Climate change in the Western U.S. has made precipitation patterns more extreme and less predictable. Montane meadows are crucial to support drought resilience, since they hold water on the landscape and release it during dry periods. However, many meadows have disappeared due to historical land management, and restoration efforts are hampered by lack of funding and cashflow challenges. Using a novel approach based on ecosystem service value streams, Blue Forest has recently financed a meadow restoration project in the California Sierra Nevada for the first time. The project will restore aquatic and riparian habitat, supporting drought resilience for ecosystems and downstream communities.
Background
Climate change in California is resulting in increasingly extreme precipitation cycles: drier and longer droughts punctuated by years of extremely high rainfall. Drought-resilient habitats, including montane meadows, are critical for supporting ecosystems and communities through dry periods. However, legacy land management decisions including fire exclusion, beaver extirpation, and historic mining have put meadows at risk of degradation and even disappearance. Traditional Indigenous land stewardship used frequent, low-intensity fires to help reduce ground and surface fuels, maintain open meadowland, and protect against catastrophic fire. Without that stewardship over the last 200 years, forests have become overstocked, depleting water tables, encroaching on meadow habitat, and decreasing resilience to drought, wildfire, and insect infestation. Historic mining practices also lowered groundwater tables and triggered channel incision and erosion. Without beaver to modulate flows, stream downcutting and erosion increased, further decreasing infiltration, drying out the landscape, and decreasing water quality.
Loss of meadows compounds the impact of other hazards. Meadows serve as natural fire breaks and as a refugia for wildlife during a fire. Most critically for drought resilience, meadows slow the movement of snow melt and rainfall, holding water on the landscape longer and slowly releasing it during the dry season. This dry season water is a critical resource in California, where more than 60% of the developed water supply, serving 27 million people, comes from mountain regions (see California's Water Resilience Portfolio of 2020).
Restoring meadows is therefore crucial to supporting drought resilience for montane ecosystems, downstream communities, and the state economy. However, this work is often hampered by lack of funding and slow grant reimbursement timelines. Even on public lands, appropriations are insufficient for the cost of restoration work, so land managers rely on partners and grants to support projects. This creates considerable uncertainty about when or even if work will be completed, while the risk of drought and other hazards continues to rise. In addition, most state and federal grants in the U.S. pay out funds only after work is completed, meaning project implementors, often small businesses or nonprofits, must carry debt for weeks to months. This limits their ability to invest in new personnel and equipment while also creating considerable business uncertainty. In extreme cases, work is outsourced to larger companies, many of them based in urban areas, bypassing investment in rural economies and workforces.
Without addressing the financial challenges inhibiting land management work, it is impossible to consider scaling meadow restoration to the level required to create landscape-scale drought resilience, biodiversity and habitat enhancement, and community water supply protection.
Photo by Christos Zoumides
Actions taken
To tackle funding and cashflow challenges related to land management work, Blue Forest, a conservation finance nonprofit, launched the Forest Resilience Bond (FRB) in 2018. The FRB is a financing vehicle which provides upfront funds to project implementors in the form of a fixed-income, low-interest loan. The loan is then repaid by public and private partners, including local and state governments, utilities, and corporates that benefit from the work. The private beneficiaries bring additional funding and also cover the costs of financing.
The FRB aims to support implementation of planned projects on public, private, and Tribal lands that support all facets of ecological resilience. The principle benefit of the model – upfront financing – is enabled by identifying, quantifying, and valuing the ecosystem service benefits that a project will generate. By engaging stakeholders to whom those benefits accrue, the FRB loan can be repaid without any additional costs to the land manager or project implementor. An added benefit is increasing the participation of partners like utilities, corporates, and local governments that have long benefited from forest ecosystem services, but rarely contributed to supporting them.
In 2025, Blue Forest launched its first FRB focused on drought and water security through meadow restoration, water retention, and aquatic habitat protection. The Yuba Aspen and Meadows (YAM) project is located on USDA Forest Service land in the North Fork of the Yuba River in California's Sierra Nevada mountains. Three meadow sites, totaling 670 acres, are slated for restoration. The primary objective of the project is to increase streamflow connectivity to existing floodplains, which will increase groundwater retention, reduce erosion, and improve aquatic and wetland habitat. Activities include the use of beaver dam analogues to mimic natural processes, conifer removal to protect floodplains, and aspen regeneration to support water retention.
Though the individual project is relatively new, YAM is part of a longstanding, multilateral partnership in the region that was catalyzed by the very first FRB, Yuba I, whose footprint included and surrounded that of the YAM project. The Yuba I FRB, launched in 2018, was a pilot-scale project (7,000 treatment acres and $4 million of financing) that focused on fuels reduction work to lower wildfire risk. Drought resilience was a secondary benefit, since removal of excess vegetation also enhanced soil moisture and streamflow. The project was supported by the Tahoe National Forest, World Resources Institute, local NGOs, and the Nisenan Tribe of the Nevada City Rancheria. The third-party beneficiary who enabled the financing was the Yuba Water Agency, the water and hydroelectric utility in the watershed.
