S2 Episode 3: Nature's New Equity: Douglas Eger on Revolutionizing Conservation with Finance

Today we explore the groundbreaking intersection of finance and conservation with Douglas Eger, Chairman and CEO of the Intrinsic Exchange Group. Learn how the innovative concept of Natural Asset Companies (NACs) proposes a new way to value nature, transforming it into a recognized economic asset that benefits both the environment and communities. Through Eger's journey from conserving acres to conceptualizing financial mechanisms for nature, we examine how integrating nature’s value into capital markets can drive ecological and economic prosperity. We also discuss the challenges and future visions for NACs, including pilot projects that aim to redefine our approach to conservation. Join us as we navigate the evolving landscape of conservation finance, where the preservation of nature meets economic innovation.

Transcript

David Meyers:
Welcome to the 4Nature podcast, where we explore ways to restructure financial, economic, and social incentives to create better outcomes for both nature and people.

Kim Bonine:
We have open conversations with some of the world's most innovative thinkers and driven actors working to help us rethink the role humanity plays within nature and create transformational change.

David Meyers:
Today, we're here with Douglas Eger, who's chairman and CEO of the Intrinsic Exchange Group.
And Mr. Eger’s career has been incredibly diverse, working on a range of companies in finance, technology, healthcare, and media.
He's been very interested in conservation, and as a conservation buyer, he partnered with the Open Space Institute and Trust for Public Lands to preserve 7,000 acres of land and restore two historic estates about 100 miles northwest of New York City.
We're thrilled to have you here, Douglas, and learn more about what you've been doing and learn more about natural asset companies.
And maybe I'll start us off with a first question.
You have a really interesting background background and with, you know, working in diverse sectors.
And so how did you end up pursuing this approach and get interested in finance for nature?

Douglas Eger:
You know, it's not the most direct route, but I started off, I really came up college wanting to work for a conservation organization.
And I needed a paying job and there weren't many of those.
So, I started in business, started a company with my idea that then I could eventually have the resources to buy a piece of land and be my own conservation, you know, supplier.
And after, you know, several companies and about 25 years, it came around to buying a piece of property in upstate New York, kind of realizing a dream.

But it also brought forward that, you know, even, you know, conservation on that level was not enough to really move the needle.
And it, you know, it wasn't Ted Turner. And even if it's Ted Turner, that's not enough conservation.
And so I took a turn and said, well, maybe I should apply what I've learned into film and television, tell the story about natural capital.
And we had started in documentaries and I was just starting into working on feature films and television.
And I pitched a story about natural capital to a participant in CNN.
And in that process of developing the story, I said, you know, I think I'd rather try to solve this problem and figure out how to get, you know, resources at scale into conservation and to sustainable development rather than just talk about the problem.
So that's really how I got here.

Kim Bonine:
That's a really interesting background. And, you know, how did you land on, you know, trying to create a natural asset company, which is something very new?
You know, what kind of led you to kind of the conclusion that that is what you wanted to try to create and that it was possible to make happen?

Douglas Eger:
It really came from, you know, the fundamental problem itself was, you know, we left nature out of the mainstream of the economic system.
So, you know, in economic speak, that's an externality. There's a positive side.
There's a negative side.
And we focused a lot on the negative side through taxes and regulation.
And those are don't do this, do less bad. And there wasn't as much on the positive side of this is a great asset.
It produces goods and services of a known value.
What would be the right instrument to bring that in to the economic system?
So that led me to the idea that it needed to be an equity.
And the reason, nature is a productive asset.
And it's not a, you know, a static, it's not a commodity.
You can think of it as the geology is your plant and equipment, and nature is your workforce, and it produces these goods and services, and we just need to be able to include that in, you know, to the economic system.
And I felt that the best way to do that was an equity-type structure.

David Meyers:
So, yeah, one of the challenges, one of the biggest challenges is that nature is an externality for the most part.
And we take its services for granted, you know, water regulation, pollination, you know, all those services that we depend on for the economy and for society.
But how does a natural asset company transform those externalities into something that's more tangible that can be traded?
What's the special sauce here?

