at the end of each period. Here you will see where there is a predicted surplus or lack of cash under your assumptions.

Because the cash flow represents the project’s cash balance at any given point, it’s important that all transaction dates are accurate and represent when money is actually flowing in or out of the project, in line with payment terms.

 

Is upfront investment needed? If so, how much, when, and for what?

Based on your financial model and any sensitivity analysis undertaken, you will have a clearer picture of where the project is financially resilient and at what point(s) the project falls short of cash. This will demonstrate where there is a need for up-front investment. More detail on this ‘investment ask’ can be found in Milestone 7.

 

Can the project afford to pay this back? Over what period, with what returns?

Upfront investment could be provided by stakeholders already engaged in the project, for example if the buyer is comfortable with paying for the ecosystem services in advance, or if the landowner wishes to cover any short-term cash shortfalls with their own funds.

However, you may consider bringing in a third-party investor, in which case you will need to determine what is the project’s ability to repay this up-front investment and what extra financial return you can offer the investor. This will be determined directly by the project’s free cash flow over its lifetime, and the investors’ return requirement, as determined by the level of risk within the project.

 

How do I calculate the rate of return?

Building on the above question, you may consider different metrics that demonstrate the return that your project can provide investors, and include these in your testing (see below).

A commonly used metric is the Internal Rate of Return (IRR) that gives an annualised rate of return, known as the ‘discount rate’. Investors often use this metric as it gives a figure to compare to their own investment needs, but the simpler Return on Investment (ROI) across the lifetime of the project is also sometimes calculated. A useful comparison of these two metrics can be found here.

If you have a target rate of return in mind for an investor group, it is possible to ‘back solve’ your financial model by setting the target rate of return in your spreadsheet, using a certain formula, that will then indicate where there is a shortfall in free cash flow. You can then use this information to adjust or iterate your financial modelling, such as the renegotiation of payment schedules with buyers.

 

What underlying assumptions are being made about the project?

All financial models rely on assumptions that essentially serve as inputs to the model (unless these inputs have been contractually agreed). These include direct assumptions about the financial figures – such as the inflation rate or the price the ecosystem service will achieve, and indirect assumptions on the progression of the project – such as the expected date that necessary permits are issued or the completion date of any habitat creation work.

All identifiable assumptions should be listed within the financial model – usually on a separate spreadsheet – to create a view of the factors beyond the project’s complete control.

 

How do these assumptions affect the financials of the project when changed? Should I conduct a sensitivity analysis?

In the context of financial modelling, a sensitivity analysis is where the assumptions of a model are altered to determine how the project will be affected by unexpected changes. This is sometimes called scenario modelling.

Investors and other external stakeholders will want to see a sensitivity analysis as it will demonstrate the project’s resilience. For example, what will happen to the project’s cash position if the costs to implement the interventions on the site rise by 10%, or if some of these interventions fail after a year? How will the sale of any carbon credits agreed through an offtake agreement be affected if the required third-party validation of the site’s new condition is delayed by six months?

To present your sensitivity analysis in a more formal way, consider picking ‘target output’ figures that represent the health of the project, such as the internal rate of return and the free cash flow, and then identify what inputs and assumptions the project is most influenced by when changed, such as the costs of initial interventions or the unit price of ecosystem services. You can then create copies of your initial financial model – known as the ‘base case’ – and change these key assumptions across each copy to represent different scenarios.

You can then create a summary table to show how the inputs have been changed across each scenario and what effect these have had on the target outputs. This is the most common way of presenting the findings of your sensitivity analysis or scenario modelling to external stakeholders.

 

Should I build in a cash buffer or reserve?

Some projects decide to set aside a cash buffer or reserve, sometimes called a minimum cash position, by looking at its upcoming financial obligations and subtracting the amount needed from the free cash flow.

To assess how far in advance you should look in terms of these upcoming financial obligations, consider how often income is coming into the project and how consistently. If income flows are more sporadic, you will need to cover longer periods with your cash reserve.

 

Writing the business case

The business case (sometimes referred to as a business plan) is a sizeable written document that

captures the reasoning for why the project is being undertaken and also its commercial viability, driven by outputs of the financial model. Investors will want to see a comprehensive business case, and you may also show your business case to buyers, sellers, or other external stakeholders.

