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5. NDF – Nordic Development Fund

The Nordic Development Fund (NDF) was established in 1988 and commenced operations in 1989. NDF is a joint Nordic international finance institution of the five Nordic countries: Denmark, Finland, Iceland, Norway, and Sweden. NDF is governed by its constituent documents which define the privileges and immunities of NDF and its personnel. The purpose of NDF is explained in article 1 of the agreement:
“The purpose of the Nordic Development Fund (...) is to promote economic and social development in developing countries through the participation in financing on concessional terms of projects of interest to the Nordic countries.”
NDF (2020A)
NDF is funded by the development budget from each Nordic country with an active portfolio of EUR 359,3 million (by the end of 2022)
NDF (2023A)
. Since the introduction of a climate mandate in NDF in 2009, the key focus of this IFI has been projects that target the nexus of climate change and development in lower-income countries, thereby providing support to developing countries and the most vulnerable people affected by climate change
NDF (2020B)
. Climate mitigation, climate adaptation or projects enveloping both must be included as project objectives, and other environmental concerns including biodiversity are also part of the scope.
NDF has co-financed 135 climate projects in 30 countries, mainly in Africa
NDF (2023A)
. It is a co-financial institution, meaning supplemental financing flows are required. NDF finances projects in both the private and the public sector.

5.1. Instruments in use

NDF operates with three types of financial instruments: Grants, concessional loans, and equity, used individually or in combinations when relevant.
NDF describes the key elements of their mandate as
NDF (2020B)
:
  • Nexus between climate and development
  • Focus on lower-income countries and countries in fragile situations
  • Concessionary financing
  • Nordic priorities

Under the first element, NDF points out that the climate agenda is closely interlinked with other aspects of the environment such as biodiversity, and NDF will continue to make efforts to identify activities in the nexus between climate change, biodiversity, and the oceans. NDF does not have any targets specifically for biodiversity, in terms of how many projects that should be directed at positive biodiversity benefits, but biodiversity is part of the current strategy
NDF Environmental & Social Safeguards Specialist (February 1, 2023). Personal interview.
.

5.2. Strategies and Policies

The most recent strategy of NDF was published in 2020. It is valid until 2025
NDF (2020B)
.
Activities within the strategy include:
  • Advancing Nordic Leadership
  • Developing early-stage project and design structures
  • Providing catalytic finance for launch and scale

The primary focus for NDF is Climate change, the 13th Sustainable Development Goal. It is stated in NDF’s strategy that:
”NDF works in a holistic way towards the development challenges spelled out in the other sixteen SDGs, recognising the interlinkages to and actively seeking co-benefits with other SDGs, not least with regard to environmental objectives. The position entails a strong focus on inclusive development as well as a proactive approach on gender responsiveness in line with Nordic priorities. NDF is well -placed to further advance the Nordic agenda both on a policy level and on an operational level.”
NDF (2020B)
The NDF Strategy emphasizes Nordic priorities and how these are incorporated into the NDF mandate. In the description of Nordic priorities, biodiversity is mentioned as an important aspect. Biodiversity is included in the strategy with regard to safeguards, but also with regard to synergies in projects directed towards climate. NDF acknowledge the important linkages between climate change and biodiversity loss, and search for synergies to address both issues through their financing
NDF (2020B)
.

5.2.1. NDF Environmental & Social Policy

Through NDF’s Environmental and Social Policy they formalise their requirement to recipients of their funding to safeguard and, if possible, enhance biodiversity
NDF (2021C)
. This is stated as:
“NDF will require the recipients of its financing to take active measures in the protection, conservation, management, and sustainable use of living natural resources. Recipients are required to ensure that activities include measures to safeguard and, where feasible, enhance ecosystems and the biodiversity they support.”
NDF (2021C)
Thereby, NDF draw up ambitious strategic plans regarding the biodiversity impact of their financing.

5.3. Biodiversity concerns in NDF’s project portfolio

Biodiversity screening in investments involves an evaluation of potential environmental impacts associated with investment projects or portfolios. The goal is to identify and assess the risks and opportunities that may arise from biodiversity-related issues.