Douglas Eger:
So it's a great question. So if you think about it, we have an asset.
I think most people would say nature has a value.
You may get an argument over how valuable, but there is a value there.
And a natural asset company works within a geospatial area, so a territory.
It would obtain through a license the ecological rights to that area, so the ecosystem services that it produces.
You can think of it like a run with the land right, like a carbon right, a water right, a mineral right, other use right, the ability to have someone farm your land.
And in that process, we know these ecosystem services and the underlying asset that is extant on the land has this value.
If you take that asset and it becomes a primary asset within a corporation, you sell stock.
You have now converted that potential asset value into share capital.
When share capital is traded between a willing buyer and seller, it's now converted to financial capital.
So the model that we thought about is think about a company that doesn't pay a dividend.

You're really getting your investor return based on the buying and selling those shares in relationship to the productivity of the investments or the production of that company.
So there are two channels to work with. We think only in current and future cash flow for equities.
But there's actually another, and that is the instrument itself can be the proxy for the growth of nature and its production.
We can get into those individual buckets of value, but that would allow you to convert that externality of the positive side into actual financial capital with known metrics of that increase in valuation, the improvement in the quantity and quality of the underlying asset and the amount of ecosystem services it produces, its option value into the future, and its intrinsic value.
It's inherently valuable. It has existence value, and markets can value that.
That's an important part of market structure.
Between a willing buyer and seller, the underlying is true.

Kim Bonine:
How has this structure instrument, do you see it being able to incorporate, you just mentioned this kind of the idea of, you know, existence values, cultural values, these intangible values that are really kind of at the forefront of a lot of conversations around conservation right now.
You know, in addition to things that are a little more tangible, like use values or regulating services, like David was mentioning, pollination or water quality.
Do you see this being something that can address those cultural values, or do you see that as something kind of external to this type of exchange and structure?

Douglas Eger:
No, it's integral. And we've been doing this for a long time.
A good colleague and partner for us is Bob Herz, who is the former chair of FASB, a PWC alum. And he gave me a statistic that kind of illustrates that this is normal.
When FASB was formed back in the early 70s, the price-to-book ratio for listed companies was around 80%.
Today, it's around 12%. So if you look at it from that lens, the majority of traded companies' values are exactly what you just said in intangible.
It's brand value, it's growth, it's this intellectual capital.
And we're just saying all these other intangibles, which are very tangible because we live by what nature produces, can be incorporated.
And we've been doing intangible incorporation of value into equities for a long time.

David Meyers:
It's fascinating. When we started to see Bitcoin and other, what I would consider relatively intangible assets being traded for large sums online, it definitely drove me to think, well, what about nature?
Clearly nature has value. And meanwhile, people are trading things with no concrete value.
In fact, probably Bitcoin, considering how much you have to mine it, which probably results more in negative value from a biophysical standpoint.
But there it is. So this is very exciting, Douglas, and we're all excited about seeing this happen.

In terms of one of our challenges and opportunities is trying to take the economic value of nature and convert that into financial value in ways that can channel money back to nature conservation.
So I think that in addition to those intrinsic values that we hope the market will value and we will see, and we will ask you more about how things are progressing.
But what about the actual, you know, like how about water regulation values and what's something about the ecosystem services that could be produced from these natural asset companies?
Are there opportunities for, you know, converting those economic values into financial values in the future?
And will an owner of, let's say, a share in the natural asset company be able to benefit from those future environmental markets as they develop, for example?

Douglas Eger:
Exactly. We designed the natural asset company financial reporting to be in two components.
One is your traditional gap or IFRS, which if it's monetized, you know how to deal with it. You know how to report that.
We created another set of reporting requirements that are the ecological performance.
So the biophysical measures of those ecosystem services and methodologies for how that is determined to have economic value.
So that statistical information is directly related to the underlying assets value.

