Imagine this. You own hundreds of acres near a developing town where your family has been farming for generations. It's getting harder and harder to make a profit, and none of your children want to take it over. You don't want to sell the land. You love open spaces, the flora and fauna that inhabit them. But offers from developers to turn it into a subdivision or remove the shopping mall look increasingly attractive.
One day, a land agent comes up with an idea. Why not sign a long-term lease with a company that values your property for the same reasons you do? These include long walks through tall grass, the sound of migratory birds, and keeping the air and water clean.
Sounds like a scam. Or charity work. In fact, it's an approach favored by astute investors who believe that nature has intrinsic value that will pay dividends in the future – and in the meantime, it's on the balance sheet. They are willing to hold shares in the new company.
Such a company does not yet exist. However, this idea has been challenged by environmentalists, money managers, and philanthropists who believe that nature cannot be adequately protected unless the market assigns value to it, whether or not that asset produces dividends through monetized use. is attracting attention among
The concept almost hit home when the Securities and Exchange Commission was considering a proposal from the New York Stock Exchange to list these “natural asset companies” in public trading. But the exchange was shut down in mid-January after fierce opposition from right-wing groups, Republican politicians and even conservationists wary of Wall Street.
That doesn't mean natural asset companies will disappear. Their supporters are working on prototypes in the civilian market to build models. And even if the concept does not catch on, it is part of a larger movement motivated by the belief that preserving natural riches requires a price.
Beyond charity
For decades, economists and scientists have been working to quantify nature's contribution to production, a type of production known as ecosystem services.
Under traditional accounting methods, forests only have monetary value if they are harvested two-by-four. When non-sawmill forests catch fire, economic activity actually increases due to the need for subsequent relief efforts.
But when we pull out the camera, forests help us in even more ways. In addition to sucking carbon out of the air, it retains moisture by holding the soil in place during heavy rains, shading the ground during dry times and protecting the winter snowpack, creating a water reservoir for humans. helps keep it full. For example, without the tree-covered Catskill Mountains, New York City would have to invest even more in infrastructure to filter water.
Natural capital accounting, which the U.S. statistical agencies are developing as a supplement to measuring gross domestic product, gives numbers to these services. To push these calculations beyond academic exercises, they need to be factored into incentives.
The most common way to do this is through the social cost of carbon. This is the price per tonne of emissions that represents the burden of climate change on humanity, including natural disasters, disease, and reduced labor productivity. This number is used to assess the costs and benefits of regulation. It is used in some countries, but not particularly the United States, at least at the federal level, to set taxes on emissions. Efforts to remove carbon generate credits that are traded on the open market and fluctuate based on supply and demand.
But carbon is just the simplest way to put a price on nature. For other benefits, such as wildlife, ecotourism, and hurricane protection, the revenue model is less clear.
That's what Douglas Eager set out to do. After college, he wanted to work for an environmental organization, but on the advice of his conservative father, he built a career in business running pharmaceutical, technology, and finance companies. He used some of his newfound wealth to purchase his 7,000 acres of land northwest of New York City and preserve it as open space.
He did not believe that philanthropy was enough to stem the loss of nature. A seminal 2020 report found that more than $700 billion a year is needed to avoid biodiversity collapse. The government wasn't solving the problem. Despite advances in socially responsible investing, it has not been possible to reverse the damage to critical habitats.
So in 2017, Egger founded Intrinsic Exchange Group, which aims to foster natural asset companies, or NACs. Here's how it works: A landowner, whether a farmer or a government agency, works with an investor to establish his NAC, which licenses rights to the ecosystem services that the land produces. If the company were to list on an exchange, the proceeds from the initial public offering would provide a source of income for landowners and improve the benefits of nature, such as habitat for endangered species and revitalizing agricultural operations that restore land rather than leaching it. You will have to pay for the increase. dry.
If all goes according to plan, your investment in the company will grow in value as the quality of the environment improves and the demand for natural assets increases, giving you a return in the coming years. – Art It is no different from gold, gold, or even virtual currency.
“If you think about it, all of this is a social agreement to some degree,” Egger said. “The beauty of the financial system is between willing buyers and sellers, and at its core it becomes true.”
