Billions for Nature: How Private Capital Is Funding Ecological Restoration with Adam Davis

Across every continent, degraded landscapes tell a sobering story: wetlands drained, forests cleared, tidal flats diminished. The tragedy isn’t that humanity lacks the knowledge to restore them—we know how to bring these ecosystems back. The real challenge lies in how to finance restoration at scale.

In this episode we sit down with Adam Davis, co-founder of Ecosystem Investment Partners, a firm that has channeled over a billion of dollars into restoring ecosystems. The discussion dives into the world of mitigation banking, a financial mechanism that has unlocked private capital for large-scale ecological restoration. For many, it’s an unfamiliar concept, but as Adam explains, it has become a powerful tool for revitalizing degraded landscapes.

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The Regenerative Real Estate Podcast is an independent show exploring the people, projects, and capital reshaping how land gets used and communities get built. Two organizations grew directly out of this work, and they're worth knowing:

Hamlet Capital finances and advises on projects that integrate agriculture and conservation with mixed-use development. If you're building one or looking to invest, let's talk.

Latitude is a real estate brokerage representing sanctuary properties rooted in nature, beauty, and meaningful living.

Transcript

SPEAKER_01 0:03

The thing I was particularly focused on was the economics. What were the deal terms and the structures that allowed the more good you do, the more money you make? Right? Like how do you line it up in that way? Because that seemed like sort of the magic keys to the kingdom. If you could figure that out, then recycling no longer had to be advocacy, a cause, right? It would just happen by itself because it made more money than throwing stuff away.

SPEAKER_00 0:40

Welcome to the Regenerative Real Estate Podcast, a show about human environments and how they can be used as a force for good. Conversations that educate and inspire people looking for a different way to do real estate. I'm Neil Collins, and on this episode, I'm joined by Adam Davis, co-founder of Ecosystem Investment Partners, a firm that has helped channel billions of dollars into restoring wetlands, forests, and other critical landscapes. And in the process, reshaped how we think about financing ecological restoration. Take a drive across every continent, and you'll pass mile after mile of land that's been stripped of its vitality, once thriving ecosystems now reduced to shadows, yet still woven into the intricate dance between land, ocean, and atmosphere that sustains life on Earth. The problem isn't that we don't know how to restore these places, because we do. We know how to bring back wetlands and marshes, to heal mountainsides and tidal flats. The real challenge is how do we pay for it? Revitalizing degraded ecosystems at scale means rethinking how we value them, not just as scenery, but as providers of ecosystem services like flood protection, carbon storage, habitat and water filtration. And that means designing financial structures that attract not only government and philanthropic dollars, but also private investment. And that's where today's guest comes in. Adam Davis is the co-founder of Ecosystem Investment Partners, one of the pioneers of modern mitigation banking. Now, if you've never heard of that term before, you're not alone. I'd heard it in passing, but had no idea how it really worked, or that billions of dollars now flow into environmental restoration because of it. In this conversation, Adam pulls back the curtain on how the business of mitigation banking really works and why it's taken off in recent years, and what it means for the future of our land and important ecosystems. So let's get into it with Adam Davis.

SPEAKER_01 3:14

Um, and I think the first sort of major event that kind of put me on the path was volunteering for a thing called the Student Conservation Association when I was 16. Took a Greyhound bus across the country. Uh my mom dropped me off at the at the bus station in downtown Baltimore one early summer day, and I rode for, you know, forever out to California, where I was met by a group uh in San Francisco, and we went up to the the Lost Coast in Humboldt County, where we built trails for the summer, and uh just a fabulous group, the SCA. So uh I owe them a lot for sort of turning me on to California before that trip with the SCA. My mom took my brother and I on a on a road trip where we went camping for the whole summer around the United States. So we drove something like 10,000 miles in a 1963 Buick special without air conditioning and two dogs and uh and camped everywhere around the country. And really, those two trips really broadened my mind, let me see how extraordinary the natural world was and and my mom's sort of background in science and her science education just got me curious about all this. So I didn't fall into it right away, but when I was 25, after I'd graduated, I was living out in San Francisco and got a job with a composting company in the summer of 1985 and um was doing sort of odd jobs, driving the truck, operating the front end loader, helping the customers. Learning about composting, it's a fascinating thing. It's it's uh not only is it an amazing natural process that turns waste products into high-value soil amendments and mulches and compost itself. Um, but uh it's also part of the larger sort of economics of the waste stream. So we were getting paid to take material that we could then turn around and sell. It's not as easy as it sounds, but that's really interesting economics. And it's a really interesting conundrum as to why the economics work that way. What why was it that these materials were uh you know so unwanted that they had to be paid for to get rid of them, right? And it got me thinking about this whole notion of what's garbage and what isn't. Where is that line between materials or valuable materials and garbage, uh, which is sort of the shadow side of the entire uh regular economy? Like there's a whole nother economy on the backside, uh, you know, where people get paid to handle these materials that are unwanted. So, anyways, in in 1990, I went to work for the largest waste and recycling company in the world, Waste Management Inc. And the reason I got a job there was because California had just passed a law called the Integrated Waste Management Act, which basically mandated that 25% of all the material going to landfill had to be recycled within five years, and then 50% within 10 years. And at that time, California was landfilling something like 40 million tons a year of garbage. And so, although the law was passed to address the difficulty in citing new landfills, what it really mandated, sort of unwittingly, was an entire industrial policy about taking material that was previously wasted and doing something with it. Not because it made economic sense, but because it was mandated. And so that meant 10 million tons of stuff had to that was previously thought of as garbage, had to be, you know, separated, cleaned, sorted, and then sold or incorporated into some other process. Um, and that's what I did for the next 10 years.

