Jennifer Prillaman | Palladium - Nov 12 2019
Impact Investors are Fighting California Wildfires

Source: CBC

Last year was the deadliest and most destructive fire season in California history. As of 03 October 2019, over 40,500 wildfires have burned 4.4 million acres in the U.S. In Australia, wildfires have already destroyed three times more land than last year, with New South Wales and Queensland currently in states of emergency.

Twenty-five years ago, the U.S. Forest Service, which has a team of 10,000 firefighters to manage and respond to wildfires, spent 15% of its budget on firefighting. Now, it is spending over half its budget just fighting fires. “It creates this vicious cycle where we’re spending all this money to fight fires, and that takes money away from the preventative work that could stop those fires in the first place,” says Zach Knight, Co-Founder and Managing Partner of Blue Forest Conservation, an impact investment intermediary. Climate change will likely push the cost of firefighting even higher.

Impact Investing for Wildfires

Blue Forest Conservation has created the USD 4 million Forest Resilience Bond, a new financial tool designed for investors to fund forest restoration, shifting the upfront costs of this work from the government services to private investors.

Blue Forest Conservation has engaged investors like pension plans and insurance companies who can buy into the health of the Tahoe National Forest while making money. Their capital goes to contractors doing the much-needed preservation work, like thinning the forest, to prevent fires. Investors are paid back over five years with 4% interest. Those who benefit from the work – like the Forest Service, state agencies, and Yuba Water Agency – are the re-payers.

“This was really the first private investment that supports the management of our public lands,” says Knight.

Yuba Water Agency has invested USD 1.5 million into the bond because it calculated the preservation work will help save them money in the long-term. “There’s about 300,000 acres upstream of our reservoir here that our water comes from, and we care about the quality and quantity of that water from the forest,” says Willie Whittlesey, Director of Yuba Water Agency. “The need for funds is immediate.”

Impact Investing Infrastructure

This financial strategy is unique, but not new. Impact investing has grown steadily and substantially over the past few years, and more investors are looking to align their capital with their personal values, including climate change.

“Having one Social Impact Bond is a good start, but this problem is much larger than just one financial tool,” says Roland Pearson, Director of Innovative Finance at Palladium. “To make the best use of this impact investment, Blue Forest Conservation is rightly using this instrument as a model. They will need to collect lessons and best practices to help other investors and public sector players make informed decisions in the future about the most sustainable ways of funding public goods and social services.”

“This is such a nascent sector that each individual deal will impact the next, and we all need to work towards an impact investing infrastructure, where we have the right tools, systems, and information to quickly and efficiently mobilise capital for the greater good.”

Jennifer Pryce, CEO of Calvert Impact Capital, agrees: “If this transaction isn’t replicated, the forest fires can still rage.”