The Yuba I FRB catalyzed a formal partnership, the North Fork Yuba Partnership (NYFP), and launched an effort to scale similar work across the 275,000 acres of the watershed. In 2021, the first full-scale project, the Yuba II FRB, was launched with $25 million of financing to support 22,655 treatment acres in the lower part of the watershed.
The YAM project, with $1.250 million of financing, represents an extension of the FRB financial model to address the interconnected natural hazards of drought, fire, and floods. Blue Forest's role is to support projection of ecosystem services, manage the financial vehicle and relationship with investors, and measure and monitor project outcomes. The project was planned and permitted by the Tahoe National Forest, with implementation by the South Yuba River Citizens League (SYRCL) and financing provided by the Yuba Water Agency, all of whom are members of NYFP. Other partners, including the California Wildlife and Conservation Board, the California Department of Water Resources, and nonprofit Trout Unlimited have contributed grant funding.
Outcomes
The Yuba I FRB halved the projected completion time of the project from 10 to 5 years, demonstrating the ability of upfront financing methods to materially increase the pace of planned land management projects. In 2023, the restoration activities were successfully completed and investors were repaid with interest, finalizing the project in half the time projected by the Forest Service.
The creation of the NYFP was one of the major successes of Yuba I. In many parts of the Western U.S., forest collaboratives are essential to advancing forest resilience work, often mediating competing interests among stakeholders. No such collaborative existed in North Yuba, so the NYFP filled the critical role of bringing together the primary project partners: the land manager (the Forest Service); NGOs, including Blue Forest; the Nisenan Tribe; local government (Sierra County); and a third-party payor (Yuba Water Agency).
The strength of the NYFP partnerships was critical to enabling Yuba I to scale into a project 4 times larger (Yuba II). NYFP members contributed significantly to project planning and prioritization when developing Yuba II, which catalyzed further support and buy-in from local communities. In addition, the contribution from Yuba Water Agency was a critical component to enabling financing of these projects.
The YAM project further builds on the success of the NYFP, with partnership member SYRCL serving as a project implementor for an FRB for the first time. It is scheduled to take 2 years, with a projected completion date of late 2027. To understand the impacts of meadow restoration and validate the projected drought resilience benefits, extensive monitoring and impact data will be collected and analyzed.
From a drought resilience perspective, the expected outcomes include a higher water table and improved water quality (even if quantities are sufficient, unacceptable water quality can also trigger social and ecological droughts). Water table levels will be monitored at 21 groundwater wells above and below the meadows and compared to existing baseline data. Thirteen stream gauges will also be monitored for sediment and turbidity levels. Water temperature, air temperature, pH, electrical conductivity, dissolved oxygen, turbidity, and nitrate levels will be sampled at wells during and after implementation as a measurement of water quality. Qualitative data in the form of before-and-after photos will be used to gauge the success of the beaver dam analogues at supporting water retention.
Other co-benefits include increased carbon sequestration and biodiversity. Vegetation transects and presence/absence studies of amphibians will track impacts on biodiversity. Samples of soil carbon will be taken during and after implementation. All data collection will build on existing baseline datasets to understand the differential impact of restoration.
Benefit monitoring is an essential outcome of this project. In the long term, the sustainability of the FRB model depends on the continued availability of both public and private funds to support management work. Since private or third-party funds are leveraged on the basis of ecosystem service benefits, continuous improvements in scientific understanding and communication of the impacts of nature-based solutions (NbS) are critical for success. NbS are still associated – correctly or not – with a considerable degree of uncertainty among potential payors and investors. As a result, they have been most compelling when addressing extremely severe hazards such as wildfires. Though drought severity is increasing in the Western U.S., science and modeling around NbS is still on the cusp of broad acceptance. As the first FRB focused on drought and meadows, repayment amounts on the YAM project are based on outputs (i.e., work completed to specification) rather than outcomes, but these data will help constrain the uncertainty around benefits projections on future, larger drought mitigation-focused FRBs.
Lessons Learned
Though projects may focus on a primary goal, such as drought resilience, it is critical that they support overall ecosystem and community health. This increases buy-in and maximizes possible funding sources based on multiple ecosystem benefits, in turn increasing the likelihood of building a broad coalition of payors that can cover financing costs (i.e., interest) and meet funding requirements.
The likelihood of project success is increased – not limited – by starting small. Pilot projects have proven critical to building trust between partners; in the financial model by investors, payors, and land managers; and in the effectiveness of project activities. However, this requires identifying partners that understand the long-term vision and are willing to create deep partnerships.
A skilled workforce is critical to project success. Ecological restoration requires everything from operating heavy machinery to complex project management to understanding local ecosystem conditions. Investing in local businesses, skills development, and workforce training supports a restoration economy and aligns social and environmental goals. Without it, projects can be slowed or even stopped.
Low-tech and nature-based restoration have high potential to promote cost-effective drought and climate resilience, but uncertainty around outcomes has limited their adoption. To build trust in these approaches, ongoing measuring, monitoring, and evaluation of outcomes is needed. This continuous learning approach can increase acceptance for stakeholders and the restoration community broadly.
Partnerships are at the core of FRB success. Financial models and scientific analyses of project benefits serve as important catalysts, but the importance of dedicating time and resources to relationship building should not be underestimated. Partners help identify additional funding, support planning as projects scale, and expand opportunities for new projects through their peer networks.
