Bridging the gap between forest restoration and private capital

The Forest Resilience Bond bridges the gap between the ecosystem services of forest restoration and capital markets.

Forest Resilience Bond Strucure

Ecosystem Services

Fire, water, and resilience benefits valuable to stakeholders

Evaluation Platform

Quantifies benefits accruing to multiple stakeholders

Innovative Contracts

Monetizes mutifaceted benefits as payments

Financial Vehicle

Converts contractual payments into investor returns

Capital Markets

Immense, untapped resource to fund conservation

Measuring ecosystem services of forest restoration

By measuring the ecosystem services of forest restoration, the FRB enables beneficiaries to only pay for benefits received while shifting risk to investors.

  • FRB research partners will evaluate a variety of impacts created including the effects on water quantity, water quality, carbon emissions, and job creation.
  • Due to the evolving nature of relevant technologies, the development team will continuously revise measurement approaches to optimize precision while minimizing cost.

While value can be estimated using methods and benchmarks described in the table below, the FRB functions by enabling stakeholders to pay back some fraction of the estimated value delivered. Calculating total value from restoration (both avoided costs and revenue-enhancing benefits) can help make the economic case to all stakeholders for why FRB collaboration does not just make environmental sense, but economic sense as well.

Potential benefits of forest restoration
grouped by impact type

  Ecosystem Type Valuation Benchmark Type of Benefit Example
Water Impact Water quantity Utility replacement cost Revenue enhancing Cost per acre-foot of reclaimed water
Added hydropower Megawatt hour spot market Revenue enhancing Average spot price per megawatt hour
Water quality Increased cost of treatment Avoided cost Cost of chemical and increased filter backwashing
Sedimentation Cost of dredging Avoided cost Denver Water post-fire restoration costs (>$30 million to date)
Flood control Cost of flooding Avoided cost Cost of flooding damage following Schultz Fire in AZ
Fire Impact Forest resilience Fire suppression cost and value of fire risk reduction to infrastructure Avoided cost Cost of electrical transmission lines for Rim Fire, average cost of fire suppression per acre, or reduction of insurance premiums
Carbon emissions Carbon market Revenue enhancing Voluntary carbon permit price
Wildlife habitat Mitigation credits Revenue enhancing Value of mitigation banking market
Forest health Cost of tree mortality Avoided cost Value of carbon and fire risk reduction
Job creation Restoration jobs Revenue enhancing Salaries and taxes generated by restoration crews
Recreation Tourism value Protected revenue Community-specific tourism revenue
Protected timber Value of timber Avoided cost Merchantable timber appraisal and expected harvest schedule

Contracting with stakeholders

Contracts are a core component of the FRB because they allow benefits to be monetized as cash flows for investors.

  • While the FRB structure continues to evolve, a variety of contract types will be considered for each beneficiary in every project.
  • The development team may consider the use of contracts and agreements with the US Forest Service (USFS), pay-for-success and fixed contracts with utilities, and various state funding options.

Contracted beneficiary payments

  1. USFS reimburses a predetermined percentage of restoration costs, initially as work is completed and then spread out over five to 10 years
  2. Utilities pay a predetermined percentage of restoration costs spread out over 10 years
  3. Utilities also make pay-for-success payments based on measured increases in water volumes over 10 years
  4. States pay a predetermined percentage of restoration costs, initially as work is completed and eventually spread out over 10 years

Financial Structuring

Whereas measurement quantifies the benefits realized and contracting sets a mutually agreeable price for such benefits, financial structuring translates contracted payments from beneficiaries into cash flows for investors.

Financial Payments and Returns
  • Payments to investors could take the form of bonds, loans, or other vehicles but the structure as a whole is known as the Forest Resilience Bond.
  • Each FRB transaction will include multiple tranches (e.g. senior debt, mezzanine debt, and equity) to accommodate a variety of investors.
  • Investment tranches may include concessionary capital in the form of program-related investments, loan guarantees, or credit enhancements.
  • Capital structure will vary for each transaction based on expected cash flows, available sources of capital, and investor interest.

Structure of the Forest Resilience Bond

Structure of the Forest Resilience Bond Infographic