Invest in nature? Might be possible with ‘natural asset companies’
by Jennifer Yachnin  /  12/11/2023

“Investors could soon buy into companies trading on the New York Stock Exchange with a unique dual purpose: protect nature — including on public lands — and make money. The Securities and Exchange Commission is currently weighing whether to clear the way for the NYSE to offer a new kind of investment known as “natural asset companies,” or NACs. The idea proposed by the NYSE is to list companies with missions to improve ecosystems through management, maintenance, or restoration of public or privately-owned lands — and then put a dollar figure on the resulting benefits, like clean air or wildlife habitat.

The proposal so far hasn’t gotten much attention, but caught the notice of conservative lawmakers and property rights advocates. They’ve warned the companies could open a backdoor into strict management restrictions for public lands and waters — as well as foreign investment on federal lands — while raising questions about whether the investments are even viable. But the financial services firm Intrinsic Exchange Group, which launched the idea two years ago and has drawn support from the NYSE and groups like the Rockefeller Foundation, says it would give investors interested in preserving nature a place to put their money. “We were looking for a private-sector approach that wasn’t dependent on policy, it wasn’t dependent on traditional taxes, regulation or philanthropy to price in these assets and give investors the opportunity to invest directly in nature, whether that’s for climate or biodiversity,” said IEG Chair Douglas Eger.

Eger compared their approach to improvements on public lands to a mining claim or a timber lease, or utilizing air rights on private lands. Instead of a lease to extract ore or cut down trees, however, NACs would ink agreements granting them “ecological performance rights.” Where a successful mining claim is intended to result in the collection of ore, the value of the ecological rights would be judged on a series of factors, ranging from data on carbon storage and sequestration to more ephemeral qualities like the “sensory benefits” of a nice view. Critics have targeted the concept as creating companies that would attempt to make money off monetizing aspects of nature that belong to everyone. “This is creating this whole new category and monetizing things that nobody has a right to own,” said Margaret Byfield, the executive director of the American Stewards of Liberty, a property-rights-focused organization.

In order to qualify as a natural asset company, a corporation would need to document how it is improving the lands included in its portfolio. In broad strokes, a NAC is responsible for the “conservation, restoration, or sustainable management” of those lands, which commit to various goals, such as improving wildlife habitat or ensuring clean air. “Ending the overconsumption of and underinvestment in nature requires bringing natural assets into the financial mainstream,” the NYSE wrote in its submission to the SEC. An SEC spokesperson declined to comment on the NYSE’s proposal, saying the agency does not discuss specific filings.

The proposal includes 38 categories of potential improvements, which range from growing hay or grasses to feed livestock to soil erosion control, and from contributing to climate regulation to “sensory benefits, especially visual.” But — nice views aside — NACs would not necessarily have to own the land that supports those benefits, according to Eger. Instead, the companies could own the “ecosystem services” created by lands — whether private or public, working lands or conservation lands — much like existing oil and gas leases. “By and large, on either working lands or natural lands, you’re not really being compensated for being good stewards of the land,” Eger said.

In response to an inquiry about how NACs would work, an NYSE spokesperson described the proposal as a way to raise funds “to preserve or restore natural landscapes while making these securities available to all investors, from institutions to individuals.” “NACs — which have not yet been approved for listing — are a voluntary, free-market decision by a landowner to monetize their assets,” said NYSE spokesperson Lauren Sullivan. In a document detailing the companies’ structure, IEG notes that lands “can be areas that are publicly owned, such as a national park, or tracts of privately owned property held by individuals or corporations.”

That provision grabbed the attention of lawmakers, including Wyoming Rep. Harriet Hageman (R), who told E&E News she is concerned the new investments could be used to privately “monetize” national parks, national wildlife refuges and other protected lands, such as areas of environmental concern. “It’s a lot of smoke and mirrors,” said Hageman, who sponsored an amendment the would have blocked the SEC from approving the proposal. The measure would have been considered as part of an appropriations package pulled from the House floor earlier this month.

Critics have also questioned if the companies could provide a way for foreign entities to essentially get control of public land in the U.S. Hageman said: “Keep in mind that it’s not just a company that might go in and exercise that control. Other countries could engage in these kinds of activities. China could come in and start a natural asset company and start purchasing the rights, as identified by the SEC, in these land management agencies.” Republican Sens. Jim Risch and Mike Crapo of Idaho and Pete Ricketts of Nebraska raised similar concerns in a Nov. 2 letter to the SEC, warning of a “preservationist-only approach” to land management.