SPEAKER_00 7:23

Fascinating. Yeah, that that could not have been an easy, easy unfolding of figuring out how the industry can can resort itself, uh, I guess pun intended, there. And I think that really starts the the seed of the conversation that that we're looking to have is you're tasked with figuring out how to create something out of what has been seen as invaluable. I'm curious uh as you continue down that that narrative arc, who you have to talk to, where you go, what is the next move to seek out this vein around restoring nature?

SPEAKER_01 8:08

Well, uh okay, so I I'll I'll try and do a succinct version of that, but basically the way that it made practical sense to recycle stuff instead of throw it away was to change the contract structures that our company was paid under. So these were municipal contracts, contracts with cities or counties. And you know, when I started in 1990, they were garbage contracts. We were paid to pick up stuff, manage it in a responsible way, and get it to a landfill. And over the next 10 years, there was really a radical transformation of how we were able to handle the waste stream for entire cities. But it involved sort of lots of trial and error, right? So new sorting systems, sorting requirements for the customers, new types of carts, new types of trucks, new drivers for the new trucks, central facilities called materials recycling facilities or MERFs, where, you know, lots of material could be cleaned up on conveyor belts and with all kinds of magnets and systems, so that you'd end up with relatively clean piles of material that could go back into manufacturing. So paper isn't garbage and glass isn't garbage. And certainly branches, leaves, and grass are not garbage. But if you mix them all together, then you create something called garbage because you can't do anything with it. So the idea was to create economic incentives in the contracts with cities that could allow us to make at least as much money doing what they wanted as what they didn't want. They wanted the stuff to get recycled, but at the beginning, we were paid nothing to recycle. So that didn't make sense. We had to come up with economic structures that rewarded environmental performance.

SPEAKER_00 10:14

Are we literally talking this is the birth of the blue bin and the trash bin? And like now we're you're having everyday residents sort out garbage from recycling. Is that is that the shift that that you've got to go down your contract list from waste management to the city to their mandates with general the general population?

SPEAKER_01 10:40

Yeah, the the mandate came from the state. It was a policy decision that this is just what they wanted to do. But to implement it, it's all done at the local level, right? So the cities and counties are the ones that actually either do the service themselves with public employees, or they contract with a company like Waste Management to do that work. So the contract is the mechanism for the state or the city to communicate its preferences, like what it actually wants. What is the desired outcome? And so we would figure out innovations, working with all kinds of contractors and inventors and providers to, you know, come up with different truck designs, bin designs, trying to minimize the labor and attention that it took each individual household and make it just as easy for them to recycle as it was to throw something away. Because in the beginning, you had to sort paper by type and glass by color and all these things at each household. And so you're asking very busy people to do all these chores, right? So through system design, we went from, you know, one major city I worked with, the city of Fremont in the Bay Area. When we started in 1990, we were recycling 17% of the waste stream. When I left 10 years later, we were recycling 60%.

SPEAKER_00 12:07

That's incredible.

SPEAKER_01 12:08

Right. And but this was happening everywhere. And not just in California. This was part of a larger transition. But the thing I was particularly focused on was the economics. What were the deal terms and the structures that allowed the more good you do, the more money you make? Right. Like how how do you line it up in that way? Because that seemed like sort of the magic keys to the kingdom. If you could figure that out, then recycling no longer had to be advocacy, a cause, right? It would just happen by itself because it made more money than throwing stuff away. Right. And then plus you'd get tons of capital to invest in it because it was making money. And it wouldn't be such this, you know, set of chores for people to do on their own time. So anyway, after 10 years sort of studying all that, I had the great good fortune of meeting a conservation biologist by the name of Gretchen Daly, who was really coming up with what I think of as V2 of ecological economics. So she was at Stanford. She had been part of a community of economists and natural resource scientists and scientists of all types. And the early ecological economics that had been going on for about 30 years, it really started as a discipline around 1970. That ecological economics was really theoretical. It basically was talking about like how much a park would be worth based on how much people would be willing to pay as admission to the park, or how much it might cost for nature to do something like clean water if people had polluted the water. But it was really quite theoretical, things like contingent valuation and hedonic valuation were the terms. But Gretchen did something really brave. She wrote a book in 1997 called Nature's Services. And basically what she argues over a series of essays that she curated was that this couldn't remain theoretical, that real people in real places needed to get paid if we were going to make a change. Because she really believed passionately that ecosystem services theory is correct, that what nature does is valuable. And it seems self-evident that that's true. But it was sort of shocking that even though it seemed obvious, no one was actually getting paid, right? If you owned a piece of land, you could get paid by subdividing it and putting buildings on it, or you could get paid by cutting the trees down and selling them as lumber or paper, right? But what nature actually does, call it clean water, a stable climate, and resilient living systems, right? High level for all the detail of ecosystem services. What nature does for us if we take care of it and steward it, right?

