FE5.6 - Making a Living

Cover artwork by Alé Silva

Summary

How do we account for nature? We can build on it and we can take from it, but what is its intrinsic value — in and of itself?

On this episode: Adam Davis (of Ecosystem Investment Partners), and a cultural transformation happening right now — reshaping the intersection of environmentalism and capitalism. Welcome to the restoration economy.

Click here to read a transcription of this episode

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Show Notes and Credits

This episode was produced by Mendel Skulski and Adam Huggins, with the voices of Adam Davis

With music by Thumbug, Local Artist, Yu Su, Sunfish Moon Light

And thanks to Ian Wyatt, Ava Stanley, Aila Takenaka, Alex Janz

This episode includes audio recorded by KGJones, Bidone, shall555, juskiddink, polymorpheva, Tomlija, dobroide, felix.blume, Ruski62, SpliceSound, Uli_potsdam, tim.kahn, TyroneW, cabled_mess, Beethovenboy, mrmayo, MATRIXXX_ (2), ShanayGroen, vanoosbree, monotraum, InspectorJ (2), Aiwha, jackthemurray, ursenfuns, kyles (2, 3), Kalou, jbez1, Ambientsoundapp, Geenburg, cupido-1, SizEffects, soggyprod, KevinSonger, WolfOWI, mxlacy, sertuser, emilyzitek, Philip_Goddard, Robinhood76, and inchadney, accessed through the Freesound Project, and protected by Creative Commons attribution licenses.

Citations

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Future Ecologies is recorded and produced on the unceded, shared, and asserted territories of the WSÁNEĆ, Penelakut, Hwlitsum, and Lelum Sar Augh Ta Naogh, and other Hul'qumi'num speaking peoples, otherwise known as Galiano Island, British columbia, as well as the unceded, shared, and asserted territories of the Musqueam (xwməθkwəy̓əm) Squamish (Skwxwú7mesh), and Tsleil-Waututh (Səl̓ílwətaʔ/Selilwitulh) Nations - otherwise known as Vancouver, British Columbia.

Transcription

Introduction Voiceover  00:00

You are listening to season five of Future Ecologies.

Adam Davis  00:07

So I had a really profound experience during the pandemic, reading the work of David Abram. Spell of the Sensuous and Becoming Animal. He taught me a few things. One of them is that the same word we use for the arrangement of letters, is the word that we use for magic. It's a spell. We spell words, and you cast a spell. And the reason that that's relevant right now is because he is a magician. For him, the magic is in the actual experience. And he taught me that in magic, what we think of as conventional magic, the magic is not the trick. The magic is the experience of the trick. It's the experience that you actually have — the sense of awe, wonder, even fright, because something happened that was so unusual. And that experience is so profound that it sort of shocks you out of your ordinary way of seeing things. And if you can bring just a little bit of that experience of magic into your experience of nature, by just listening a little more, listening a little longer... and then seeing the world that's also making the sound, and then feeling the air. That experience is magic. But it's also participatory. You no longer are an observer of it, you're a participant in it. David was one of my most important teachers in making me understand that that experience, that participatory experience — of not being separate from the living world, but you and the world being one thing, not two things — That is very much the way things were before the written word. So that's David's work, and I was really moved by it. But the thing that he never does, is talk about the magic of numbers. There's two great systems. One is letters. The other is numbers. Letters, and words have a relationship with magic and experience and participation. But numbers are the things that we use to determine what counts and what doesn't.

Mendel Skulski  02:46

Recorded and produced on the unceded territories of the Musqueam, Squamish, and Tsleil-waututh Nations, this is Future Ecologies. I'm Mendel Skulski.

Adam Huggins  02:57

I'm Adam Huggins. And on today's episode, Making a Living, we're hearing from Adam Davis.

Adam Davis  03:04

And I'm a managing partner at a company called Ecosystem Investment Partners.

Adam Davis  03:10

I think there is a real possibility that this could be the most boring episode you've ever done. After all your great work on the sacred of nature, the amazing science of nature, and poetic exploration of these things, today, we're going to talk about permitting and money. It could be a disaster.

Adam Huggins  03:30

I couldn't be more excited right now.

Mendel Skulski  03:34

It's been a long time coming.

Adam Davis  03:39

I really believe that a great motivation for finding a career that has meaning and purpose is doing work that doesn't. My first real job in San Francisco was working on Fisherman's Wharf at a place called Sourdough Puffs, where we deep fried bread, basically, dough in vats of oil. And that was appalling, appalling work. It was... the cleanup at the end of the day was just, you know, you felt exactly as greasy as you would think you would feel. I worked as a cashier in a cafeteria, actually in the Museum of Modern Art in San Francisco, which was a really fun job. I was doing some painting and exploration of art myself. And so being around the art every day was great. The work itself was was nothing. It was operating a cash register. Then I got a more serious job as an assistant legal administrator at a building maintenance company. I worked for a woman who changed smoked cigarettes inside — because you could, back in the day. And she was well meaning, but cynical beyond imagining. She had been through the corporate world long enough that she just knew that it wasn't going to really make a difference either way. And so I reported to her for maybe six months in a fluorescent lit room, reeking of cigarette smoke, and then quit that one. I guess I was working at a picture framing shop when I got fired. I was planning a two month motorcycle trip with my then girlfriend, now wife. And so I gave them about two months notice before the trip, and I got fired the next day. So I was now out of a job planning on leaving for this trip. And a friend of mine knew about a composting company that was just getting started, called American Soil Products in Berkeley, California. I got introduced to Bob Beatty, who was the proprietor. Bob started American Soil Products to transform organic waste into useful landscape products, and I was the first employee in August of 1985, and immediately fell in love with it.