5.3.1. Investments and projects

NDF requires certain information about a project from the project owner including:
  • Project description
  • Description of potential significant impacts, both social and environmental
  • A quantification of the project’s impact on GHG emissions
  • All applicable permits and licenses related to environmental and social aspects of the project.
A. IFC Performance standard
6: Biodiversity conservation and sustainable natural resource management (2006)
Objectives:
  1. To protect and conserve biodiversity.
  2. To maintain the benefits from ecosystem services.
  3. To promote the sustainable management and use of natural resources through the adoption of practices that integrate conservation needs and development priorities.
According to NDF’s Minimum Standards, any project must adhere either to International Finance Corporation’s (IFC) Performance Standards or to the World Bank Environmental and Social Standards
NDF (2021C)
,
World Bank (2023)
. The biodiversity aspects of these standards are defined in the IFC Performance Standard 6 (see text box A) and the World Bank’s Environmental and Social Standards 6 (text box B), respectively. In addition to this, all projects must follow the relevant Environmental, Health and Safety Guidelines from the World Bank Group
International Finance Corporation (2023)
.
B. Environmental and Social Standard
6. Biodiversity Conservation and Sustainable Management of Living Natural Resources
Objectives:
  1. To protect and conserve biodiversity and habitats.
  2. To apply the mitigation hierarchy and the precautionary approach in the design and implementation of projects that could have an impact on biodiversity.
  3. To promote the sustainable management of living natural resources.
  4. To support livelihoods of local communities, including Indigenous Peoples, and inclusive economic development, through the adaption of practices that integrate conservation needs and development practices.

Results Management Framework

NDF designs, monitors, reports and commissions evaluations of its co-financed projects activities based on their Results Management Framework (RMF)
NDF (2021B)
. The RMF includes a set of core aggregate indicators in which the Sustainable Development Goals are integrated, and it is designed to be flexible and incorporate eventual upcoming requirements. The indicators are built on NDF Theory of Change and cover the levels strategic activities, outputs and outcomes
NDF (2021B)
.
One of the overarching outcome categories is titled “Natural capital and water-energy-food nexus” and this is the most relevant for direct biodiversity monitoring. This overarching category is informed by four core indicators
NDF (2021D)
. These indicators and excerpts from the indicator descriptions are presented below:
  1. Number of policies, plans, strategies, and technologies developed in support for integrated resource management addressing specific water- energy- food related concerns and efficiency measures.
Policies, plans and strategies can for example include measures and solutions addressing the following (but are not limited to)
NDF (2021D)
:
  • Design and planning support to policies, plans and strategies for integrated natural resources management (INRM) addressing specific water-, energy-and food-related concerns.
  • Support to sustainable use and/or management of natural resources.
  • Support to sustainable and climate smart/friendly agricultural production.
  1. Number of measures on conservation, sustainable use and/or management of natural resources supported to benefit the habitat, biodiversity, and/or ecosystems.
Measures can for example include products and services addressing the following (but are not limited to)
NDF (2021D)
:
  • Participatory protection of geographical areas to achieve the long-term conservation of nature with associated ecosystem services and cultural values.
  • Support to conservation efforts of habitat, biodiversity, and/or ecosystems.
  • Support to restoration efforts of degraded areas.
  • Policy and planning support for sustainable management of areas and species: area-based conservation approaches, including protected area management: ecosystem services and ecosystem-based adaptation.
  • Support to climate smart land use practices on avoidance of deforestation, erosion and drought.
  • Nature-based solutions to protect, sustainably manage, and restore natural and modified ecosystems.
  1. Number of people benefiting from improved conservation, sustainable management, and use of natural resources.
Measures provided may for example include (but are not limited to)
NDF (2021D)
:
  • Support to sustainable use and/or management of natural resources.
  • Support to sustainable and climate smart/friendly agricultural production.
  • Participatory protection of geographical areas to achieve the long-term conservation of nature with associated ecosystem services and cultural values.
  • Support to conservation efforts of habitat, biodiversity, and/or ecosystems.
  • Support to restoration efforts of degraded areas.
  • Policy and planning support for sustainable management of areas and species: Area-based conservation approaches, including protected area management: Ecosystem services and ecosystem-based adaptation.
  • Policy and planning support for decoupling of socioeconomic development through oceans-related sectors and activities from environmental and ecosystems degradation (re: blue economy).
  • Support to climate smart land use practices on avoidance of deforestation, erosion and drought.
  1. Size of area brought under improved conservation, sustainable management, and use of natural resources.
Solutions and measures provided may for example include (but are not limited to)
NDF (2021D)
:
  • Design and planning support to policies, plans and strategies for integrated natural resources management (INRM) addressing specific water-, energy- and food-related concerns.
  • Support to sustainable use and/or management of natural resources.
  • Support to sustainable and climate smart/friendly agricultural production.
  • Participatory protection of geographical areas to achieve the long-term conservation of nature with associated ecosystem services and cultural values.
  • Support to conservation efforts of habitat, biodiversity, and/or ecosystems.
  • Support to restoration efforts of degraded areas.
  • Policy and planning support for sustainable management of areas and species: Area-based conservation approaches, including protected area management: Ecosystem services and ecosystem-based adaptation.
  • Policy and planning support for decoupling of socioeconomic development through oceans-related sectors and activities from environmental and ecosystems degradation (re: blue economy).
  • Support to climate smart land use practices on avoidance of deforestation, erosion and drought.
 