SPEAKER_00 15:10

Let me let me pause uh there because this is interesting. You're you're talking about the let's call it the extractive use or the individual use of property versus the benefits of the nature on that property for the commons. Right? Clean air is is not particular to the boundaries of a parcel, it is for the commons. Um there's ecosystem services in general, you know, clean water, clean air, things like that. How do you start to see like, okay, nature has a value, but it it's not valued at the individual parcel level. Like that's where I'm at whenever you talk about Gretchen's thesis.

SPEAKER_01 15:59

Well, let me be quite clear at the outset here that there were huge communities of people that of course did recognize this value and had been doing land transactions for conservation for decades. So the large conservation groups like the Conservation Fund, the Nature Conservancy, the Trust for Public Land, the Land Trust Movement, um, on and on. I mean, there are lots of people that recognized the fundamental truth of what Gretchen had been saying, but they were raising philanthropic money, right? Government grants or money from people who had made a lot of money doing some conventional economic activity, right? And then they were spending their surplus as philanthropy. So that's where the money came from to do their work. And the basic mission was to take that piece of land out of the economy, right? Make it a park, make it a preserve, make it a national wildlife refuge, making it make it a wilderness area, right? So you recognize that what nature does is valuable, inherently valuable. And, you know, one way to do it is just for the government to take over land and make it a park, right? Which obviously happened in the early days of the United States and around the world. People create parks and preserves where you take land out of the economy for nature, for ecological value on land, right? To make ecosystem services theory real. Um, that's the quest that I went on starting in about 1997. But we were building on the shoulders of the conservation movement that had recognized nature for a long time. But essentially, the move was to raise money through philanthropy or government grants and uh take that land, that parcel out of the economy, protect it, keep it uh away from development. But for all the rest of the stuff, it was subject to normal economic value criteria, which means it's either real estate or it's natural resources. That's how appraisal works, right? If you appraise a piece of land, they're gonna say, what's the highest and best use? It's either building on it or taking from it. And so that that's how we value land. And what Gretchen said is there's never gonna be enough philanthropic money in the world to protect everything we want to protect, that we need to protect ultimately, because if we just have these fenced off areas and then everything else is just subject to normal market forces, we're gonna lose over time critical ecosystem services and we're gonna regret it. That's basically what she was saying.

SPEAKER_00 18:44

And I I want to underscore this for listeners. I I still this conversation still is taking place to this day. I see this a lot in the bioregional approach to regeneration and you know, trying to allocate philanthropic capital to do this kind of work. And at some point you just realize it's gonna require billions, if not trillions, of dollars. And it we're gonna run out of philanthropic capital pretty fast to do that work. Um So what how what's the path? Like what how do you start to see through Gretchen's work into a service, uh, a company, a thesis? What does that look like?

SPEAKER_01 19:31

There's two problems. One is the one you just pointed to, Neil, which is that there's never enough. There's never enough money to really protect all the things that need to get protected. The GDP of the world economy is now something like $120 trillion a year. So the amount of economic activity is just extraordinary. It was really hard to get your head around how big that is. And the amount of money going to conservation is a few billion, right? And so that's a lot of money, a few billion, but not compared to the economy. So there's never going to be enough money in philanthropy. The second thing is you got to ask yourself, where did that money come from? It came from people who were doing road building or tobacco or clothing or, you know, frisbees or something. They made some product, um, you know, maybe completely honorably, but that's where the money came from, was through the normal system of extraction of natural resources and production and transportation and retailing and sales and then garbage, right? Like that system. That's where the money came from. Or if it's taxes, it came from the same place, but it was taxed. And so then the government had the money, but all the money comes from economic activity, normal economic activity. So you're always sort of one behind, right? Uh, with the normal model of philanthropic conservation. And I think most people in the conservation community would agree with that, right? Which is why this notion of the integral financial value of what nature does, if it if we could actually recognize the value of what nature does, again, clean water, resilient living systems, and a stable climate. If we could value what nature does on parcels of land such that people who own those pieces of land could actually get paid, then there would at least be a countervailing force to natural resources and real estate. And ultimately you'd have appraisals based on not just taking from land or building on land, but for what land actually does. And you're starting to see it even now. But before I get ahead of myself, let's talk a little bit about, you know, sort of the the nuts and bolts of the restoration industry and sort of how it results in practical ways for people to make money off of conservation and restoration.

SPEAKER_00 22:00

Great.

