Compliance-driven offsets are only one of the conservation asset classes described in the article by Fabian Huwyler, Juerg Kaeppeli, Katharina Serafimova, Eric Swanson, and John Tobin, but they are a critical piece of the conservation finance puzzle and one of the few that are now sufficiently developed to allow dispassionate investment that meets fiduciary requirements.
Ecosystem Investment Partners, a private equity fund manager that I work at, has demonstrated one successful model for delivering attractive risk adjusted returns to institutional and private investors in the United States. EIP II, the firm’s second fund, closed in May of 2012 at $181 million, and is now investing in large and environmentally significant properties in need of ecological restoration across the country. Returns are generated by earning land-based offsets through protection, financial assurance, and ecological uplift projects known as mitigation banks.
Mitigation bank credits are recognized by federal laws as a preferred source of compliance for unavoidable development impacts. They provide a cost-effective and efficient means of compliance for infrastructure and development projects of all kinds. These types of regulatory driven offsets are an essential part of the larger conservation finance picture as the US population quickly climbs toward 400 million and the country moves towards energy independence.
Mitigation banking markets have been around for more than 20 years. Approximately 1 million acres of wetlands and other aquatic resources have been restored with private money on private land under Clean Water Act offset programs alone. As the regulatory process has matured, infrastructure and development projects have more predictable and reliable options for achieving compliance that actually produce much higher value ecological results. Investors can now evaluate a significant track record of strategies, projects, and transactions.