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Open Letter to the David and Lucille Packard Foundation Regarding Ecosystem Service Valuation

This post is part of the capital markets open letter project by MBA students at Presidio Graduate School.

By Crystal Arvigo, Miranda Leonard, and Lara Perlof

Mary Anne Rodgers, General Counsel
Susan Phinney Silver, Program Related Investment Officer

Dear Ms. Rodgers and Ms. Silver,

We are MBA students studying the interconnections of sustainability and business at the Presidio Graduate School. As part of our curriculum, we are developing a capital markets mechanism to monetize ecosystem services that would incentivize communities to preserve and/or rehabilitate vital local ecosystems, such as watersheds. This is a letter of inquiry to engage the Packard Foundation (the Foundation) as an investor in a proof of concept pilot project for the above model.

As you may know, healthy watersheds are critical to supporting various functions within a community. In 2004, the United Nations Millennium Ecosystem Assessment defined watershed functions in the following four categories:


  • Provisioning: fresh water, crops, fish

  • Regulating: groundwater, flood prevention, soil quality

  • Supporting: wildlife habitat

  • Cultural: recreation, aesthetics, heritage

Our proposed model is to:

  1. Identify a municipality that has a need for capital investments to support its water infrastructure (water purification, storm drains, sewers, etc.).

  2. Establish an amount required by municipality for traditional capital investment.

  3. Identify a local watershed area that IF preserved and/or rehabilitated would supply the needed water functions and services to the municipality (thereby proactively avoiding a large portion of capital investment requirements).

  4. Establish the cost to purchase and rehabilitate the ecosystem.

  5. Determine the delta between the traditional infrastructure cost and cost to preserve the watershed.  If the cost to invest in the ecosystem is lower, determine the net present value of the project.

  6. A nonprofit organization like Earth Island Institute or Conservation Resources Inc.  would raise capital to fund the ecosystem investment by issuing a direct public offering of shares in the resultant savings or avoided costs. Ideally, investors in the shares would be local community members and organizations. The nonprofit would manage funds and the ecosystem project.

  7. The municipality pays a percentage of the savings or avoided costs out to shareholders as dividends.

  8. Shares might be traded on a specialty exchange such as Mission Markets to provide investor liquidity.

Support from the Foundation would determine:

  • Track record of savings or avoided costs that accrues to the municipality as a result of ecosystem investment.

  • Feasibility of the municipality’s ability to pay out a percentage of savings or avoided costs as dividends to investors.

  • Average return on investment to investors from project.

While precedents have been established by municipalities receiving infrastructure-related benefits from ecosystem services (New York City, City of Arcata, Sonoma County), there has yet been no organized investment model that would enable such a mechanism to be scaled and replicated. Proving this concept as a successful model would enable investor money to flow to local communities while providing a means of preserving local ecosystems. By investing in this pilot program, the Foundation would create a precedent for the future scalability of the model. If the model proves successful, the Foundation would receive a return on its investment.

We would very much appreciate your feedback on this proposal. Upon concept acceptance by your organization, we would coordinate with an applicable nonprofit, like Earth Island Institute to identify a municipality to participate, as well as determine the amount of financing that would be needed to secure the land. At this stage, a formal proposal would be submitted to you outlining project details, including project cost and estimated return on investment. Thank you for your time and consideration.

Warm regards,

Crystal Arvigo, Miranda Leonard, and Lara Perlof

Presidio Graduate School, San Francisco, CA

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