SPEAKER_01 22:04

So for someone to make a fair return on investment through putting money to work on a piece of land, or for a private landowner to make a a competitive return from call it ecosystem services, there needs to be a customer. And it's not a customer for traditional land conservation, it's a customer for what the land does. And it has to be measured using scientifically verifiable and repeatable methods, right? So the the genesis of the demand for this kind of thing really is found in the Clean Water Act. And that the Clean Water Act at the beginning in the 19 early 1970s has a section that prevents people from damaging uh waters of the United States. So filling streams or wetlands was was uh prevented altogether in the early language of the Clean Water Act. The country had been draining wetlands on purpose for a long time for development, and we'd lost about half of our original uh wetlands. So about a hundred million acres had been filled or drained. And so there was a recognition, you know, through science and advocacy, uh, and then incorporated in the Clean Water Act that this could no longer go on. And so the original notion of the Clean Water Act was we were just going to stop that development on wetlands. But it became clear really quickly that you couldn't stop just everything, because some rapidly growing areas of the country had a lot of wetland around them, think New Orleans or Florida. And yet some projects think linear projects like roads, right? If you're widening a road, you can't just avoid everything by, you know, around the road. You're gonna, you're going to impact some things necessarily because you have to build the lanes next to the existing road. And so very quickly in the 1980s or so, entrepreneurs began to come up with projects that could restore wetland to a government standard, right? To a high standard, in the same watershed where the development was happening. And that way you didn't need to do a little wetland restoration project right next to the highway interchange. You could actually select the location for the restoration project in a place that was contiguous with other protected areas, maybe part of the green belt, that kind of thing, but be more thoughtful and strategic, what they call watershed planning or watershed scale thinking about where conservation should go in the landscape, right? Again, there was trial and error. People were figuring it out, but there were some good projects and some great successes. And it clearly was better than having every single project in the United States do its own little restoration project next to it. And so we did what we do with every other part of the economy. People, entrepreneurs, you know, invested and did things at larger scale, were able to create some efficiency. And meanwhile, all the science is getting better and the metrics are getting better. The ways of measuring what ecological uplift really means were getting better. And the regulation improved as well. I started consulting for a mitigation banking company called EBX, or Environmental Bank and Exchange, based in Maryland. They had some banks in uh Maryland, Virginia, North Carolina, and I was basically helping them as a business strategy uh consultant. Um, but I got to learn from them really about how mitigation banking works, and it was instantly fascinating because it was a real example of scientifically verifiable measurement of restoration, so ecological uplift in a meaningful way, but not just the science part, but also the legal and financial protections that make sure that that result is durable over time, right? So those are the three things together that that combine to form what we call a credit, right? So it's scientifically verifiable uplift that's measurable, along with legal and financial protections for durability. And when you put those together, you have something that's actually quite meaningful. As I say, it actually does make up for damage. So if you have an acre of wetland that's lost in a specific watershed, and you do a project that actually has credits that come from that kind of rigorous oversight and requirement, you actually do have no net loss. But so this is really interesting, right? It not so that the basic mechanism is a no net loss uh driver, but the the incentives that are created the Clean Water Act basically says you have to avoid and minimize impacts, and then you can mitigate. But there's always a question, how much avoidance and minimization do you need to do before you're allowed to mitigate? And there's no magic answer. There's no uh clean, bright line. And so there's always a judgment call by a regulator that says, okay, you've done all of the avoidance uh and minimization that you could. We're gonna allow the project, and here's how much mitigation you have to do. You're gonna damage two acres, so you have to restore at least two, and we might say four to make sure that the ecology is left in the same condition, true known net loss. What that means is it's expensive to damage wetlands in a way that it wasn't before. And so some people somehow think that mitigation works against avoidance, but I actually think it's the opposite. I think mitigation is the thing that gives avoidance value, right? Requiring uh someone to mitigate means that you have a natural incentive to avoid as much as you can. So that's one economic incentive. The other, though, is that it makes ecosystem services theory real on another piece of land. So for someone who has some capital, or a private landowner, call it a forestry company or a developer that had some surplus land or a um uh you know, a farmer with some low wet ground, right? That wasn't really productive. For any of those people, all of a sudden, restoration to a rigorous standard is worth money. And it might actually be worth more money than your conventional economic use of the land. And so it takes land that is marginal or impaired and turns it into something that's actually economically valuable. So both of those economic incentives are created by this one act of requiring high-quality compensatory mitigation.

SPEAKER_00 29:30

Let me let me make sure that I'm following you here, Adam. And just to color in the lines. So let's call it a mall developer wants to develop a mall in South Florida. They're gonna disturb five acres of wetlands. They need to go and offset that mitigation by five acres or more. And there is an intermediary that is a professional in the industry that is gonna go acquire degraded or impaired land, restore it, and then take it out of the economy and actually have durability, as you call it. And so they're gonna pay for that. The developer's gonna pay for that, and and you or that company, the mitigation company, is the one that's receiving the payment to go out and do the work. Is that right?

