Our 193-million-acre National Forest System offers amazing vistas, havens for wildlife and escapes from everyday life. These assets, and others, help drive more than 148 million visits to National Forests each year, which support 143,000 full-time jobs and contribute roughly $10.3 billion towards America’s Gross Domestic Product.
The National Forest System also provides values which are less visible but equally important to our nation. The waters that flow from our National Forests provide tens of millions of people with their drinking water and generate hydroelectricity for 18 million homes. In 2018, over three billion board feet of timber was harvested from National Forests. In short, these public lands are an economic engine.
However, this economic value is at risk. Severe wildfire, drought, flooding, and insect and disease disturbances increasingly damage our forests. The critical water supplies that flow from these lands are impacted by wildfire on a regular basis. Over 80 million acres of National Forest System lands need some kind of ecological restoration. Aging recreation facilities like trails, trailheads, boat ramps and campgrounds are incapable of handling an increasing volume of visitors.
Unfortunately, the type of proactive management that could help address these challenges is hampered by budget constraints. Fire suppression costs continue to increase almost every year. Annual budget cycles frustrate long-term planning. Even with the hard work of the U.S. Forest Service and dedicated nonprofit partners like the National Forest Foundation (NFF), we are not keeping pace with the ever-growing threats our National Forests face.
This reality forces the Forest Service and its partners to think creatively about how to use federal funding, philanthropy, and private capital to support meaningful improvements to our National Forests and ensure that they continue to be an economic asset for our country.
Positive impacts through profits
Fortunately, there is growing interest from investors in programs that deliver a financial return, while helping communities and improving the environment. This category of asset, known as Socially Responsible Investing (SRI) or “impact investing,” has increased 18-fold since 1995. As of 2018, $12 trillion worth of U.S.-based assets have been invested in SRI portfolios. SRI investments seek to produce profits just like traditional investments, but they also produce positive impacts on a range of issues including the environment, consumer protection, human rights, fair trade, and more.
Not all SRI assets are dedicated to environmental improvements but many are. According to a report released by Forest Trends’ Ecosystem Marketplace, the private sector (primarily in North America and Europe) channeled $8.2 billion into investments that seek measurable returns and environmental benefits between 2004 and 2015. Perhaps more important for our forests, the report noted $3.1 billion in professionally managed portfolios dedicated to conservation was left unspent. Connecting the impact investing sector with needs on our nation’s forests, grasslands, and trans-boundary landscapes is something the NFF and Forest Service are actively pursuing.
The basic idea is that investors who provide the upfront capital to conduct large-scale improvements to National Forests earn a return from the economic value generated by those improvements. Two of the most promising efforts to date include a Forest Resilience Bond pilot project on the Tahoe National Forest in California and the structuring of a Pay for Success transaction on the Wayne National Forest in Ohio. These tools, if successful, will lay a path for the NFF, the Forest Service and other partners to work at larger scales and at a faster pace than traditional philanthropy and current funding programs allow.
Upfront investments equal downstream benefits (and profits)
In 2017, the Forest Service began working with Blue Forest Conservation (BFC), a public benefit corporation, to develop and implement the Forest Resilience Bond (FRB). The FRB is a financial vehicle that aggregates payments from downstream beneficiaries of forest restoration activities (water utilities and largescale water consumers, hydroelectricity generators, carbon emitters, etc.) to reimburse upfront capital investors. This model, with its large-scale upfront investment, allows for more rapid implementation than would be possible through incremental funding approaches like appropriations and philanthropy.
By actively exploring SRI, the Forest Service and NFF are tapping into new sources of investment capital and developing new ways to keep the economic engine that is our National Forests humming.
BFC launched its first FRB pilot project in November 2018, to restore forest health in the North Yuba River watershed on the Tahoe National Forest. With aggregated multi-year payments from the Yuba County Water Agency, the State of California and the NFF, the FRB is able to access over $4 million in private capital to improve 15,000 acres of National Forest lands over the next three to four years. The NFF is the primary implementation partner, carrying out projects like ecological forest thinning, meadow restoration, prescribed burns, and invasive plant treatments that improve forest and watershed health. As work is accomplished, payments from the beneficiaries of the work’s outcomes will be made back to the FRB to deliver a modest, sub market rate of return.
If you build it, they will come (and eat at restaurants and sleep in hotels…)
In 2018, on the Wayne National Forest in Ohio, the Forest Service and NFF contracted with consultant Quantified Ventures to assess the feasibility of Pay for Success (PFS) to support recreation infrastructure development. Similar to the FRB, PFS provides upfront capital for activities that will produce social, ecological and economic benefits. The repayment of that upfront investment, however, is tied to the successful achievement of expected, quantifiable outcomes.
If realized, PFS would provide over $5 million in upfront investment to finance the development of the Bailey’s Mountain Biking Trail System, an 88-mile trail network near Athens, Ohio. As a mountain biking destination within 250 miles of 35 million people, Bailey’s is predicted to increase visitation and drive new economic opportunities for nearby gateway communities. Local governments would repay the investors based on increased visitation and an associated expected increase in tax revenue from tourism spending. Using PFS would decrease construction time from five to two years, and provide robust data around economic outcomes from recreation infrastructure. Although the necessary agreements are not yet in place for this project, there is a high-level of community support for the project.
While PFS and the FRB are new efforts the NFF and Forest Service are exploring, they build on previous cross-sector funding initiatives, like the NFF’s Northern Arizona Forest Fund, Ski Conservation Fund, and Carbon Capital Fund (visit our website for more information on all of these efforts). These existing programs continue to help the Forest Service and partners integrate multiple stakeholders into one initiative, leverage public and private dollars, and measure outcomes from forest management and recreation infrastructure improvements, but they do not utilize upfront money. PFS and the FRB are tools that are evolving these approaches to incorporate upfront capital along with structured investment returns, and payments linked to outcomes.
The pilot projects on the Tahoe and Wayne National Forests could offer new solutions to financial issues that hamper conservation. By actively exploring SRI, the Forest Service and NFF are tapping into new sources of investment capital and developing new ways to keep the economic engine that is our National Forests humming.
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