Indicators are applied throughout the whole project cycle. In the origination phase, the indicators are considered in the project design to assess the impact potential of the project. The indicators are then reported by the project partners through annual project reports, which are submitted to project managers for review and the Monitoring and Evaluation Specialist for further quality assurance and review. Project reports are developed mostly annually until the end of the project period. Most of the projects undergo a final evaluation conducted by independent evaluators. Many projects also incorporate a mid-term evaluation. NDF has expressed that they are following the development of the CBD, the Aichi targets, and the SDGs to align the RMF with these overarching agreements and see how they can support the uptake in developing countries
NDF Monitoring and Evaluation Specialist (February 1, 2023). Personal interview.
.

5.3.2. Investment criteria

Sectors and activities that NDF do not finance are formally defined through an exclusion list
NDF (2021C)
. An excerpt of the biodiversity relevant aspects of the exclusion list can be seen in Table 3. The table describes selected criteria and additional information as defined by NDF, which has been matched with the relevant driver of biodiversity loss (see Background). Biodiversity is explicitly included in the exclusion list twice: Once through “Activities prohibited by host country legislation or international conventions relating to the protection of biodiversity resources or cultural heritage”. Biodiversity is also mentioned in relation to biofuel projects, as these are excluded if they are "based on feedstock grown on land with high carbon content or biodiversity value”.
Table 3. NDF Exclusion criteria and their relevance for biodiversity loss drivers.
Biodiversity relevant exclusion criteria
Criteria
Additional information
Relevant biodiversity factor
Activities deemed illegal under host country laws or regulations, or international conventions and agreements or subject to international phase-out bans, such as:
 
  1. Production of or trade in products containing PCBs.
  2. Production of or trade in pharmaceuticals, pesticides/herbicides, and other hazardous substances subject to international phase-outs or bans (Rotterdam Convention, Stockholm Convention).
  3. Production of or trade in ozone-depleting substances subject to international phase-out (Montreal Protocol).
  4. Trade in wildlife or wildlife products regulated under the CITES Convention.
  5. Transboundary movement of waste prohibited under international law (Basel Convention) except for non-hazardous waste destined for recycling.
  6. Activities prohibited by host country legislation or international conventions relating to the protection of biodiversity resources or cultural heritage.
  7. Production or trade in or use of unbonded asbestos fibres or asbestos-containing products.
  8. Shipment of oil or other hazardous substances in tankers which do not comply with IMO requirements.
Land-use and sea-use change
Direct overexploitation of natural resources
Pollution of soil, water, and air
Spread of invasive species
 
Unsustainable fishing methods, including blast-fishing, drift-net fishing or trawling in the marine environment.
 
Direct overexploitation of natural resources
 
Production of or trade in radioactive materials. This does not apply to medical equipment, quality control (measurement) equipment and any equipment where the radioactive source is trivial and/or adequately shielded.
 
Pollution of soil, water, and air
 
Investments into search, extraction, production, distribution, processing, and promotion of fossil fuels (coal, oil, natural gas and peat).
 
Climate change
 
Activities that increase use of fossil fuels and/or prolong the technical or economic lifetime of heat and power production using fossil fuels, except for back-up in power generation plants, for household cooking purposes and for processes where feasible alternatives do not exist.
 
Climate change
 
Biofuel projects if they are:
 
  1. Based on feedstock grown on land with high carbon content or biodiversity value, such as rainforests, wetlands, peat lands and grasslands, in reserves or on protected lands, or on lands with a high conservation value. b. Using a feedstock for production of liquid biofuels, where the overall climate and development benefits would be higher by using the same feedstock unprocessed for, e.g., direct combustion in a co-generation plant. c. Using solid biomass fuels from forests, planted or natural, having a carbon cycle incompatible with the Paris Agreement. d. First generation biofuel projects with production area over 75 ha.
Land-use and sea-use change
 
Commercial logging operations or the purchase of logging equipment for use in primary tropical moist forests or old-growth forests.
 
Direct overexploitation of natural resources
 
Production or trade in wood or other forestry products other than from sustainably managed forests.
 