There are several ways you can set out a business case, with some recommended tools included in this section. For whatever structure you choose, below are some questions to help identify useful content. These are ordered in a way that is typically seen in commercial settings.

 

Introduction to the business case

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Can I summarise the project in a single page or less?

A basic overview of the project should be given up front for context. This is typically a single page or less and should include the opportunity of the project to deliver both environmental and financial gains – acting as a ‘teaser’ introduction for the entire document.

 

What is the ‘Ask’ of the audience?

You may have a general business case on file with no audience member in mind, but if you’re sending this to external stakeholders who want a full view of the project, you should state the ask of this audience clearly and early on. This could be for a new landowner to join your existing seller group, a buyer to pay for part of the project, or an investor to cover up-front capital costs. High level terms should be included and built on later in the business case.

 

What is the ecosystem service that the project is delivering? Why is it being delivered through this project?

Your audience may have a more developed understanding of the topic of ecosystem services and how they are increasingly being valued. However, it’s advised that in the written business case you assume minimal knowledge on this and explain what ecosystem services are being generated from the project and how, including any environmental drivers and key delivery partners you are working with. A simple but useful visual structure to include is the flow between natural capital and value to business and/or society.

 

What is the wider market that this project sits in, why has the project been started with private finance?

Alongside the above ecological explanation, you should outline the current market for this service, what transactions have taken place to date, economic drivers, regulatory drivers and any other information that supports why private finance is being used in this project rather than relying on just public or philanthropic support.

 

 

Overall Strategy

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What is the project’s ‘Theory of Change’ in delivering environmental and social outcomes?

A Theory of Change is a document that is commonly used in philanthropic and commercial settings when discussing the delivery of long term impact, such as environmental or social gains. Most investors will be familiar with this structure, and it can help you to demonstrate how the project will deliver lasting change that spans beyond the timeline of their investment, which will be crucial.

 

Can I show that the project fits into a wider vision for nature restoration in a landscape?

Project stakeholders, including investors and buyers, will generally value efforts of a project to align to the wider strategy in a landscape, as it can show a capacity for collaboration, synergies and deduplication of effort, and deliberate thinking as to how the project can deliver holistic environmental outcomes. You may want to stress in further detail here any key delivery partners, such as eNGOs, who you’ve worked with to date.

 

What are the short and long-term targets of the project?

Good project planning will include defined short-term and long-term targets that show how the overall goals of the project will be delivered. Depending on the type and lifespan of the project, the split between short-term and long-term may be different.

For example, short term targets might simply be the completion of habitat restoration/creation work within a year. You can also include targets for remaining project development, such as remaining contract negotiation with buyers. Longer term targets might include environmental gain, effective maintenance of the habitat, sustained community engagement, and the replication of the project elsewhere as a sign of shared learning. These can be qualitative targets that are underpinned by key performance indicators (see below).

 

What are the indicators for progress on these?

You can make many qualitative statements about the goals of the project, though ultimately these will only be valued by external stakeholders if they can be measured. Key Performance Indicators (KPIs) are a commonly used commercial term that involve the quantification of progress or performance within a timeframe. For example, you will include the metric of performance for your ecosystem service(s), such as tonnage of CO2e sequestered for a new woodland, but you could also include measurements for community engagement, such as number of estimated visitors per year, if that woodland has public access built in.

To set out the KPIs, it may be useful to take the financial model spreadsheet of the project and create a second section underneath to show how you expect KPIs to perform under the same timeframe. Investors and buyers generally value this approach as it shows how financial flows translate to outcomes of the project.

 

What is the unique advantage that the project has in achieving these?

To demonstrate strategic thinking around the project, you can include the advantages that you plan to leverage that makes the project unique and/or likely to succeed. This could involve the collaboration with farming clusters to make the project scalable, a new methodology being used to assess the delivery of ecosystem services, transactional agreement structures, backing from regulatory bodies, or particular features of the site(s).

Ultimately, this question brings out why your project is different and therefore why it should be supported over other choices that the audience might have in terms of the time and resources they are expected to commit to the project.

 

 

Financial Approach

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What is the overall profitability of the project? What returns are being offered?

At a high level, the business case should speak to the profitability of the project. This is usually defined as the free cashflow and internal rate of return (IRR) of the project. If presenting to a specific audience that is being offered a return, you should also include details on what returns they are being offered, when, and how these have been included in the financial model.

