Sacramento-based nonprofit Blue Forest marked the successful completion of its first Forest Resilience Bond, finishing multiple fire-suppression projects in the Tahoe National Forest and returning money to investors.
Blue Forest provides money up front to get planned, approved and permitted forest restoration projects done faster by making the money available to pay contractors quickly to do the work.
“It’s basically like a credit card,” said Zach Knight, Blue Forest CEO. The bond is a pool of money that project managers can pay local workers out of as the work is done, and potentially even pay them up front — as opposed to a multitude of agencies having multiple-week or multiple-month payment cycles.
Blue Forest works with foundations, government agencies, utilities, water agencies, private companies and other groups that can benefit from forest projects getting done.
Some of these projects take years to get permits, and even then, they don't have funding, Knight said.
The Yuba 1 project in the Sierra Nevada northeast of Sacramento had investors investors including The Rockefeller Foundation, the Gordon and Betty Moore Foundation, the John D. and Catherine T. MacArthur Foundation and Calvert Impact Capital Inc.
The success of Yuba 1 should help Blue Forest raise more funds, Knight said. “A lot of investors had never done a program investment before.”
Yuba 1 began work in 2019 on a 14,545-acre demonstration site that includes part of the Tahoe National Forest in the Yuba River watershed.
Blue Forest combines the money that multiple agencies and groups have and augments it with investor money to get the projects done faster. Blue Forest then returns a modest income to the investors, along with the benefits of the work to the water agency, local government, utilities and the U.S. Forest Service.
Most of the beneficiary entities have pools of money for projects, but they tend to pay slowly after the work is completed. To get the work done, and to pay the crews on the ground, Blue Forest operates a revolving loan fund that pays for the work and assembles the money of multiple agencies.
The Yuba 1 Forest Resilience Bond completed its work in five years, though it had up to 12 years to get the work done. It also paid its investors off. The foundations and nonprofits got a return of 1%. Other market-rate investors got a return of 4%. That may seem like a modest return in the current rate environment, but Yuba 1 was launched in 2018, when that was an attractive rate.
Blue Forest doesn't do the work. Rather, it supports a local nongovernmental agency with financing to run the work and pay contractors.
Blue Forest is supported by grants, federal agencies, foundations and investors. It partners with the U.S. Forest Service and the World Resources Institute, and it has university research partners.
The need is dramatic and growing. Forests in the West tend to be overgrown after 100 years of fire suppression now augmented by periodic droughts. Wildfires in the West in the past decade have burned through huge swaths of forest, and in some years, burned through suburban areas and even some towns.
Many of the same investors in Yuba 1 signed on for Yuba 2 in the same watershed. Blue Forest is also raising money for forest projects in Oregon. The company in June launched that Oregon forest finance facility with $12 million, but it has since grown to nearly $14 million.
Blue Forest calls its investment vehicle a Forest Resiliency Bond, or FRB, although it isn't technically a bond. Instead, it is a revolving loan facility. Blue Forest uses the FRB name because the mechanism is similar to Social Impact Bonds, which investors are more familiar with. Social Impact Bonds shift risk from social service providers to investors, who are willing to invest in a successful outcome.
