Impact fund of the year: The Nature Conservancy's sustainable forestry fund

Channels: ESG

Companies: Cumberland Forest Project, NatureVest

People: Tom Hodgman

The Nature Conservancy (TNC) says its $130 million sustainable forestry fund can be a model for large-scale impact investment in forests.

The Cumberland Forest Project closed-end private investment fund acquired 253,000 acres (102,000 hectares) of working forestland across Virginia, Kentucky and Tennessee, in which it is implementing a sustainable forestry strategy that aims to benefit local economies, wildlife habitat, clean water and climate resilience. The forestland is in the middle of the US Central Appalachians, a globally significant biodiversity hotspot, according to TNC.

To fund a purchase of this size, TNC said it needed to look beyond the traditional funding sources of philanthropy and grants.

The NGO's impact investing team, NatureVest, developed a private equity-style fund structure where TNC is the fund manager and owns the general partner. The fund raised more than $70 million in equity from 27 investors (including TNC) and $40 million in debt (approximately $20 million from a government agency and $20 million from a foundation) and used an installment sale structure to re-invest $20 million of carbon offset sales proceeds towards the purchase price.

The fund seeks to generate "competitive" risk-adjusted financial returns for its investors with revenues from sustainable timber harvesting, carbon capture and recreational leases.

TNC believes it is the first time a non-profit has raised a forestry-focused private equity-style fund at this scale.

To date, the fund has secured permanent protection on nearly 23,000 acres (9,300 hectares) of forest and obtained Forest Stewardship Council certification across all 253,000 acres. Currently, about 50% of the Cumberland Forest project's entire acreage is accessible to the public under recreational leases.

In 2019, the fund was issued a total of 2.2 million tonnes of carbon dioxide equivalents (tCO2e) in California Air Resources Board Offset Credits, or about 40% of its long-term goal for carbon sequestration.

Tom Hodgman, deputy managing director at NatureVest, said: "We believe the strong interest in the fund is a signal to the market that investors are seeking investments that mitigate climate change and provide diversification against climate risks. We hope the example of Cumberland Forest LP inspires more managers and investors to adopt similar strategies – we need to mobilise more capital to tackle specific, urgent issues like climate change and biodiversity loss."

The NGO said it hopes the fund will serve as a model for the forestry investment industry, to show that conservation-based forest management "can be just as attractive to investors as conventional forest management from a financial perspective, while delivering urgently needed conservation outcomes". EF