Wednesday, December 19, 2018

The First Privately Financed Forest Resiliency Bond

In a remote corner of the Sierra Nevada, a financial experiment is about to begin. Five thousand acres of the Tahoe National Forest will receive mechanical and prescribed fire treatments but the project won't be paid by the US Forest Service. Instead, the roughly $4 million will come from two foundations, an investment firm and an insurance company. 

The Tahoe project is the first forestry project financed with a "forest-resilience bond" created by the World Resources Institute and Blue Forest Conservation. Blue Forest founders hope to persuade profit-seeking investors to pay for work that reduces the risk of costly wildfires and potentially eases the risk of drought. 

This is the first step, that Blue Forest also hopes will lead to much larger projects costing tens of millions of dollars and covering multiple watersheds in multiple states.

The forest resilience bond works like this: Investors put up the cash to pay for the thinning work. They'll be repaid over time, with interest, by public agencies or other entities that want to see the work done but can't pay for it all at once. In the case of the Tahoe Project, the upfront funding is coming from CSAA Insurance Group, investment firm Calvert Impact Capital, the Rockefeller Foundation and the Betty Moore Foundation. Together, they will lend the money to the National Forest Foundation, which will hire the contractors and manage the forestry work. 

The money to repay the bonds will come from annual payments from the Yuba Water Agency and a grant from the CalFire. 

For the investors, the appeal of the fire bond is more than just a return on investment. Linc Walworth, vice president of investments for CSAA, said the insurance company last year alone had 5,000 wildfire-related claims. "To the extent that we can reduce the risk of fire in California, that's good business for us," he said. 

The Cohesive Strategy supports this kind of "out-of-the-box" thinking and creative solutions to reducing risk. Read the full article here

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