 

What is the volume and unit of the ecosystem service? How is this being priced?

For example, if your carbon sequestration is being unitised as tonnes of CO2e per year, if your sustainably produced timber is sold as whole trees or cut into standardised logs, or if your ecotourism product is charged via a day rate or a multi-day package deal per visitor. You should give detail here on how much volume of your sellable ecosystem service you are expecting to generate, and how the price is being set.

 

What is the transaction structure?

For example, BNG units being paid for via S106 payments from developers, a single offtake agreement being used to sell the carbon units, or a fixed payments contract being used to pay for flood risk reduction. You should include detail here on the expected timings of these payments and what they are conditional on.

 

How is price expected to change? What is the selling strategy?

If relevant, you can include here how the price for your ecosystem service(s) is expected to fluctuate and how you plan to mitigate this market risk through your selling strategy or use an expected increase in price to serve the financial viability of the project.

 

Are there any government revenue guarantees or schemes that minimise market risk?

You may have some form of guarantee from the government or another entity that helps to minimise the market risk, which is useful to include in your business plan with detail on how this works for the audience. The Woodland Carbon Guarantee is an example of this.

 

What kind of investment is being sought to enable this?

If you are presenting your business case to a potential investor, you will also want to outline what investment you are seeking and in what form, for instance an equity shares or a long-term loan with collateral, and what costs the investment will be used to cover. This section should align to the overall set of information you use to approach investors (See Milestone 7).

 

 

Management and Personnel

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What is the management team of the project? What experience do members have?

A short biography should be included of the individuals involved in the project’s development, and also who will be leading its implementation, if these differ. These bios – typically one to two paragraphs – should include their training, organisational successes and important accomplishments in the field.

 

What is the organisational structure of the project?

Consider setting out the desired organisational structure, how many people the project wants to employ or engage and how everyone will communicate to ensure everything goes as planned. This section outlines the logistics of who does what and when. The key partners and service providers of the project should be highlighted here, and what they are delivering. This content should align to the outputs from Milestone 6.

 

How has internal and external capacity been assessed? What skills / experiences are key?

This is an important question to ensure all the capacity needed to deliver the project’s goals across its lifetime has been captured in planning.

You may consider doing a skills gap analysis to prove this thinking has been taken into account. Instead of starting with the individuals, consider starting with the goals and targets of the project over its lifetime, then identify the activities needed for these goals, then the skills and experiences and finally the individuals who are best suited for this work.

For example, if the project plans to scale its model by forming partnerships across different catchments, when and how does the project plan to do this? What experience and skills are needed for this work? Is this capacity already established in the team, and how were these individuals selected? If not, how does the project plan to recruit new team members when this capacity is needed?

 

 

Risk Management

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What are the project’s dependencies and risks, and how are these being managed / mitigated?

A project will have several dependencies and resulting risks, such as the dependency on accreditation via a certain code to sell credits, and the risk of not achieving this accreditation on the project’s targets. Project developers should have an overview of the This is also essential for investors to understand the project and assess their own return requirements (See Milestone 7)

 

Should I include a risk register?

To present this information in a clear and concise way, consider using a risk register (also known as a risk management matrix). A risk register includes the risks of the project and addressing actions, but also the likeliness of each risk materialising and the impact it would have on the project. External stakeholders, such as investors, often use the ‘likelihood x impact = severity’ equation of each risk across the project to build a picture of the overall risk profile.

Building on from the example given in the previous consideration, a project may seek accreditation to sell environmental credits to a buyer, with a contracted offtake agreement that is dependent on accreditation being achieved by a certain date. If accreditation is not achieved then the impact on the project’s delivery would be high, but the likelihood of this could be substantially lowered if the project team has been frequently engaging with the accrediting body before its assessment of the project. Therefore, the profile of this risk is relatively low.

 

 

Marketing and Communications Strategy

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Do I have a suitable marketing and communications strategy in place?

Your business case should include considerations on your marketing and communications strategy towards all external stakeholders, such as potential buyers, investors, community members, eNGOs and government entities.

Depending on the size and complexity of the project, these strategies will have different levels of depth and formality. However, it’s important to reflect on the question of ‘how do I want the project to be perceived externally, and by who?’ as this perception may be a critical factor in the success of your project. Including the strategy (or a high-level summary) in your business case will show the viewer that you understand this.