Direct overexploitation of natural resources

5.3.3. Nature-based Solutions

NDF’s focus on climate change and development projects, which puts extra weight on adaptation projects as these are typically under-financed, is well-suited for application of nature-based solutions. Nature-based solutions are included as a measure in the RMF and can thereby be included in project design as well as throughout the project cycle
NDF (2021D)
. NDF is currently financing several projects that apply Nature-based solutions.
Case example: Climate resilience and mangrove protection
NDF has co-financed a five-year project on the Caribbean coastline of Honduras where coastal communities are working on enhancing climate adaptation and resilience. A main goal of the project is to protect the mangrove forest, which functions as coastal protection against rising sea levels, a significant carbon pool and an ecosystem crucial for biodiversity. Through the project, local stakeholders have come together to protect the remaining forests and plant new trees for regeneration and an increased focus on natural resource governance is promoting new practices that increase resilience throughout the coastal region.
NDF (2023B)
,
NDF (2023C)

5.3.4. Application of the EU taxonomy

NDF is not obligated to follow the EU taxonomy but considers it a valuable way to gain insights into sustainable financing, and which criteria can be set up for financial activities. Although the taxonomy is not formally applied, NDF is looking into the possibilities of using the Substantial contribution and Do No Significant Harm criteria to guide financial activities in the future
NDF Environmental & Social Safeguards Specialist (February 1, 2023). Personal interview.
.

5.4. NDF’s application of biodiversity safeguards

5.4.1. Risk based approach

NDF applies a risk-based approach to their projects, screening for environmental and social risks in the screening process and finding ways to address these in the origination and management phase. In the screening phase, all projects are assigned a risk rating
NDF (2021C)
. The risk rating determines what information the financing recipient is required to provide to NDF.
Since NDF functions as co-financers of projects, they are also expected to comply with partner’s risk frameworks.
NDF Monitoring and Evaluation Specialist (February 1, 2023). Personal interview.
 The larger funders that they cooperate with have rigid frameworks and, in some cases, large reputational risk, requiring NDF to take this into account in their operations in addition to their own risk-mitigating mechanisms. NDF can also support the lead agency by offering additional resources for quality control of risk assessments
NDF Environmental & Social Safeguards Specialist (May 30, 2023). Personal communication.
.

5.4.2. Application of the mitigation hierarchy

The mitigation hierarchy is formally applied through the IFC Performance standard 6 or through the World Bank’s Environmental and Social Standard 6.
NDF works by identifying potential negative environmental consequences of their investments early in the process, and state that even though their policy would allow it based on the Minimum Standards, it is unlikely that NDF finances a project where biodiversity offsetting was needed
NDF Head of Sustainability (February 1, 2023). Personal interview.
.

5.4.3. Monitoring requirements

Mitigation actions are addressed at the planning phase through the application of IFC PS6 or World bank ESS6 standards. An example of how mitigation actions are included can be found in the IFC PS6, where it is stated that:
“Given the complexity in predicting project impacts on biodiversity and ecosystem services over the long term, the client should adopt a practice of adaptive management in which the implementation of mitigation and management measures are responsive to changing conditions and the results of monitoring throughout the project’s lifecycle.”
International Finance Corporation (2023)
 The compliance of projects to the Minimum Standards is continually monitored, and it is expected that mitigation actions are adapted during the course of the project.

5.5. Maturity assessment of NDF

The maturity of NDF (Table 4) is assessed using the maturity tiers developed by Norion (Appendix A).
Table 4: Maturity assessment of NDF
Category
Tier C
Tier B
Tier A
Strategy
Strategy
 
X
 
EU alignment
 
X
 
Investment targets
 
X
 
Biodiversity goals
 
 
X
Board and management
Transparency
 
 
X
Decision-making
 
X
 
Systems
Investments targeted at biodiversity
 
X
 
Biodiversity safeguards
 
X
 
Project screening
 
X
 
Risk assessment
 
X
 
Project management
 
X
 
Project monitoring
 
X
 
Project evaluation
 
X
 
Frameworks and tools
 
X
 
Structure
Responsibility
 
X
 
Overview
 
X
 
Employees
Education
 
X
 
Competences
 
X
 
Internal knowledge sharing
 
X
 
Culture
Awareness
 
X
 
Topicality
 
X
 
Communication
External communication
 
 
X
Network
International partnerships
 
X
 
External knowledge sharing
 
 
X
International agreements
 
 
X
Nordic Council of Ministers I www.norden.org/publications I pub@norden.org