Crossing states and combining purposes, the National Forest system faces challenges in sustaining ecological and economic health.
The United States Forest Service has been exploring conservation finance, engaging with groups that issue bonds and seek to deploy investor-driven capital.
We caught up with the manager who oversees, evaluates and sets strategy for this activity to learn about a new grant offering and about her approach to value creation.
In May, the Network spoke to Nathalie Woolworth, conservation finance manager of the United States Forest Service about the Innovative Finance for National Forests program. This program offers $1.8 million in grants for the development and deployment of innovative financial models to support resilience of the National Forests.
The following is a transcript from that interview, focused on how this new program creates chances for conservation finance practitioners to test, scale, and launch new or emerging models in landscapes with a nexus to the National Forest system.
The answers below have been edited for clarity and brevity.
CFN: How does your agency view conservation finance?
Woolworth: Our working definition is conservation finance is the practice of raising, managing, and deploying capital for conservation outcomes. Specifically, the Conservation Finance Program’s mission is focused on increasing and accessing new sources of funding and financing to support our work with a focus on return-driven investment opportunities that engage private capital. We like to take a broader lens and say that conservation finance is literally anything that you can use to fund or finance your work but our focus as far as innovating is really on that return-driven investment.
CFN: How did the finance specialty or, in your case, team emerge in your agency?
Woolworth: All credit there goes to Tommie Herbert, my predecessor in the Program Manager role. She just, I would say, pretty single-handedly pushed this work through at a variety of different levels and got people engaged, leadership and folks in the field, to pilot this work and demonstrate proof of concept. She started building a community of practice with regional points of contact. When I came on board a year or so after this program was officially started, I added capacity to those efforts.
At this point in the program’s evolution, my role is more focused on professionalizing and institutionalizing this work. Because we have a program in place, it’s more about making sure that we build awareness and educate across the agency and get projects on the ground so that we can point back to successes. We’re also thinking about how to systematize processes around supporting Forest Service staff and partners, be it financially, with our time, or through resources we develop.
CFN: How has conservation finance played a role in some of the most popular programs at the Forest Service?
Woolworth: All the conservation finance models we work with are partnership driven. Sometimes that is internal partnerships with other staff areas or folks at different levels of the agency. Sometimes that’s partnerships with external players. I do think there is an agency emphasis on partnership right now. The Forest Service has a strategy around Shared Stewardship, which is work across public and private lands that supports forest resilience.
The agency is signing MOUs with state governments to commit to partnering to get hazardous fuels treatments done, and to coordinate thinking about fire risk and general forest health. In a lot of the conversations going on around Shared Stewardship, conservation finance has been used as an example of partnership-driven thinking, in a really high-profile way. This has been true on both the fuels management and recreation side of things.
We’re attempting to apply these models to the agency’s greatest challenges right now and saying “how do we get conservation finance to address challenges that are top of mind?” The Forest Resilience Bond is a great example of that. On the recreation infrastructure side of things, our Baileys Mountain Biking Trail Project on the Wayne National Forest is doing that. Conservation finance is coming in as this opportunity in a really challenging time. It has been exciting to see leadership use us as an example of work to make progress in areas that seem pretty intractable.
CFN: The Innovative Finance for National Forests program seems to be offering a chance for new and innovative project structures to receive funding. Can you describe the program and its goals?
Woolworth: We have been doing conservation finance work for about five years, and it has been taking us a while to get projects off the ground, like two or three years or more. And the projects we have gotten off the ground have been happening at a pretty small scale, like four or five million dollars. And we are talking about billions of dollars of forest restoration needed across the country. So, the scale of work we are financing and implementing is not matching the scale of need right now.
This program was really envisioned as a way for us to accelerate the pace and scale of conservation finance work, to get more projects on the ground at different phases of development so that we are supporting work to design new models but also to replicate models and scale those models up. We are basically looking to get more projects on the ground, generate more lessons learned, demonstrate proof of concept, and also bring more partners into the fold to innovate with us.
As far as specifically what funds are going to support – we are sending funds to partner organizations that have proposed innovative financing concepts that contribute to the resilience of national forests in one of two areas; watershed health and recreation infrastructure. While we are generally looking for projects in these categories, we are mostly focused on the financial innovation piece. We are a little bit agnostic as far as the [specific] environmental outcomes. There need to be environmental outcomes, definitively, but we want to see financial innovation – which in the case of this program could be testing totally new ideas, or replicating and scaling existing creative models.
CFN: Could you describe what you were looking for generally in proposals?
Woolworth: We are definitely looking for a nexus with the National Forest System. Projects do not have to take place on National Forest System land, but they have to contribute to resilience in some way. So that could be a cross boundary project or a project on adjacent lands. The financial innovation piece is also key. We are looking for new ideas, or ideas that maybe have been tested once or twice but we are looking to do it in a different place and at a different scale.
We asked for proposals at four phases of development, the “design” phase, scoping out an idea; the “develop” phase, which is how do you start to look at what financial structuring would look like; the “implement” phase, which would be actually doing the project; and the “refine” or replicate phase, which is “you have done it once, now do it again”. We see this as a huge pipeline building activity for the Conservation Finance Program and the agency. If we are funding projects across those four buckets, we are feeding current innovation but also hoping to seed innovation to come.