Four Republican governors also criticized the rules change as a “back door approach to apply Environmental, Social and Governance (ESG) principles to land use and management.” “This rule has wide-ranging implications for the citizens of our states, specifically in our natural resources and agricultural industries,” Govs. Joe Lombardo of Nevada, Greg Gianforte of Montana, Mark Gordon of Wyoming and Brad Little of Idahowrote in an October letter to the SEC. The governors also questioned whether the Interior or Agricultural departments had been involved with the proposal. An Interior spokesperson declined to comment, and the USDA did not respond to a request for comment.

Eger pushed back against those concerns, asserting that critics have misunderstood the proposal and what kind of authority a natural asset company could actually assert over lands in its portfolio. “Whether it’s under [the Bureau of Land Management] or Fish and Wildlife Service, National Park, National Forest Service, all of those have existing rules. You couldn’t come into an area that is a multiple use, and change that,” Eger said. He suggested, for example, that if BLM acreage with existing grazing rights were included in a NAC, that activity could not be prohibited on those lands.

Eger acknowledged, however, that at least in the United States, when considering public lands, NACs could be easier to form with acreage owned by state or local governments, rather than federal lands. “It is probably easier on the local or state level than it would be on a federal level,” Eger said. “But I could see a role.” NACs are also intended as an international player, such as a pilot project launched in Costa Rica by IEG along with the Inter-American Development Bank. The Biden administration has indicated it is interested in, at least, identifying the value of “natural capital” and its contribution to the nation’s economy.

Earlier this year, the Biden administration unveiled a 15-year plan to account for the value of natural assets like minerals and clean water, as well as the impacts of climate change and biodiversity loss. “The nation’s economy and environment are deeply intertwined,” the White House wrote. “A strong economy depends on a stable climate, clean air and water, and all nature has to offer. We have taken it for granted, but we can no longer afford to do so,” states the document, which includes a brief mention of the NYSE’s proposal. Whether the Biden administration will engage with NACs remains to be seen, but Byfield said a BLM plan to offer conservation leases could open a door to the federal government’s participation. “There’s so many concerning things about how this could fundamentally change our economy,” Byfield said.

“The way our protected lands are being managed, and national sovereignty, national security.” But Eger asserted NACs aren’t intended as a way to change management of public or private lands, whether in the United States or internationally. “When we look at public lands, ultimately, it belongs to the public,” Eger said. “The managers of that land may or may not want to increase the value of that land by including the natural capital and ecosystem service values inherent there.” Larry Harris, who served as the SEC’s chief economist from 2002-2004, compared the proposal to a trend of investments that include commitments to meet environmental, social, governance standards — such as how a company opts to address climate change or pays its CEO compared to workers — commonly known as ESG.

“This is basically another ESG story, with a heavy emphasis on environmental sustainability,” said Harris, who now holds the Fred V. Keenan Chair in Finance at the University of Southern California Marshall School of Business. Although ESG investments have drawn the ire of Republican lawmakers — including Florida Gov. Ron DeSantis, who earlier this year signed into law a prohibition on investing state funds into ESG goals — a new environmentally themed product could nonetheless draw investors. “We know that there is a very large market of people who want to take constructive positions on environmental issues,” Harris said. “There’s definitely a market where people would like to commit their capital in a way that is forward-thinking about natural resources and their preservation.”

But while would-be shareholders may be drawn to an ethical investment, Harris speculated that it doesn’t necessarily mean that NACs will become particularly valuable. “The potential investment value of these companies, from a point of view of an investor who is only interested in financial return, is probably not all that good,” Harris said. Utah state Treasurer Marlo Oaks made a similar point in an opinion piece published by The Wall Street Journal, questioning whether NACs would generate any revenues after raising money through an initial public offering. Oaks doubted if a company required to then spend money on “conservation, restoration, or sustainable management plans” could truly be profitable. “Normally, corporations are formed for investors to make money,” Oaks wrote. “In any other situation, this proposal would be identified as sanctioning fraud.”

Harris said another complication is the environmental statements and audits these companies would be required to produce — a potentially significant expense. “The innovation here is that these companies are being given a mechanism by which they can credibly show that they’re doing what they say they’re doing,” Harris said. “And to give investors some confidence that they’re not rapaciously destroying the planet or the environment.” Eger pushed back against that analysis, arguing that NACs will create a return on investment because individuals choose to value the environment, along with sustainable production of timber or agriculture. “There’s no reason that we can’t set a price to ecosystem service,” Eger said. “Between a willing buyer and seller, the underlying becomes true. If they think that value is there, then it is there,” he said, comparing the idea to “the price of paintings or gold.” He added that while some of the lands have an existing “production value,” whether because of agricultural or other uses, investors into NACs are supporting an “existence or appreciation value” of the benefits of those lands, like support for biodiversity or natural beauty. “We just happened to leave a lot of this off the table when we created the economic system that we have right now,” he said.”