This has been, you know, the ecosystem service valuations have been, you know, in development since the 80s.
And increasingly, it's been used, you know, by, let's say, FEMA or Army Corps of Engineers or companies to look at a risk factor.
It's been used in lawsuits for damages. And it has been incorporated into the UN SEEA framework for national accounts.
So we've been moving ever more towards this idea that natural capital has a value.
There is a way to determine that value and estimate it.
So you can think of it like a business appraisal. The assets in this given area are valuable because they produce these ecosystem services.
There's a methodology to say what that asset value is, and that is what our enterprise value is in the natural asset company.
So we're incorporating 38 of the ecosystem services in our accounting framework.
And that's part of the UN SEEA framework. And we simply made that fit for purpose for a corporation.
There were just different things that you would report as a company and active management that you would at a national accounts level.
The beauty of this is this standard that UN SEEA developed was accepted by 200 country statistical departments.

90 have implemented it. So this is a pretty robust, well-traveled, and well-accepted standard.
So we think that's a great basis for bringing to the markets consistent, transparent, reliable information to say, this is why that rainforest, that coral reef, this piece of agricultural land producing both commodity crops and ecosystem services has value.
And here's how we would quantify that through this statistical information.

David Meyers:
Right just for clarity for the listeners though, so UN SEEA is United Nations a System for Environmental Accounts and um it is related to national systems of accounts which you know produce GDP and other key indicators for economic outcomes. And they do have an environmental accounting system as well now which is in force and as you say it's being used by countries all over the world, be it in its infancy in many countries.
But that is where the future is heading, and we see this as a key way to integrate natural capital into government planning, budgeting, and tracking of their success.
How do you see then natural asset companies being part of that national approach to trying to maintain natural capital or try to at least account for it? Is there a relationship there?

Douglas Eger:
There's a relationship to the goal, but we wanted to bring forward a voluntary market solution that could utilize the capital markets to incorporate the value of nature directly.
Not wait for policy or anything to develop at the governmental level.
This is what, you know, capitalism is all about.
But capitalism or markets only work if they have good information.
So we've not had the information about the value of nature and a way to incorporate that.
So our approach has been, we think, and we don't think, we know because we met with hundreds and hundreds of investors that say, we would like to invest in nature and climate solutions and biodiversity and moving us forward to a more sustainable, resilient economy.

But we have a limitation of what we can invest in. You know, the pure plays into nature or to nature-based solutions are limited.
And a lot of what these investors are looking at are negative screens.
They're looking at, I won't invest in a couple of companies, but I can invest in everything else.
But am I really moving my impact, my desire to directly invest in nature forward? No.
So on one side, you have investors that have a willingness, and the majority of them have a fiduciary responsibility to seek a market rate of return.
And if we haven't included the value of nature, it's really hard to connect the dots.
You know, I can give you some examples of taking this out of the ether and this theory and this wonderful thought process and get down to how would you use this? What does a NAC do in the real world?

Kim Bonine:
I have a question about some of the kind of necessary enabling conditions.
I know you mentioned that you wanted to be able to move forward without having to wait for maybe policies to be put in place, but I'm assuming that there does need to be some sort of enabling policy environment or enabling conditions, even perhaps thinking about property rights and governance.
That's such an important piece because this is obtaining rights to a geospatial area.
And we know that so much of, say, the biodiversity in the world's in places under community ownership or under the stewardship of people without secure land tenure.
And so I'm curious how perhaps you've tried to navigate that as this has, you know, tried to gain traction in a number of different places around the world.

Douglas Eger:
And Kim, you're exactly right. And this is a multi-part invention if you will.
There was a lot of enabling work. You know, it's often been said, you know, you have to stand on the shoulders of giants to be able to see the next step.
And as I said, people had worked first to understand that nature had value.
Number two, how could you quantify that?
They had to understand that just talking about it and conserving and making it an ethic or a fashion or even a policy was not enough and so they borrowed the lexicon of finance right. So, you know, we talked about natural capital, I wish it was natural capital. It's a natural asset that we'd love to be converted into capital. It isn't yet so that's you know one of the problems. So first, there had to be a realization we had a problem.

