Packard Foundation’s $10MM Investment Helps to Launch New Forests’ Innovative “Impact Tranche”
The David and Lucile Packard Foundation recently approved, subject to funding conditions, a $10 million (USD) Mission-Related Investment (MRI) to help create an innovative “Impact Tranche” within New Forests’ sustainable forestry investment program in Southeast Asia.
Investments Will Catalyze Deeper Impact and Scale
The Impact Tranche is designed as a new equity class of shares within New Forests' Tropical Asia Forest Fund 2 (TAFF2) to incentivize the fund to pursue deeper climate, biodiversity and social outcomes that stretch beyond the fund’s business-as-usual sustainable forestry investment practices. These specific, additional impact outcomes will include investment in conservation and restoration of ecologically valuable lands, achievement of additional carbon mitigation within forest management practices, and deeper livelihoods benefits that support increased employment and higher incomes for the surrounding forest communities.
For example, the Impact Tranche would incentivize the fund to create, restore, and protect "biodiversity corridors," areas of vegetation that allow animals to travel from one patch of forest to another. Typical sustainable forestry practices would only require maintaining existing natural forest areas but would not require proactive management to restore and manage them for use by wildlife as habitat. These impact goals are built into expenditures of the entire fund— not just the investments in the Impact Tranche – to prove out a new business-as-usual.
The Anatomy of the Fund
The TAFF2 fund is targeting a total of $300 million in investments, of which approximately 10-15% of the fund’s equity (or a minimum of $30 million) will be within the innovative Impact Tranche. The Impact Tranche will take the form of Class B interests, which will be pari passu with the commercial Class A investments unless specific and additional impact activities are undertaken. In that instance, where documented and additional (beyond business-as-usual) impact activities are implemented throughout the portfolio, then the Class B will receive a targeted 5-9% gross nominal return, while the 'mainstream' Class A tranche would receive a targeted 14-18% gross nominal return. If the additional impact outcomes are not pursued, then the Class B Impact Tranche investors would receive the same returns as the Class A investors. In this way, the Impact Tranche has the potential to catalyze deeper impact while attracting additional scale to the overall fund.
Packard’s $10 million investment represents the Foundation’s first Mission-Related Investment (MRI). Historically, the Foundation’s mission investments in this arena have sought to build emerging mission-aligned fund managers. This MRI is a pilot for incentivizing and accelerating deeper climate and conservation outcomes within larger, more established fund managers at scale.
Recent news coverage on the Impact Tranche can be found in these stories in Impact Alpha and Philanthropy News Digest.
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