Besides the diversity of project phases, we are looking for geographic diversity, diversity of finance model, diversity of partner organizations involved, and diversity of environmental challenge being addressed.
We are scoping out ideas that may or may not go forward and may or may not have viability, but we are testing so that if they do have that viability maybe in five years they are being implemented. Round One funding really had two focuses – first, to accelerate replication and scaling of existing approaches like Environmental Impact Bonds; and second to jump-start the development of truly innovative ideas that have never been tried.
I would say generally that the diversity of the portfolio was important. Besides the diversity of project phases, we are looking for geographic diversity, diversity of finance model, diversity of partner organizations involved, and diversity of environmental challenge being addressed. We thought a lot about that as we picked grantees because we need to have experimentation going on at a lot of different cross sections. We have a strong portfolio with regard to replication and scale, but had less success in cultivating innovative mechanisms and partner diversity. As a result we’re thinking hard about how to get more intentional around diversity if and when we offer a Round 2 of funding.
CFN: Could you talk about what was in the successful proposals and what you are excited about in this first cohort of projects?
Woolworth: The strongest applications demonstrated that applicants understood what it takes to get something like this off the ground. They were able to talk about measurable impacts that would come from the project that could be quantified and meaningful to potential stakeholders that might be willing and able to pay. There was a real spectrum of grantees’ understanding of that kind of stuff and you could tell those who conceptually understood those points of connection and why they were important to frame up.
CFN: You have mentioned that you are crafting this program to target four different phases of market development, similar to those in CFN market development framework. What do you think your program’s role is in supporting market development?
Woolworth: I think that is our program’s job more than anything else, to incubate projects and push them through that pipeline with the ultimate goal of attaining scale. I think the market development framework is helpful in thinking about how we advance this work as a conservation finance sector, and at the Forest Service in how we advance our work as a program. Talking about phases of development helps me to articulate our vision when I talk to leadership or external partners or anyone, to use those phases to articulate where we want to head and where we are now and how much work there is still to be done.
CFN: Would you say that this program is unique in its desire to support those early stage, early market, or pilot projects, more so than some of the other programs?
Woolworth: Yeah, I think so. Our program is super focused on innovation, in our case on engaging private capital. I think inside the federal context generally, and inside the Forest Service more specifically, that is fairly rare. That said, there are fantastic programs the agency runs like the Wood Innovations Program, Forest Legacy Program, CFLRP, and others.
It is really helpful that the Conservation Finance Program sits in the National Partnership Office because that office is seen across the agency as being the hub of innovation. We are able to use that reputation and we’re sometimes given a bit more leeway. There is a lot more subtle innovation going on elsewhere, but we fly our innovation flag and people seem to be excited about that and that is just our full-time job.
CFN: Do you think this program could be a good example for other federal agencies to develop more programs around catalytic funding or funding of the idea phase of market development?
Woolworth: Yeah, I do. I think it is critical to have a good partner to work with. We couldn’t do this just at the Forest Service, we have to be working with the U.S. Endowment [for Forestry and Communities] because they are actually managing the Forest Service funds for us and granting them out to partners. It would have been a lot harder to do this if they weren’t on board, and they have been fantastic thought partners too with lots of experience in how to run a grant program.
The National Forest Foundation (NFF) is also a partner but more on the technical assistance side. They have been able to provide very practical guidance on the feasibility of specific proposals, and will be working with grantees to advance these projects.
This is a great model to support innovation, although we’ve learned so much about how to improve it already. One of my biggest takeaways is that in addition to having a program like this you have to really socialize the program for folks, so they really understand the big “why” behind needing to innovate. I think once the program takes off you need to share successes and bring people along with you, otherwise, the program finishes up and you have a few innovative ideas but they aren’t leading to anything bigger or to any substantive culture change.
CFN: One thing that struck me about this program is the flexibility in allowing the funding of feasibility analyses or capacity-related activities that can be difficult to get funded [through other programs]. Could you talk about how your program views these activities?
Woolworth: Just reflecting on the budgets we have received for Round 1 applications, most are asking for funds to cover staff time or contractor time. That can be something that is hard to get funding for and where foundations always come to play. But we were happy to provide that support here because what you really need money for is just for people to put their heads together and build relationships and do economic analysis and build financial models and lead the project management to make this work happen. There is no building or thing that you are paying for, you just need people.
CFN: Is there anything else you want to highlight about the program for the conservation finance audience?
Woolworth: Provisionally, we would want to do a Round 2, dependent on our budget. This has been a really successful initiative so far because it brought together three partners that had never worked together before; the U.S. Endowment, the Forest Service, and the National Forest Foundation. It has brokered conversations and led to generation of ideas that just wouldn’t have happened otherwise. One of the exciting things about the possibility of Round 2 funding is that we could take some of the projects we are funding now in the feasibility phase and provide funding to move those projects down the pipeline if the finding is “yes, this is a viable idea.”