Then there was, OK, we've tried these other solutions and they weren't at scale.
So let's look at the powerhouse that kind of got us here.
You know, and that's the market systems did a lot to get us to this condition, but they weren't given the information to actually solve the problem.
So you had to have all of those things in place.
So for us, it was we need to design the right financial instrument that made sense to an investor, an accounting framework that could be acceptable to investors and to issuers, to the accounting community that would need to provide an assurance opinion.

We needed to know that there were people that wanted this from the owners of the land or those connected to the land, so issuers potentially, and then investors.
So we really need to connect all of those dots.
And fortunately, there was a great foundation to build on every one of those conditions.
People have been working on this and doing great work. You know, all the policy work, the markets that have been created around carbon, you know, they're artificial markets.
And I don't mean that derogatorily. I'm saying no one is going, I've got to buy my ton of carbon. I can't wait, you know.
So we did these enabling things, and it allowed us to come and connect some dots.
And so that's really, you know, it's most of the problems that we're facing now are system problems.
You know, plugging the pollution from a pipe going to the river is pinpoint.
But what's the system that caused that in the beginning?
You have to look at it as a systematic approach and finance is an accelerator within that system.

David Meyers:
So, yeah, we've been pretty theoretical to this point.
And, you know, of course, we love the theory. But you had mentioned that you have some more practical examples. So how would this work?
Is there an example? I'm not sure what you can share, but even theoretically, how would it work in real life?
Who does what? How does it... Because to me, it's like conservation.
You're setting aside a protected area, although calling it something somewhat different.
You still have to do conservation. You still have to protect it.
You still have to manage it and finance that. So how's it going to work?

Douglas Eger:
Absolutely. So I can speak to two use cases with concrete examples.
So I'm going to start in what I call working lands or agriculture because that is almost half the planet's surface is dedicated to production of food, fiber, and material.
And if we don't figure out that system, it's really hard to look at climate and biodiversity and a number of, you know, food security, water, energy, all of those are tied into our food system.
So in a nutshell, the problem that we have is there are well-meaning companies that would love to change their supply chain and deliver a different product.
And there are investors on one side that say, hey, we'd like to help you do that.

They don't have a direct mechanism to date. So if you look, and I'll use regenerative agriculture as an example.
And in this case, the large food company can't raise the prices of their products sufficiently to be competitive in the marketplace to change not only farm practices but to rejigger the supply chain in order to get that product to the consumer.

Particularly in an inflationary environment, they can't simply raise prices to solve that problem.
They're also bound by the fact that, or constrained, that they can't also use and make an investment and leverage their balance sheet.
So the corporations have a limitation of being able to leverage their balance sheet to make investments into conversion of the farm and the supply chain because if they do that, their return on capital will be less than their competitors.
And investors have already shown, activist investors, have said, if you do that, we'll punish you.
And there are CEOs that have lost their job, boards that have been changed because they simply could not go and say they're too green or too socially forward because they're in a market that says investors need a market rate of return.
So a NAC can come in and say, we enroll farm acres in partnership with the farmer or rancher.
There's natural capital value on those acres.

They're having the ecological rights under license to the natural asset company as a primary asset. We do an evaluation.
We know that value. We raise money and we utilize the proceeds to help the farmer make that conversion to be paid and rewarded, not only for a commodity crop but for the ecosystem services that they're producing.
That's very, very important.
Then there's money that can be applied to the conversion of the supply chain so that you can hand off to the larger company under a long-term supply contract this regeneratively produced product.
So, in this process, the NAC is growing by the increase in value of the natural capital under management, of any premium that can be garnered in the marketplace for this healthier, more sustainable food product.

Any of the monetized ecosystem services that exist in markets or will exist in the future become monetized values to the NAC and to the farmer or rancher.
And what this does is allow the farmer to get off the treadmill they're on right now of, you know, people don't realize it, but most farmers not only are living on subsidies, but they also often have multiple jobs because it's very difficult to make a living.
I think a couple of years ago, net farm income for grain farmers in the U.S., 70% of that net farm income came from subsidy.