In discussions with like-minded investors, he found an encouraging positive attitude towards the idea. The Rockefeller Foundation has committed about $1.7 million to the effort, which includes his 45-page document on how to create an “ecological performance report” for land registered with the NAC. In 2021, Intrinsic announced plans to list such a company on the NYSE, a pilot project involving land in Costa Rica, and support from the Inter-American Development Bank and major environmental organizations. By the time he filed his application with the SEC in late September, Egger was feeling confident.
That's when the firestorm started.
The plan caught the attention of American Stewards of Liberty, a Texas-based group that opposes conservation measures and works to roll back federal protections for endangered species. Through both grassroots organizing and high-level lobbying, they argue that natural asset companies are a Trojan horse for foreign governments and “global elites” to blockade large swathes of rural America, especially public lands. He claimed that. The rulemaking document began to be filled with comments from critics who decried the initiative as nothing more than a Wall Street land grab.
A group of 25 Republican attorneys general claimed it was illegal and part of a “radical climate plan.” On January 11, in what may have been the final test, the Republican chairman of the House Natural Resources Committee sent a letter requesting a trove of documents related to the proposal. Within a week, the proposal was blank.
unexpected headwind
Eger was disappointed. The most powerful forces rallying against natural asset companies are those who want to keep land available for uses such as coal mining and oil drilling, and who have no fundamental views on what is good for the world. There is a difference. But opponents also made false arguments about the risks of his plan, Egger said. Landlords decide whether and how to establish a NAC, and existing laws continue to apply. Furthermore, foreign governments can and do purchase large tracts of land directly. The license of ecological performance rights on land does not create new risks.
But those who believe strongly in protecting natural resources and are concerned that monetizing their benefits will make the wealthy even richer without ensuring the promised environmental improvements are realized. There is also a backlash from
“If investors want to pay landowners for soil improvement and wetland protection, that's great,” said Ben Cushing, the Sierra Club's fossil-free finance campaign director. “I think we've seen that when it's turned into a financial asset attached to a whole secondary market, it creates a lot of distortions.” Another environmental group, Save the World's Rivers, said the valuation framework Comments were submitted opposing the plan, in part because it focuses on the use of nature for humans rather than other living things.
For Debbie Dekleba of Ogallala, Nebraska, the prospect of a natural property company potentially registering large tracts of land seems like a very real threat. Her family has been commercializing milkweed for her 36 years. Milkweed produces strong fibers and is the only wild plant that endangered monarch butterfly caterpillars eat. Decleba pays local residents, with the permission of friendly landowners, to collect pods from milkweed forests and turn them into insulation, textiles and other products.
That seems like the type of business that could contribute to the value of NAC. But Dekleba doubts he will be one of them. Far-flung investors or large corporations could lock up rights to the milkweed on surrounding land, making it difficult for her to manage it.
“I think whoever writes the rules wins,” Dekleba said. “So let's say Bayer is working on regenerative agriculture. And they say, 'Now you get biodiversity credits, you get this, you get this, you get this.' How can someone like me compete with something like that? ”
It may be difficult to dispel such opposition, which stems from deep skepticism about financial products touted as solving problems through capitalism and questions about who is entitled to receive nature's gifts.
Egger said he built safeguards into the proposed rule to prevent concerns like Dekleba's. For example, each company's charter is supposed to include an “equitable profit sharing policy'' that governs the well-being of local residents and the company.
For now, Intrinsic will seek to prove its concept in the private market. The company declined to reveal the parties involved before the deal closes, but did identify several projects that are close to negotiations. One of them is attached to his 1.6 million acres of land owned by tribal organizations in North America. Another company plans to register a soybean farm and move to more sustainable practices, with investment from a consumer packaged products company that buys the crop. (Intrinsic's pilot project in Costa Rica, which would have covered national parks that needed funding to keep out arsonists and poachers, stalled when a new political party came to power.) Ta.)
And the concept remains attractive to some landowners who have managed to wrap their heads around it. Take Keith Nantz, a rancher in Yreka, Calif., who is building a vertically integrated, sustainable beef operation across the Pacific Northwest. He and several partners want to move to grazing methods that use fewer chemicals, but banks are reluctant to finance projects that could reduce yields or jeopardize crop insurance coverage. ing.
Natural asset companies could be part of his funding puzzle. And for Nantz, opposition comes primarily from fear.
“Nothing is being forced by the government or state or organization to participate in this or not,” he said. “We can choose to participate in this, but we hope it will be a great opportunity to bring in capital.”
