Impact Investing –The ‘Real’ Deal

October 13, 2018

Peter Stein, Lyme Timber CompanyLeigh Whelpton, Conservation Finance

NetworkRebecca Jewett, Palmer Land Trust

What We Have vs. What We Need

THE CONSERVATION FINANCE NETWORK

$51.8 B/yr $300-400 B/yr

Sources: Global Canopy Programme (2012); Credit Suisse, WWF, McKinsey Report (2014)

51.8

300

0

50

100

150

200

250

300

350

Amount of Money (in Billions)

What WeHave

What WeNeed

What We Have vs. What We Need

Private Conservation Funding:

• Gifts & grants• Foundation grants• Corporate philanthropy• Favorable tax incentives

Federal Conservation Funding:

• Federal budget appropriations• Clean energy and climate legislation• Leases for energy production • Farm Bill conservation programs• Environmental damage mitigation costs

Investment made with the intention to generate measurable social and environmental impact alongside a financial return.

• Opportunity: redirect 1% of global assets under management to projects and markets where natural resource management can generate a return

• Drivers: – Resource scarcity changing drivers of value (33 T ecosystem service value)– Unprecedented Intergenerational transfer of wealth (30 T changing hands)

• Dramatic growth of interest in conservation impact investment over 10-15 years – Majority of conservation investment has occurred in US “food and fiber”– 3.1B ready to be deployed at end of 2015

• As with any emerging investment sector, growth limited by:– Lack of historic performance data, management teams with long histories of success,

unproven business models, limited pre-commercial or seed support, high transaction costs, small transaction sizes, etc.

Impact Investing:Trends

• General taxonomy:– Environmental credit markets– Outcomes-based or “pay-for-success” models, avoided cost models– Sustainable approaches to real asset investments (timber, ag, ranchland)

• Additional tools that incentivize conservation management:– Consumer-driven certification programs (e.g. Forest Stewardship Council or USDA

Organic)– Conservation or agricultural easements (whether donated or sold)– Favorable tax incentives

• Note: someone has to pay for the environmental good or service. – E.g. Municipality, taxpayer, consumer, a regulated/compliance buyer, utility or their

ratepayers, etc.

Impact Investing:Tactics

Timber Agriculture Ecosystem Service & OtherLyme Timber Agriculture Capital Encourage Capital

Ecotrust Forest Management Farmland LP Resource Environmental Solutions

New Forests Iroquois Valley Farms REIT Ecosystem Investment Partners

Climate and Forest Capital Blackdirt Capital I2 Capital

Blue Forest Conservation Dirt Capital NatureVest

Conservation Forestry New Island Capital Quantified Ventures

Equilibrium Capital Terra Global Capital

Propagate Ventures Greenprint Partners

Grasslands LLC The Climate Trust

Beartooth Capital The Freshwater Trust

Established & Emerging Actors

• Private Capital for Working Lands Conservation– A framework for understanding how environmental markets materialize and mature – Illustrates emergence of avoided conversion of grasslands carbon projects– Case studies in sustainable ag and timber– Conservation Finance Network: https://www.conservationfinancenetwork.org/2017/04/04/report-private-capital-for-

working-lands-conservation

• Conservation Investment Blueprints: A Development Guide– Robust glossary of relevant terms and concepts – Information resource for organizations seeking private finance to develop investable conservation projects– Coalition for Private Investment in Conservation: http://cpicfinance.com/conservation-investment-blueprints-a-

development-guide/cpic_blueprint_development_guide_2018/

• State of Private Investment in Conservation 2016: A Landscape Assessment of an Emerging Market

– Go-to source for trend data and big picture insight– Nine case studies showcasing various segments of market activity– Forest Trends’ Ecosystem Marketplace: http://cpicfinance.com/wp-content/uploads/2017/03/doc_5474.pdf

• Case Studies – USFS Sustainable Recreation Infrastructure Pay-for-Success Feasibility Report (PFS in Ohio)

• https://static1.squarespace.com/static/558071a0e4b00a2971965f06/t/5af9dfacf950b7ac65c3177b/1526325182213/The+Baileys+Trail+System+Pay-For-Success+Feasibility+Report+Final.compressed.pdf

– EDF Financing Resilient Communities and Coastlines (EIB in Louisiana)• https://www.edf.org/sites/default/files/documents/EIB_Report_August2018.pdf

– The Conservation Fund Conservation Banking Case Studies• https://www.conservationfund.org/our-work/conservation-leadership-network/our-services/conservation-

banking-case-studies

Emerging Research

• CFN website & monthly eNews• Articles: e.g. “Financing Urban Water Protection and Management”• Thought leadership: Op-eds and insight• Webinars: Nature’s Returns Series• Toolkits: Seller financing, ballot measures, bridge financing, surcharges

• Conservation Finance Boot Camp • June 24-28, 2019: Portland State University

• Conservation Finance titles from• Use discount code

“CFN25” for 25% off

More Info…

T H EL Y M E T I M B E R

C O M PA N Y

− Timberland Investment Management Organization [TIMO] founded in 1976

− Differentiated through conservation investment strategy and creation of operating businesses

− Investment outcomes include superior financial returns, as well as permanent conservation at a landscape scale

− Partnered with 25+ national, regional and local land trusts

− Principals have completed more than 120 transactions with land conservation NGOs and public agencies, permanently conserving 1.2 million acres in 15 states and 1 Canadian Province

− Just completing the capital raise for The Lyme Forest Fund V. Aggregate equity capital raised to date in these five funds equals: $950,000,000

The Lyme Timber Company Overview

Background

T H EL Y M E T I M B E R

C O M PA N Y

Factors that support Lyme’s conservation investment strategy

Forest Dispositions

Estimated 60+ Million Acres Sold Since 1985

Changes in Forest Ownership

Less than Fee Acquisition (Conservation Easements) has Become the Preferred Tool for

Conservation

Conservation Biologists Stress Landscape Scale Planning/Conservation

Growth in Public Conservation Funding

LandVote.org is the best source for local and state conservation funding.

Lyme’s Strategy Building Blocks

$0M$2,000M$4,000M$6,000M$8,000M

$10,000M$12,000M$14,000M

BX Ranch – Case Study

Southeast Colorado• Worldwide, less than 5%

of temperate grasslands are protected

• Over 70% of the native grasslands are intact

• One of the greatest opportunities for grasslands conservation

Southeast Colorado• Over 60% of land

possessing high to outstanding biodiversity significance

• Approximately 90% of land is in private ownership

Partners & Roles• Palmer Land Trust• Lyme Timber Company• The Nature Conservancy

Photo © John Wark, used with permission by Palmer Land Trust

Project Origination• Partner roles• Core competencies

Getting To Closing

• Financial analysis (2014)• Lyme purchase agreement• Lyme-Palmer terms sheet• CE option agreement• CE fundraising• CE due diligence• CE closing (2015)

Other Factors• Great Outdoors Colorado• Other Funders• Colorado tax credit

3-Year Pilot Project• Savory Institute holistic management component• Grazing lessee• Three years later…

Baseline Reset“The updated Baseline Documentation shall then serve as the baseline against which future activities on the Property shall be measured to determine whether the grassland conditions are being maintained or improved.”

Lessons Learned• Value add of local presence• Value add of outside capital• Value add of national partner

Q & ALively Discussion