SPEAKER_01 30:23

Yeah, that's basically right. Let me just add a couple pieces. One is that the shopping mall developer needs to avoid and minimize, right? So they're gonna go through a permit process with the Army Corps, the EPA, U.S. Fish and Wildlife state agencies to damage or destroy a wetland. And so they're gonna be trying to avoid as much as they can, but let's just say because of the physical location, they're gonna end up with five acres of impact. They always have the choice to go by themselves and do a project. They can always go do their own wetland project using consultants and so on, buy their own piece of land and do that work. But it is technical and it's complicated. And so that's why outsourcing to people who specialize in those activities probably makes sense, also because of scale. So when we got involved in the mitigation business, uh, my partners and I, in 2007, when we created Ecosystem Investment Partners, EIP, the average size of a mitigation bank around the U.S. was probably 100 acres. There might have been around a thousand banks at that time in 2007. Um, but they were small and opportunistic, and there was no source of real capital in the business. So there was some scale. People doing 100-acre projects might be better than five-acre projects. But our vision starting the company was we were gonna organize investment capital so we could buy bigger pieces of land and do this whole thing at scale. So we started the company by doing three 2,000-acre projects. And so now if you imagine a 2,000-acre restoration project, all the fixed costs of you know, the transaction costs for the real estate, the design and permitting process, which can be quite intense, could be a few years of work, right? All those fixed costs are spread over 2,000 acres instead of 100. So it's better ecologically. You have a larger piece of restored land. And often those bigger pieces are going to be in an area that's contiguous with other protected areas or adjacent to, you know, a green belt or other watershed goals. And it's also more efficient economically. Obviously, our cost per acre goes down if you do 2,000 acres at once instead of 100. So for that shopping mall developer, it becomes a pretty easy choice. Buying a credit from someone that has earned it through doing all this hard work of restoration. Only after that work is done is the credit released by the regulatory agencies onto a ledger where the shopping mall developer can see it and then buy it. And when they buy that five acres, they have literally purchased the ecological value from that five acres of restoration. And so that is the no-net loss that they need to be able to do their project. And so the the only last thing I'll say about that is that when you were describing the process, Neil, you said, you know, that the mitigation banking company, like EIP, had taken the land out of the economy. I would say that that's not the case here because it's an economic transaction. It's actually in the economy. If you had created a park and just set it aside, that would be taking it out of the economy. You would be saying whatever value that nature has is a public matter, it's a public good, and so the public is gonna buy it, or the nature conservancy is gonna buy it and just set it aside.

SPEAKER_00 34:05

But are you not putting a conservation easement on it to be in integrity with the durability mandate?

SPEAKER_01 34:13

Aaron Powell 100%. There is a permanent conservation easement that's required. So in that sense, you're taking the development potential away from that site, but you're not taking it out of the economy because you're doing it for profit. There's a, there's actually a there's actually a profit that comes from the recognition that what nature does on that restoration site is really valuable. And it becomes true because it's required that someone mitigate. Again, they can always do their own projects, but it makes more sense to buy a credit from someone who's already done the work than to try and figure it all out yourself.

SPEAKER_00 35:06

This episode is brought to you by Hamlet Capital, an exciting new endeavor I founded to invest in the future of thriving communities. If you're developing an agrihood or conservation community, you know how complex these projects can be. From land acquisition and master planning to entitlements and securing investment capital, there's a fine line between a stalled-out vision and a thriving built reality. That's where Hamlet Capital comes in. We provide development, advisory, and investment solutions that align financial returns with environmental and social impact. Helping bring projects to life in a way that's both financially viable and deeply impactful. So if you're working on a project and need guidance or capital, or if you're looking to invest at the intersection between real estate and regenerative agriculture, reach out and let's build something lasting together. Visit us at hamlet.capital. Let me see if I can tease out this thought that I'm having, Adam, around the no-net loss. So much of of the languaging around regeneration is about how do we how do we not just sustain like that the net zero, the uh but how do we actually tip the scales, right? To to do more positive than the negative. Is do you see a route through mitigation banking? And I'm not, I'm actually not uh throwing shade on on mitigation banking if if there isn't a a clear sight into this, but is it always the one acre is destroyed and one acre is restored? Is that just kind of the equilibrium point for the industry?

SPEAKER_01 37:03

No, listen, it's it's a good question. It's a natural question. Lots of people immediately sort of turned their attention to that. Uh and I have to say, let's look at where we came from, which is that we were draining wetlands on purpose until 1970. We drained 100 million acres, and it wasn't just wetlands. We destroyed all kinds of ecological value on purpose. Um, so not only was no mitigation required, like the no the notion of no net loss was a million miles away. But then the next step was to try and regulate or minimize damage through fines and fees, right? And that's how we penalize people who uh violate environmental laws. We ding them with fines and fees, which is okay. But then that money goes someplace, the damage is already done, and now the government has a pot of money they need to go use to do restoration somehow. And it's extremely challenging for the government by itself to do all these projects. And so, you know, you end up with something far less than no net loss, and there's huge time delays between the damage and when you finally collect the money and get it on the ground. So you have temporal loss of all these resources, and you're nowhere near even no net loss. So I'm gonna argue that no net loss is actually a really high standard, especially since these places that are mitigation banks are permanently protected and they actually have an endowment for long-term monitoring and maintenance. And all of that, the endowment and the easement, are requirements for the credit. So when I talk about long-term legal and financial assurance, that's what I'm talking about, right? Is uh mechanisms and controls in place that allow not only the science to be done to a high standard to show that the ecological uplift really happened, but also you've got money for long-term monitoring and maintenance. So it's an extremely high standard, even if you're just at one-to-one. But really, what you're doing is you're enabling economic activity to go forward in this country. Infrastructure, housing, renewable energy, all the things we know we need, and do it in a way that's way more environmentally responsible and sustainable than it would have been otherwise. And you're also creating an incentive for capital to come in and do ecological restoration. So this is tremendously exciting altogether. Now, to your question, you know, is it theoretically possible to have credit ratios that require two acres of restoration for every one acre of impact? The answer is yes, that could be done. That's a matter of policy. Right now, the policy of the land is no net loss.

