How the Capital Markets Can Conserve America's Forests
As gridlock persists in addressing our nation’s critical infrastructure challenges – America’s roads, bridges and railways – a similar, yet vastly underreported set of challenges exist with our natural infrastructure: namely, the loss of our large privately-owned working forests. Consider the following: 36 million acres of forestland have disappeared over the past 30 years. Another 37 million more acres are at risk of fragmentation and development. It’s quietly becoming an irreversible environmental and economic crisis for communities across the country.
Working forests provide us with clean air to breathe and clean water to drink. They support species diversity and generate more than 8.5 million jobs in the forest products and outdoor recreation industries. Perhaps even more important, they are an essential part of our nation’s efforts to address climate change, sequestering 12-15% of the United States’ annual carbon emissions.
As a country, we need to keep these forests intact and create a pathway for their permanent conservation as sustainable, working forests – and fast. This is where the bond markets come into play. In today’s economy, they are particularly good at identifying recurring streams of cash flow, risk adjusting and lending against them. Public policy isn’t a viable solution for a number of reasons – particularly state budget priorities that result in forest protection being an afterthought. According to the Institute of International Finance, total green and sustainability debt issuance in 2019 is projected to double levels from 2017. It will be nearly four times the level of issuance compared to 2016. So why not harness the bond market to help acquire these assets when they come up for sale in order to buy the time required to work out a permanent solution?
It’s worth noting that this isn’t a commercial proposition, but one defined by the non-profit sector. It has found a way to tap into the investment grade bond market and help re-engineer the markets to protect forests and stem the pace of loss. An abundance of capital and at-risk working forestlands, combined with a low-interest rate environment, squarely works in favor of conservation solutions that investors are gravitating toward. We must build on this.
Consider the example of The Conservation Fund, an Arlington, VA-based nonprofit that recently issued the first-ever green bond for conservation – a $150 million ten-year investment-grade offering. It provides a glimpse into how we might protect these forests. Investors received a market yield (thanks mostly to the revenue from sustainable tree harvesting) and the Fund received critical capital to accelerate their purchase of high conservation value forests when they become for sale. Once acquired, the Conservation Fund works with public agencies to put in place conservation easements that lock in the environmental and local economic benefits associated with working forests. Moreover, by combining philanthropic capital with the bond proceeds, there is a real chance to achieve impact at scale that is truly significant in moving the needle on climate change and rural economic development.
The power of the capital markets to leverage philanthropy and government action is real. We can achieve permanent, tangible results on the ground at the speed and magnitude these great challenges demand. The world needs this kind of innovation, bringing the strength of the markets to bear on the greatest land use challenge in America today. While the world waits for governments to align their policies and practices to address the climate crisis, this is something permanent we can do right now. In short, we buy critical time. Let’s seize upon it.