Impact Investment Profile

Investor

The David and Lucile Packard Foundation

Investee

Ecotrust Forests I LLC (EF-I)

The David and Lucile Packard Foundation (Packard Foundation) makes grants and program-related investments according to the foundation’s mission, which includes conserving and restoring the earth’s natural systems. Ecotrust Forests LLC is an equity fund that manages forestlands for financial, ecological, and social returns. The Packard Foundation’s investment of USD 1 million will be used to naturally manage nearly 13,000 acres of forest land, generating financial returns for investors from timber sales, ecological services, and tax credits.

Investor Targeted Impact

Demonstrate the economic viability of sustainable forest management.

Investor

Name The David and Lucile Packard Foundation
Investor description The Packard Foundation works on the issues its founders cared about most: conserving and restoring the earth's natural systems, advancing reproductive health, improving the lives of children, and enabling the creative pursuit of science.Through its program-related investments (PRIs), the Packard Foundation provides investee organizations with project finance and growth capital, primarily in the form of low-interest loans. These investments support creative opportunities that expand the impact of the foundation’s programs. The investments allow investee organizations to seize time-sensitive opportunities, improve their fiscal strength, and expand solutions to social and environmental problems.

Investee

Fund/product name Ecotrust Forests I LLC (EF-I)
Manager information Ecotrust Forests Management (EFM) is a Forest Stewardship Council-certified forestland investment manager based in Portland, Oregon, U.S. that has invested USD 30 million in ecologically significant and commercially valuable forestland in the Pacific Northwest of the U.S. EFM’s goal is to implement a smarter, more sustainable style of forestry that is both financially competitive and beneficial to the health and resilience of ecosystems and rural communities. Formed in 2004, EFM is a for-profit subsidiary of Ecotrust, a nonprofit seeking to foster economic development that creates more resilient communities, economies, and ecosystems.
Sector Environment
Geography North America
Asset class Real Assets
Size of fund/product USD 30.4 million
Fund/product description Ecotrust Forests I LLC is a pooled investment vehicle that is structured as an Oregon-registered limited liability company (LLC). EF-I is an all-equity fund that is fully invested in four properties located in Oregon and Washington states, totaling 13,000 acres (as of 2012). EF-I generates returns primarily through long-term biological growth of forestland, sale of harvested timber and supplemented with income from environmental markets (primarily carbon offsets), conservation easements and New Market Tax Credits. (Note: conservation easements are a legal agreement between a landowner and a land trust or government agency that permanently limits uses of the land in exchange for a financial payment or tax deduction in order to protect or enhance its public values. New Markets Tax Credits are a federal incentive to spur private investment in economically depressed areas.) EFM’s ecosystem-based style of management is focused on improving forest health, productivity and long-term value for investors. EFM’s thesis is that this style of forest management can create more long-term value for investors as it produces higher quality wood, diversifies income streams, and captures multi-dimensional sources of value from environmental markets that are often ignored by conventional approaches to forest management.
Motivations for investment EFM’s innovative business model is aimed at proving the economic viability of an integrated, ecosystem-based approach to forest management on private lands. Ecosystem-based management focuses on production of timber for harvest, but also on preserving and sustaining the full ecological and social value of the forest ecosystem, meaning the processes and functions of other organisms in the forest and human communities connected to the land. Ecosystem-based forest management can increase the long-term value of the forestland by:• accelerating the development of older forest characteristics, such as large trees, snags, and downed wood, which provide valuable habitat and therefore improve potential for conservation funding; • improving both the quality and quantity of wood for harvest;• retaining seed trees for natural regeneration, thereby lowering management costs associated with replanting; • promoting species diversity, which can reduce the impact of and susceptibility to disease and stress; and • developing a continuous canopy forest cover with mixed age classes and species that improves log marketability , as harvests can be timed to coincide with high log prices or high demand for specific species.EFM focuses its acquisitions of forestland in economically depressed rural regions that are often dependent on forest resources. Its approach can sustain forest-dependent rural communities for the longer term, by creating higher-quality jobs for local labor and a reliable long-term supply of wood that can support mills and down-stream forest product enterprises. For The Packard Foundation, this model has promise to generate both a financial return and achieve the Foundation’s impact objectives, which include increasing land under ecosystem based management.

Investment

Instrument Equity
Investment size USD 1 million
Investment term To be determined. The Packard Foundation invested in 2009, and the first opportunities for redemption start in 2014.
Investment impact objectives The Packard Foundation has two primary impact objectives with its investment. First, the investment can help prove the business model for sustainable forest management because it supports an innovative project that can supply high-quality credits required for the development of ecosystem services markets, which are an important mechanism to successfully finance sustainable forest management. Second, sustainable management of forestland generates additional benefits that the Packard Foundation cares about. For example, it protects sensitive environmental features on the land and within interconnected ecosystems, for example rivers and wetlands, and improves watershed health. It also creates rural economic opportunities via jobs for local forest dependent communities. Finally, sustainable management of forests also addresses climate change by increasing the carbon storage potential of forests in the region.
Social and environmental metrics tracked on investment Ecotrust Forests tracks the following impact metrics, and reports on performance regularly to The Packard Foundation: • Number of acres under ecosystem-based forest management• Percent of total logs and pulp that are delivered to the Forest Stewardship Council (FSC)’s chain of custody mills (Packard views FSC-certified mills as having the highest standard of environmental practice in the timber industry)• Percent of snags per acre and presence of coarse woody debris that provide habitat for a number of cavity nesting birds, mammals, amphibians, insects and fungi. • Metric tons of carbon stored relative to prior periods and to appropriate baseline (Climate Action Reserve, Verified Carbon Standard, or equivalent standard)• Number and USD value of sales of ecosystem services (like water quality credits, wetland credits or mitigation banking credits, which ensure improved functioning of important ecosystems)• Number and USD value of sale of conservation easements• Number of direct jobs maintained or created• Proportion of jobs or contracts to highly economically distressed communities

More Information