SPEAKER_00 39:54

Let's go in the direction of allowing capital to come in right after I asked the question around the endowment. What creates the return to ensure long-term monitoring?

SPEAKER_01 40:07

Aaron Powell So the amount of money in the endowment is a requirement to get credits released. So the regulatory agencies, primarily the Army Corps district, which has the overall responsibility for implementation of the 404 program and the Clean Water Act. The district will require a non-wasting endowment to be held with a third party. That amount of money has to kick off enough interest on a non-wasting basis for that interest to cover the basic costs of monitoring and maintenance. In some cases, it's not very much money. Um, you've got a wetland system that used to be a wetland, call it back in the 1920s, was drained maybe in the 30s and 40s. You buy it in the 1990s and restore the hydrology. And all of a sudden the hydrology is back, and the native plants come back and the flora and fauna come back generally, and you've got a restored system that's intact and working in the same natural way that any other wetland does. So the amount of money needed for that system might be some fencing, some trash pickup, some you know, scientific uh um monitoring. But once you've achieved the basic hydrology and success criteria that you're required to, the thing is really self-stoking, right? It moves on by itself. Now there are other systems, like we do longleaf pine savanna in uh uh northern Louisiana, uh, and that longleaf pine savanna needs to get burned. Uh, fire is a natural part of the landscape. The Native Americans in that part of the world used fire as a land management tool for thousands of years. And so the longleaf pine ecology uh is dependent on fire. And so after you protect and restore a piece of land like that, the endowment has to be large enough to cover the ongoing uh prescribed burns, for example, right? So it depends on where you are and what's required, but the amount of the endowment is set so that what it kicks off each year is sufficient for that task.

SPEAKER_00 42:20

But where so where do you invest the endowment? Does that go into bonds, public markets? Uh do you create financial vehicles for that?

SPEAKER_01 42:29

Yeah, we we don't we don't do that. There are groups like the National Fish and Wildlife Foundation, NIF WIF, and many other groups that run endowments. And then there's a land steward that's tied to the land, not to us. So typically a nonprofit. You're talking about basically the exit from a mitigation bank after we do the restoration and sell the credits. The land is still there, right? You still have a piece of real estate. It's restored, it's got a conservation easement on it. You can't ever develop it, but it's beautiful. And often there's uh, you know, someone who would like to own that, uh, either for walking in, maybe hunting and fishing, again, depending on the location around the country. But the real estate value doesn't go to zero, but it is highly discounted off what we originally paid. So let's just say we paid, or any mitigation banking company paid fair appraised value for a piece of land, call it 2,000 acres, right? You go through the approval process, you do the construction, you sell the credits over time, and then what you're left with is this restored piece of land. You can sell the underlying real estate either to a state agency or to a private buyer. Now it's completely protected by the easement. They can't ever develop it, but they might find some enjoyment out of it, and you'll get some, again, highly discounted price versus the original price that you paid for the real estate. But you made your return on the credits.

unknown 43:59

Yeah.

SPEAKER_00 44:00

Can you also sell carbon credits or is there any other revenue besides the mitigation credits that the bank receives?

SPEAKER_01 44:09

So we're gonna start uh with a narrow lens here and then broaden out. The narrow lens is that everything we've been talking about up till now is the regulations under the Clean Water Act, because that is far and away the biggest driver of economic activity. Um and certainly where our company has the most experience. That that's the big market that we understand and where demand is really clear and reasonably predictable because of the long track record of the Clean Water Act mitigation program and actually enabling economic activity and high-quality restoration, right? So that program is stable. In that program, when you damage an acre of wetlands, you're destroying all of the functions and values of that acre. So if you build a Walmart parking lot on a wetland, because that's just the place where you need to operate in a very wet area, right? So you destroy one acre of wetlands. All of the functions and values, including the biodiversity and the carbon, are gone. So when you restore an acre and sell it as a mitigation credit, the carbon and the biodiversity on that acre go with it. You can't separate out carbon or other values. So all the functions and values are in that credit. So there's nothing separate that you can sell. Interesting. Okay, I see where you're going. Now that's the Clean Water Act. There are other parallel types of demand for mitigation. There's a trade association called the Ecological Restoration Business Association. And if people are interested, I'd recommend they go to the website for ERBA, E-R-B-A, and just check it out. There's about 80 of the larger companies in the industry that are members of ERBA. And many of us are now doing both biodiversity banking, where we do investment in projects that permanently protect and restore habitat for endangered species. And the mitigation there is under Section 7 or Section 10 of the Endangered Species Act. So if you have take of a species through a project that you're doing, it's the same dynamic as the Clean Water Act, right? You can avoid and minimize as much as you can. But in order to get a permit that damages habitat for an endangered species, you might be required to demonstrate that you're doing more than just avoiding, right? You might actually need to protect and restore something else. Again, you can do that on your own. Or now they're companies like ours that take investor capital and put it into those projects because of the same economic demand driver as the Clean Water Act, just in a parallel universe. There's also another parallel universe in water quality, where uh, you know, areas of the country that are experiencing red tides or algal blooms that are causing really bad water quality, or sediment that's causing water quality problems. There are projects that you can do on land that require the same basic elements as a mitigation bank, right? The real estate control, the design of a project, permitting for that project, construction of some improvements on the ground, all the same stuff that we do. But the demand doesn't come from no net loss under the Clean Water Act. It comes from people who want to buy improvements in water quality, most often public agencies that are uh frustrated trying to do these projects on their own and are looking for public-private partnership to actually get them done faster and at scale.