 

How do I develop a marketing and communications strategy?

There are several ways to develop your communications strategy, and if you are not sure then the partners you’ve engaged to date, such as eNGOs or commercial advisors, may have a defined structure for the project to follow.

The strategy should include the main objectives of your communication work, e.g., communicating the replicability of your project’s blueprint to other parts of the UK, or gaining investor interest, and the ‘core messaging’ of the project that can be relied on as a ‘baseline’ truth for any communications event.

As a starting point, consider undertaking a full stakeholder mapping exercise, using the power-interest matrix that breaks down your stakeholders into groups of those with high/low interest and high/low power over the project. You can then use this map to think about the specific messaging you’d like each of these groups to receive about your projects, actions and initiatives that will effectively convey this messaging, and then those responsible for executing this work.

 

All Case Studies
Checklist

 

You can download a Word copy of the Milestone 5 Considerations as a checklist here, to help with your own project planning.

Alternatively, you can find a simple list of the Considerations below:

 

 

Financial Model

General considerations

  • What is the anticipated timeline of my project?
  • Will I need a financial advisor?

 

Assessing Costs

  • What development costs have been incurred to date? What development costs remain?
  • What are my future costs? When are these occurring?
  • Am I considering all types of costs across my project’s lifetime?
  • Should I include income forgone?
  • How am I accounting for inflation over the lifetime of the project’s costs?

 

Assessing Income

  • What is my income? When is that income expected?
  • What is the project’s ‘selling strategy’ for its ecosystem service(s)?
  • What is that income conditional on from the buyers’ / funders’ perspective?
  • How does each stream of income affect the ability to generate additional income sources?
  • What is the regulatory risk to each source of income?
  • What tax treatment will each source of income receive?

 

Managing your financial model

  • How often is financial data being collected and reviewed?
  • What systems are being used to store financial records and help with accounting?

 

Identifying the need for investment and testing the financial model

  • What does the overall cashflow look like across the lifetime of the project?
  • Is upfront investment needed? If so, how much, when, and for what?
  • Can the project afford to pay this back? Over what period, with what returns?
  • How do I calculate the rate of return?
  • What underlying assumptions are being made about the project?
  • How do these assumptions affect the financials of the project when changed? Should I conduct a sensitivity analysis?
  • Should I build in a cash buffer or reserve?

 

Writing the business case

 

Introduction to the business case

  • Can I summarise the project in a single page or less?
  • What is the ‘Ask’ of the audience?
  • What is the ecosystem service that the project is delivering? Why is it being delivered through this project?
  • What is the wider market that this project sits in, why has the project been started with private finance?

 

Overall Strategy

  • What is the project’s ‘Theory of Change’ in delivering environmental and social outcomes?
  • Can I show that the project fits into a wider vision for nature restoration in a landscape?
  • What are the short and long-term targets of the project?
  • What are the indicators for progress on these?
  • What is the unique advantage that the project has in achieving these?

 

Financial Approach

  • What is the overall profitability of the project? What returns are being offered?
  • What is the volume and unit of the ecosystem service? How is this being priced?
  • What is the transaction structure?
  • How is price expected to change? What is the selling strategy?
  • Are there any government revenue guarantees or schemes that minimise market risk?
  • What kind of investment is being sought to enable this?

 

Management and Personnel

  • What is the management team of the project? What experience do members have?
  • What is the organisational structure of the project?
  • How has internal and external capacity been assessed? What skills / experiences are key?

 

Risk Management

  •  What are the project’s dependencies and risks, and how are these being managed / mitigated?
  • Should I include a risk register?

 

Marketing and Communications Strategy

  • Do I have a suitable marketing and communications strategy in place?
  • How do I develop a marketing and communications strategy?

 

On the 25th of May 2023, the GFI hosted the fifth in a series of ‘Investment Readiness’ webinars that focus on UK nature-based project developers’ experience. This webinar focuses on Milestone 5, ‘Develop Business Case and Financial Model, with a panel of project developers who share their insight and experiences on this Milestone.

The panel includes:

  • Allan Benhamou, Associate, Finance Earth
  • Tom Dillon, Managing Director, Regenerate