Clean Air and Water Are Worth Money as ‘Natural Asset’ Companies Attract Cash

The idea behind natural asset companies is to improve and conserve natural assets—rather than remove resources. Here: an aerial view of the Boreal Forest, in Finnish Lapland. (OLIVIER MORIN/AFP/Getty Images)

Key Points

• An indigenous group formed the first natural asset company from the boreal forest.
• A private-placement financing round is expected to close before the end of the year.
• Natural asset companies generate revenue by licensing ecological attributes, such as carbon or biodiversity credits, as corporate assets.

An indigenous-led corporation has created the first known natural asset company from more than a million acres in the boreal forest.

The details of this first NAC—so-called because its purpose is to conserve and restore nature—are scant. That is because the first round of private-placement financing for it hasn’t closed yet. But the “products” this rich, coniferous forest provides in the form of climate regulation, flood prevention, and food production from an important fishery, are valued at $1.3 billion, according to a report from the World Economic Forum.

An anonymous institutional investor and an anonymous family office are leading the private placement in a deal that is expected to close before the end of the year, according to Doug Eger, chairman and CEO of Intrinsic Exchange Group (IEG), a company focused on creating market-based solutions that value nature. The deal is one of “several in development,” according to the WEF report.

The report provides guidance on 37 solutions for financing nature, but it draws out a top 10-list of priority strategies that could have the most impact on nature and critically, have the potential to “unlock capital at scale,” says Shivin Kohli, lead, financing for nature at the World Economic Forum’s Centre for Nature and Climate.

“We’re at a stage where investing in nature is urgent,” Kohli says. “Markets and policy are not responding as quickly as we want them to.”

Although the NAC structure is new, and arguably unproven, it made the top 10 in the WEF report, “Finance Solutions for Nature: Pathways to Returns and Outcomes,” because of the potential for the structure to be positive for nature, to effectively value it, and to grow the level of investment, Kohli says. McKinsey & Co. collaborated on the report.

NACs are structured as operating companies that issue equity, according to the report. They generate revenue by licensing ecological attributes—such as carbon credits or biodiversity credits —which are considered the company’s assets. As corporate assets, those attributes become part of “share capital,” Eger says.

“And when share capital is traded between the willing buyer and seller…we’ve converted that underlying natural asset value into financial capital,” he says.

The idea is to improve and conserve natural assets—rather than remove resources—to ensure they continue to benefit society and the environment. The structures are appealing to institutional investors because they can generate revenue streams from an array of sources, according to the WEF report. “NACs are widely applicable to agriculture, forestry and infrastructure sectors, enabling ecosystem services—such as wetlands, standing forests and pollinators—to be turned into reportable, investible assets,” it said.

The value of these services are determined through a combination of financial statements and “ecological performance reports,” which are based on U.N. standards known as the System of Economic-Environmental Accounting. These standards “assign monetary value to ecosystem benefits, including commercial output, services, nonuse and option value, store of value and risk mitigation,” the WEF report said.

“It’s one of the few solutions that can price nature into the financial value of the security as well,” Kohli says.

In 2023, the U.S. Securities and Exchange Commission was considering adopting a listing standard for NACs to allow them to trade on the New York Stock Exchange.

But the proposal hit a wall of opposition from Republicans and some conservationists who claimed these companies “posed a significant risk to rural economies by creating a mechanism for public and private land to be permanently removed from productive use in the name of solving climate change,” according to Marlo Oaks, state treasurer of Utah.

The SEC filing was pulled as a result of the political pressure, although Eger says, “It’s safe to say we were making very good progress with the SEC.”

For now, IEG is seeking financing for NACs through private placements and is working on developing a secondary market by listing NACs on private-market exchanges. “That’s a viable pathway to get the trading and liquidity that we’d like to get for NACs,” Eger says. The firm is also seeking to list these companies on a major public exchange outside the U.S.

“If we [take this] all the way up to a market transaction, and then a secondary market—which is very important to have—then we can have an asset class, and then nature could be more fully integrated into the economy,” Eger says.

Some of the other structures highlighted in the WEF report have a longer record. They include fixed-income solutions that finance specific projects, including sustainability-linked bonds and loans. They also include impact funds, environmental credits, debt-for-nature swaps, and payments for ecosystem services.

“This space has exploded in interest recently—exploded in new structures and instruments to finance nature,” Kohli says. “Innovation is fantastic, but at some point innovation needs to scale.”

Write to Abby Schultz at abby.schultz@barrons.com