Results-based Payments

What are Results-based Payments?

Results-based payment is an evolving approach to sustainable development that aims to incentivize climate action, create and expand carbon markets, and stimulate innovation. Through this approach, investors pay an entity – which might be a sovereign nation, a private firm, or a local community – to achieve, report on, and independently verify a set of pre-agreed performance targets. These targets may be tied to the results of climate change mitigation or adaptation activities, such as reducing greenhouse gas emissions, implementing nature-based solutions, or sustainably managing natural resources.

The Emission Reduction program entities that work on the ground design their own methodology to achieve pre-defined results. This decentralized model allows results-based Emission Reduction programs to spur creativity and innovation since these stakeholders possess embedded knowledge of the area and the communities therein. Not only are these programs better tailored to the local context, but they are also more agile and better equipped for adaptive management; adaptive management is the process of adjusting program design and implementation according to evolving circumstances or based on lessons learned. Furthermore, these programs also improve accountability and funding effectiveness, because payments are only disbursed after results have been verified. As such, investors can be more certain that their contributions are creating a real impact on the earth.

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Key Elements of Results-based Payments

Climate Finance and Carbon Finance
What’s the Difference Between Climate Finance and Carbon Finance?
The Paris Agreement, an international agreement within the UN Framework Convention on Climate Change (UNFCCC), accounts for both climate and carbon finance.
Financing Modalities Under the ISFL
Financing Modalities Under the ISFL
The ISFL provides program countries with both climate finance and carbon finance. Under a climate finance modality, also called ER Use Modality 1 by the fund, the ISFL makes payments for verified ERs but does not retain ownership of these ERs.
The Link Between ISFL Grants and Results-based Payments
The Link Between ISFL Grants and Results-based Payments
The BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL) is a multilateral fund, supported by donor governments and managed by the World Bank, that works to reduce greenhouse gas (GHG) emissions from the land sector.
How Are Emission Reductions Monitored and Verified
How Are Emission Reductions Monitored and Verified?
Robust monitoring, reporting, and verification (MRV) is a critical component of the results-based payments approach, as it ensures that Emission Reduction programs achieve the desired results and enables the distribution of benefits to program stakeholders.
How Is Climate/Carbon Finance Disbursed
How Is Climate/Carbon Finance Disbursed?
An Emission Reductions Purchase Agreement (ERPA) is a legally binding contract between two entities, namely the buyer and seller of ER units, that specifies the terms and conditions for the sale of ERs.
How Can Emission Reduction Programs Be Designed Inclusively
How Can Emission Reduction Programs Be Designed Inclusively?
Results-based payments for ERs are oftentimes conditioned upon the development of a comprehensive Benefit Sharing Plan (BSP) which outlines how monetary and non-monetary benefits will be distributed to program stakeholders.
How Can Emission Reduction Programs Mitigate Risk
How Can Emission Reduction Programs Mitigate Risk?
In order to account for risks related to uncertainty and reversals, certain ER units, called “buffer ERs,” can be set aside in an ER transaction registry and deducted from the total volume of verified ERs generated by a program entity.