SPEAKER_00 48:10

Let's shift into enabling capital to flow into this. And I I actually want to underscore, you know, looking into ecosystem investment partners, we are not talking about an insignificant amount of money. I don't know what the total figure is of what the funds combined that you've raised, but it looks to be north of a billion dollars. Is that right? So yes, we've raised over a billion dollars. And that that's an incredible amount to to think, okay, you this is this is your activity is to go out and actually do these projects at scale. What what needs to happen in order for that kind of institutional capital? I and correct me if I'm wrong, I would imagine this is institutional capital that we are talking about. Um what needs to happen uh to mitigation banking in order to allow for that kind of capital to flow into a very new industry?

SPEAKER_01 49:15

Well, so it's been happening for over a decade now. We raised our first institutional round of capital, a formal private equity fund structure in 2012. It was $180 million. And a really important uh moment in that fundraise was when a uh public pension, the New Mexico Education Retirement Board, under the leadership of a gentleman named Mark Canavan, who ran the real assets platform for the New Mexico State Pension Fund. Um he had done analysis with consultants looking at various categories of real assets that he could put money into and make a fiduciary return for his pensioners over a 30-year time frame. The recommendations included international timber, domestic ag land, and mitigation banking. And that was in 2012. A very important policy shift had happened in 2008, uh, which was the so-called 2008 mitigation rule, which was promulgated by the EPA and the Army Corps, which uh took the guidance that mitigation banking had been operating under and made it a formal rule. So it made some improvements in the structure of the regulation and tightened up the requirements, basically, and made them more consistent across the country. That was a really important moment. And it's sort of like when I was talking about AB 939, the Integrated Waste Management Act, uh, back in 1990 in California. The policy preceded the economic activity in some fundamental way. So there was recycling going on before AB 939. But once that was passed, you know, billions of dollars were invested in plant and equipment to be able to recycle at a much larger scale, because you knew that there would be demand, right? That the thing had come of age. And it was the same kind of generation uh in the mitigation banking industry. It had been around for 25 years, but when the 2008 rule was passed, it really signaled that it had come of age. And the $30 million that the state of New Mexico chose to invest in EIP too was uh, you know, a great acknowledgement of that and a very important signal to the larger market because a pension fund is a pure fiduciary, right? They are not doing socially responsible investment because it's not their money. It's the money of the pensioners, right? So the teachers who are going to retire 30 years from now need to know that the money's gonna be there. So the job of the pension fund is to just make sober assessment on risk and reward, right? Risk-adjusted return. And so when they put money, after all the rigorous due diligence that they do into mitigation banking, it really did signal that it had arrived and was then a credible place to put institutional capital. And they were the first, but they certainly weren't the last. The majority of our capital comes from pension funds, both state pension funds in the U.S. and European pension funds as well, as well as some endowments like university endowments and some high net worth uh uh investors. Everyone invests money for their own reasons and to their own standards, but institutional capital really is different because it must be fiduciary.

SPEAKER_00 52:59

It's also pretty incredible to think that money was diverted from other investments. It could have likely gone into petroleum and other industries that we just know this is not synonymous with with life, right? So a billion dollars into life-giving rather than life-taking. It's pretty significant, in my opinion.