That's an incredible amount. We have an aging farmer population.
They call it the gray tsunami.
And they're living by increasing debt many times on the farm or selling parts of the farm off.
And the next generation is going, do I really want to jump into this where I'm under a heavy debt burden?
I'm working like mad and I'm not getting a great reward for that.
So we need to flip that equation. So, in this scenario, the natural asset company allows that farmer to come and produce in a more economical way by using nature's values to produce that product.
And they can increase, and we know this from our partners that have been consulting on millions of acres, that they can increase net farm income, get to a more reasonable work level, and they're producing with using less water.

Recharging water through permeable soils to the groundwater.
They're more drought-resistant. The soils are permeable during heavy rain events, which is more and more critical. So you have flood protection.
The food is of a higher nutritive quality.
There's a lot coming out in this area about regeneratively produced food having a much greater nutrient profile.
They're using less inputs and less energy to be able to produce that food, and they can maintain or even increase the amount of food product they're producing.
So in a regenerative grazing operation, we've seen cases where you can actually increase the stocking rate while building that soil, while building that natural capital, while increasing biodiversity on that given ranch.
And this is something that we know how to do, but it needs to be brought to scale.
So a natural asset company can garner the resources, make the connection from farmer through supply chain to the off-taker, and allow natural capital to be built at scale in the food system.

Kim Bonine:
A great example. Yeah. I'm curious to hear what some of the challenges have been in trying to get this sort of operational and kind of maybe what some reactions have been.
And if any of those have been surprising, either good or bad, from either, say, the traditional maybe investor private sector perspective or from the maybe stereotypical, I don't know, conservation perspective that is resistant to the ideas of privatizing and monetizing nature.
And I'm curious what some of those reactions have been and maybe some of the challenges related to that or any other challenges that have come up.

Douglas Eger:
Yeah, you know, I've been an entrepreneur my whole life.
And whenever you bring anything new to the market, it is a challenge.

It's difficult to accept new until you see it and you see the benefits of it.
And ours is a slow build, right? We had the challenge of, you know, the regulatory frameworks.
We had the challenges of making sure this worked in the accounting world, that investors understood it, liked it.
It's not just some crazy, fanciful idea that this guy came up with.

And convincing the, you know, the potential issuers that they needed this product or wanted this product.
And that was actually the easiest. The owners of natural capital at the governmental level or at the private level recognized that they wanted and needed this. Investors were harder because you know we had systems that looked at things a certain way for a long period of time. So, you know, that that was a hurdle to make sure that they understood it and it made sense and that was normalizing an investment thesis. The regulatory environment is a challenge because we're saying we need to value this asset, include it in consideration for investors.
And as you know, there's pushback against ESG or climate rules or any way that you're trying to bring nature's value into the system because it's going to threaten someone.
That's a fact. Now, we can't preclude land use on the public or private level, we're actually strengthening a property right.
It's a use right, or it can be a recorded right in certain jurisdictions.

So by strengthening a property right and saying these ecological attributes are a property right and a use right, that's strengthening a value for those landowners.
The last piece that you brought up about where land tenure is not secure.

That's a very difficult puzzle. There's a lot of the world where that natural capital is in that case, you know, that needs to be addressed.
But perhaps by having an economic structure, and I would leave out uncontacted, you know, groups, because I think that's a particular problem.
And we may not want to go all the way down, you know, into that level of detail.
But for many indigenous, a right to the benefits of land that were historical and cultural, those stakeholders could become rewarded and connected to that historical and cultural use via the natural asset company and a distribution of its benefits in share capital or directly in economic benefits of payments, development of livelihoods, etc.
So, this is meant to fuel that, strengthen property rights, and come in and address some of those issues where those communities have been left out of the value of these important ecological assets that have not been mainstreamed.

