California’s ESG fund takes aim at state’s wildfire scourge

Wildfire resilience projects became the first beneficiary of California’s Climate Catalyst Revolving Fund — created as part of a larger package of ESG-related efforts by Gov. Gavin Newsom in 2019.

The state’s Infrastructure and Economic Bank, charged with running the fund, announced in September its first investment would be $25 million to support the California Wildfire Innovation Fund, an investment vehicle focused on climate solutions and managed by California-based Blue Forest Conservation, a nonprofit conservation finance organization.

The west coast has been hammered by historic blazes in recent years pushing climate change to the top of climate change agendas.

“Catastrophic wildfires are one of the most devastating manifestations of climate change in California,” IBank Executive Director Scott Wu said in a statement.

California’s risk from wildfires has also been a factor in property insurers‘ decisions to flee the state. State leaders have been working furiously this year to woo them back.

Both California and Oregon experienced another record-setting year of fires in 2024.

In California, 7,830 wildfires burned 1.04 million acres damaging 397 structures, destroying 1,684 structures and caused the death of one firefighter, according to the California Department of Forestry & Fire Protection. Oregon has experienced several years of devastating and record-breaking fires recently as well.

“The message from California’s policy leadership in addressing the wildfire crisis is clear: governments at every level must do more, faster, and at a sustained pace, and we need partnerships with the private sector,” said Dan Adler, IBank’s deputy director of climate finance.

The California Wildfire Innovation Fund was created to invest in forest restoration and wood utilization projects to tackle the wildfire crisis and increase private investment in such projects. IBank’s contribution, and another $25 million from CSAA Insurance Group, gives the fund $50 million for wildfire prevention efforts, Adler said.

CSAA provides AAA-branded insurance and is one of the largest property insurers in California.

“When we launched the California Wildfire Innovation Fund, our primary goal was to protect California communities and AAA members from wildfire by improving forest resiliency,” said CSAA’s Chief Risk Officer Jeff Huebner. “We hoped that our efforts would attract like-minded investors and are thrilled that IBank’s matching $25M contribution will greatly magnify the fund’s ability to deliver key environmental, social and financial benefits for all.”

“Governments can help create markets that the private sector can invest in, and provide strategic capital to help those markets grow,” Adler said. “The partnership with Blue Forest and CSAA is a perfect example of these principles, and a great example of what our Climate Catalyst Fund is intended to achieve.”

The revolving fund was originally expected to receive $1 billion in funding in 2020, but lawmakers allocated $47 million. Newsom’s plans to create a $1 billion green bank took a hit from COVID-19-era belt tightening, but the framework was set in place, Adler said.

The total provided to the Climate Catalyst Fund from the overall climate packages in the 2023 and 2024 budget acts was $27 million, which was included among the wildfire and forest resilience investments, said H.D. Palmer, a Department of Finance spokesman.

As for how the $10 billion climate bond approved by voters in November will play into proposals going forward, Palmer said, “that’s part and parcel of the governor’s budget that he will send to the Legislature next month.”

The governor delivers a proposed budget to lawmakers in mid-January launching the state’s budget process each year.

The over-arching Climate Catalyst Revolving Loan Fund is a program designed to jumpstart climate solutions by offering flexible, low-cost credit and credit support to public- and private-sector applicants.

The revolving fund’s first allocation is for wildfire resilience, but the idea, according to IBank officials, is to broaden efforts to help cover costs for a full range of future climate finance needs transforming it into a “green bank.”

The wildfire funding will be used to support projects like tech, drone monitoring, early fire suppression and for companies that clear forest waste and transform it into useful products, Adler said. IBank will also consider projects involving milling and construction, manufacturing and advancing low-carbon fuels, he said.

“We have been building up the [catalyst revolving fund] at the governor’s direction with the support of the Legislature,” Adler said. “But there was always a vision that we could tap federal money, rather than further [burdening] state government.”

The state is part of a coalition that won a $5 billion greenhouse gas reduction grant from the U.S. Environmental Protection Agency, which will add another $50 million to the catalyst fund, Adler said. IBank also has joined the U.S. Green Bank 50, a national coalition of state infrastructure banks working together to finance projects, he said.

Newsom’s massive ESG program launched pre-COVID was downsized in 2020 as the state underwent extreme belt-tightening measures. The state ended up having two years of massive surpluses, followed by a $45 billion deficit at the start of the current year budget process, which slowed the governor’s full-court press on climate-related projects.

The revolving fund commitment will provide the public investment needed to accelerate projects and promote innovation in wildfire threat reduction, while building key partnerships with private capital to promote the state’s goals, according to IBank officials.

Blue Forest created a wildfire resilience bond that pools money from private investors, public agencies, utilities and companies to pump money into wildfire projects upfront in the hopes of completing projects years earlier than would be possible if they were dependent on government funding alone.

It opens up an avenue for private investors to place capital into a program that helps pay for wildfire mitigation projects that otherwise might be too slow to make a difference or too expensive to complete, according to the non-profit’s website.

“The increasing frequency and severity of catastrophic wildfires requires systems-level solutions. Blue Forest is thrilled to partner with IBank alongside CSAA Insurance Group in a first-of-its-kind coalition of non-profit, public sector, and insurance industry organizations,” Blue Forest CEO Zach Knight said in a statement.

“This investment in the California Wildfire Innovation Fund strategically targets the reduction of catastrophic wildfires by enabling entrepreneurs and companies to mobilize innovative forest restoration and wood utilization solutions,” Knight said. “Landscape resilience is imperative to community resilience, and we look forward to collaborating with IBank and CSAA to support the growth of a sustainable, community-based restoration economy across California.”

By providing value-added engagements alongside flexible financing, Blue Forest supports the entrepreneurs and companies leading forest restoration and economic revitalization efforts for local communities across the state, according to IBank’s press release announcing the funding agreement.

The growth of such businesses and projects is crucial to achieving the state’s goals for both wildfire risk reduction and carbon neutrality by 2045, according to IBank.