SPEAKER_01 53:23

I mean, to me, it was one of the most fun sort of moments in this whole, you know, long story about trying to figure out how ecosystem services could actually get real people in real places paid, how people could make a living taking care of and improving ecology, right? We know it's valuable. We know this, you know, sort of instinctively. We know it in our hearts, right? But if people can't get paid, then they don't have a choice. They will sell it for real estate or they will cut the trees down, they'll do the things that they need to do because they have to make a living. People have to make a living. And so to get ecosystem services to become, you know, more than theoretical so that people can make a living and investors can make a return, it reflects scientific reality about the value of what nature does, but it required a pretty fancy set of policies and developments, including mitigation banking, in order for this to start to reveal itself. I still think we're at the very beginning, Neil. I really do. I think the tailwinds are extraordinary because there's 8 billion people now, and our consumption per person is going up, not down. And the world economy continues to grow, and the damage to ecosystems is becoming more and more obvious. You know, people talk about climate change, and they should. The you know, parts per million of CO2 in the atmosphere goes up by, you know, two or three parts per million every year. So it's obvious where we're heading with climate change. That's going to continue. But the other forces that are causing problems, a lot of it's land conversion, uh, loss of habitat, uh, water quality, um, nutrients causing these water pollution problems, alcohol blooms, uh, which are increasing all around the world from use of fertilizer primarily. All of these things are combining to mean that the ecosystems that we have left that are intact, that provide services, are more valuable than ever. And they're only going up in value if only there were a way to recognize that in such a way that people could invest in them. And it turns out there is. Right. And often the word impact is sort of a code for below market returns. That's that's sort of what it means. It's sort of it's a hybrid to philanthropy. So don't give me the money. I'll invest, or you can invest it with me, right? But I'm gonna give you a few percent uh annual return, uh, much lower than you could get doing something else, but you get social and environmental good. So that's an impact investment. Now, lots of people have tried to create competitive market rate returns through social and environmental good. And there are some examples. Um, and that's where I'd like to be, and that's where EIP is, uh, is investing as a fiduciary. That's why we're able to get pension fund money because we focus on risk-adjusted returns that are fair and competitive. Now, what we do is ecological restoration. So it's really gratifying in that sense, but I don't use the term impact, uh, even though, of course, there's great positive impact from what we do. It's become a weighted, it's become a weighted term, like socially responsible investment or triple bottom line investment, or sustainability. Um, these are words that people use a lot, and they're important. It's an important conversation for sure. But I think it can cloud the quality of an actual investment. I I don't think that we shouldn't talk about it. I just prefer not to. In other words, I'm trying to run a company that, you know, along with my partners that I'm very lucky to have, um, is is focused on risk-adjusted returns that can qualify for institutional capital, right? And the reason is that that's where most of the money is, is in institutional capital. Now, there's lots of room for other solutions, Neil. And all kinds of hybrid strategies exist from philanthropies, which do a ton of great work, right? And nonprofits that rely on philanthropic funding. Tons of great work happens there, billions of dollars worth of good stuff. And then all kinds of stuff in the middle where people might make below market return, but they measure the social or environmental uplift from what they do. And that's completely legitimate. That's a really positive thing. I'm not suggesting that what we're doing is the right way or the only way at all. We're we're going after what we're doing because we wanted to operate at scale. And so we needed to go find money at scale. And so the only way to really do that is to tap into risk-adjusted return, right? Money that doesn't sacrifice fiduciary principles at all, right? It's it's makes the same kind of risk-adjusted return that you could make through timber or mining or agriculture or other kinds of things that happen on land, right?

SPEAKER_00 59:09

Fascinating. Yeah. Well, I've got one last, hopefully juicy question for you. Uh where are you really excited right now? If you're saying we're right at the beginning of this thing, what keeps you up in the best way at night looking forward in the next 10 years?

SPEAKER_01 59:28

Thank you for that question. I mean, it's I don't I don't turn my attention to that very often because I'm I I can only see as far in front of me as the car headlights go. It's like driving in heavy fog, but but I can I can see that far, and that's all I really need to be able to see, because, you know, the the headlights always move forward in the fog along with me. So I don't know what it's going to look like five or ten years from now. But I I really am excited about the ongoing recognition of this fundamental notion of the value of nature. Now, look, I think it's accurate. It's the truth that what nature does is really, really valuable. There was a natural hesitancy or aversion to including what nature does in an economic transaction. Like there was a big reaction against the impulse to do that by lots of people in the early days. Because nature was sacred. And you should do it not for money, but because of its sacred nature. And so it was sort of the wrong motivation to do it for money, right? And so the idea was we're gonna keep the economy over there and we're gonna protect our stuff over here with by making it a park, right? We're gonna, or a sacred area, we're gonna take it out of the economy. And I think that's a noble impulse. I do. I think it's great to want to do that. But I think the notion that we shouldn't recognize economic value on land is a completely misplaced priority because it's way too late. We've already done it. There is an appraised value on every acre of land, but it's appraisal for what we can take from the land or build on the land, not for what the land can do if it's healthy. And so having an alternative mechanism, right, that allows the protection and stewardship of nature to deliver a return to someone who takes care of it, that is exciting to me. I mean, that that is, you know, a pathway towards a much healthier balance of ecology and economy. And that's where I want to go. So I see these very technical and specific things that we get involved in, like mitigation banking under the Clean Water Act or water quality programs under, you know, uh state goals for water quality improvement. There's just a ton of technical stuff in there. But the bigger picture, which is that nature really, really is valuable, and we need new ways of recognizing that that enable people to make a living that's an honest and good way to make a living. We need to give people that. And if they can do that through protection and stewardship of land, then it's just a great, great pathway.

SPEAKER_00 1:02:28

I love it. Adam, this was as fascinating as I thought it would be. I only wish that we could give out professional credits or college credits. I feel like I had uh a one-on-one, just really fascinating uh overview of this industry that you've helped it create and been such an instrumental player. I want to plug your website here for ecosystem investment partners. You guys have done a lot of really cool storytelling. Uh, so I recommend for the listeners to go out and actually look at at those videos and the projects that Adam's been referencing as part of that work. It's really amazing. Adam, thank you for taking the time for giving on to the podcast. And and I hope that the next 10 years is just as bright as the past 10 years.

SPEAKER_01 1:03:11

Thanks for the opportunity and thanks so much for the for the kind words, and it's a good idea.