David Meyers:
Excellent. Well, again, we're all very excited about seeing this come to fruition and being piloted.
So what are the next steps and where's the process at?
And what are you seeing sort of as the next direction for the next couple of years here?

Douglas Eger:
Yeah. So what we're looking to do as the next steps for natural asset companies and IE… As I mentioned, we have a few pilot projects that are moving along in development.
But getting rewarded for being good stewards over thousands of years, literally.
The regenerative NAC that I just mentioned, where we're partnering with these large CPGs, and they will be both investors and they are off-takers.
So moving that forward, both of those in the private markets first.
So showing the proof of principle that investors are interested in this, that they can invest capital along the lines and within the charter and the reporting requirements of a NAC, and then ultimately to the capital markets and the public markets.
So we're committed to moving this out eventually to the public markets on exchanges here and elsewhere in the world.

David Meyers:
Excellent. So before we end, I just, I wanted to just ask Douglas, if you had, you know, just if you had one more, you know, kind of thought you'd like to share with us before we close down.

Douglas Eger:
You know, there are those that, you know, are concerned about innovation.
They may not have understood what we are putting forward.
But we believe, you know, the farmers, those landowners, those corporations that want to bring natural capital into the mainstream should have the opportunity to do so.
And that by including these values, we can move to a future where nature is included, that we can build a more resilient, much more robust economy.
There's over $100 trillion worth of ecosystem services produced by nature annually.
If we just move a fraction of that into the capital markets, then we can power the next generation of the way companies are run, the way we produce goods and services, and we can have both economic prosperity, but also ecological prosperity.
And that's our goal.

Kim Bonine:
It's an inspiring vision indeed. I think putting those two together and I think really changing this kind of false narrative that's out there, that it's sort of nature versus development.
And I think that conversation, you hear it over and over again of, well, yes, we'd like to be interested in nature, but we really need to focus on development or, you know, feeding our families.
And I think it's great to see really innovative efforts like this, trying to really put those two together and show how they're really integral to one another.

Douglas Eger:
You know, Kim, you bring up a really important point. What I know is if the resources are available and the incentives are correct.
We will figure out a lot of things. And we've always done this in the past.
So, you know, I'll use cement as an example.
You know, there's a company that has figured out a way to replace Portland cement as the aggregate for concrete.
It's a biopolymer, essentially, that is able to bind the aggregate.
And that's a bio-based solution. So you don't have to, you know, use the tremendous amounts of energy required to make Portland cement.
We know that regenerative agriculture can produce food at the quality, quantity, and at an acceptable price. We know we can do that.

There are so many innovative people out there that are just waiting for the right opportunity to be able to scale their idea.
So I'm very bullish on how innovative we can be if we say we want to work with nature and not against it, because it is a false…
It's a total false decision to say that we have to have one or the other.
We don't. We know we can have both. And I'm hopeful we can help enable those entrepreneurs and companies to move forward to realize this vision.
And, you know, finance has always been the accelerator. It's the lubricant.
The people that are doing it have the solutions. And so we just want to make this tool available so that they can realize their visions.

Kim Bonine:
Absolutely.

David Meyers:
Excellent. Well, we wish you enormous success and, you know, look forward to staying in touch and seeing how things go, because it's very exciting and very, very much needed and really could move us in the right direction. So really appreciate your effort.

Douglas Eger:
Thanks, guys. It's good to be with you.

Kim Bonine:
Been a real pleasure and it'll be really exciting to see where this goes.
And who knows, next holiday, that's what my kids might have under the tree is a NAC share in their stocking.

Douglas Eger:
There you go. I love that idea. Cool. Thanks, guys. Really appreciate it.

Kim Bonine:
Thank you for being engaged in another session of the 4Nature podcast.

David Meyers:
Nature is life. Let’s keep it diverse, resilient, and productive.

Kim Bonine:
Please share these episodes with colleagues and friends and subscribe to our podcast on your favorite app.

David Meyers:
Visit us at fornaturepodcast.org or numbersfornature.org and share us with your networks.

Kim Bonine:
We can do this! See you next time.