Adam Davis  06:02

At first it was the materiality of it, you know, I one of the things I loved about art was literally the materials and the tools like the physical feel of the oil paint, the linseed oil that you'd mix with pigment, or the turpentine that you'd use to thin it — the canvas itself, stretching the canvas. And so being out at the composting yard, with piles and piles of these different organic materials. You know, sandy loam that came from the excavation of the BART tunnels; cocoa bean holes from Ghirardelli chocolate, big, massive piles of cocoa bean holes that smelled like cocoa and was wonderful; cedar bark, piles of cedar bark, like stretchy orange orangutang fur; and then all kinds of compost from yard waste. And we blended all these together under the direction of a soil scientist named Lou, who was the head of the chemistry department at Contra Costa College. We blended these things together, each of which had been useless. People had actually had to pay to get rid of them. But if you blended them together, they became productive and fertile. Our customers came to include the leading landscape gardeners and landscape architects. People would come by and want a specific blend for a rooftop that was lightweight, or something for rhododendrons that was more acidic, or specialized soil amendments. We sold to the Conservatory of Flowers in Golden Gate Park, which is a spectacular thing. We even sold some material to Biosphere Two — that was an experiment in offworld living. And they wanted to have a very particular soil, for some reason. We got a call, I think I was the guy who took the call in our funky trailer, in an abandoned paint factory yard in an industrial section of Berkeley... seeing and exploring the whole notion of what was waste. What does it mean for something to be waste? Realizing that there's this fine line between something that you buy and pay for, and then something that you have to pay to get rid of. Organic waste turned out to be a huge part of the waste stream in California. And this is what I started to learn as I spent time in the composting business, is that we were throwing away as a state, something like 50 million tons a year of stuff, of which 20% or 10 million tons was just branches, leaves and grass.

Adam Davis  08:47

In our little composting yard in Berkeley, we were doing a few 1000 tonnes a year. And we thought we were fabulous. We were having so much fun. We were saving the world. We had organic gardens at the edge of our composting piles. A couple of the guys who worked on the site began to keep chickens, and then we had goats. And then school buses would come by and look at the organic gardens and see the animals. It became like a community gathering place. It was really fun. But it was when I learned that we were actually throwing away 10 million tons a year of this stuff, that I realized that what we were doing needed to go to scale if it was going to make a difference. I had a daughter — my wife and I had a daughter — and I really needed a steady job. I needed a check that came every two weeks, and I needed health insurance. And so I ended up working for Oakland Scavenger Company which had just been acquired by Waste Management where I spent 10 years of my life. And talk about materiality, right? I mean, compost is one thing, but the waste stream? The American waste stream is astounding in its variety. The things people are done with and no longer want, that they throw away is everything under the sun. It was a great, great training ground for the fundamental question of where things come from and where they go.

Adam Davis  10:22

I had come from, you know, Berkeley and the hippie community. And I had lived in Ithaca for five years, and hitchhiked around, and I was sort of part of that tribe. And we had a definition of garbage that basically is the set of previously useful things that we choose to waste, right? And we really choose to waste them by throwing them in a pile and commingling them. So it's when you mush together all these different things, that that's when garbage is created. Because of course, glass isn't garbage. And paper isn't garbage. And even branches and leaves aren't garbage. But if you mix them all together, then you created this thing you can't do anything with, and that's garbage. So it's a moral definition. But the garbage men, mostly men, at Waste Management, Inc. had a more pragmatic definition, which is simply the set of things that costs you more to go get than it's worth. It costs you more to deal with it, than the thing is worth. So when you have something in your hand, call it an aluminum can, there's a moment of choice, where you can say, I'm going to do something with it, or I'm going to throw it away. Now, if there's a recycling system, it goes into the recycling system. If there isn't, it goes in the garbage. It turned out that the economic definition of garbage carried a lot of weight. I had an opportunity because of all the money and systems and so on, that existed in this giant company to create structures where you could make more money doing the right thing than the wrong thing. You could make more money by recycling something than throwing it away. There were some tailwinds, which is that people wanted it, cities wanted it. There were actually mandates now in law for recycling. But in order to do that, there were some structural problems. The economics of this were really challenging, right? The sunk costs in existing landfills and existing garbage trucks mean that taking one more ton of stuff and putting it in the landfill has very little additional cost. But at the beginning, taking that same ton and putting it into a recycling system meant new containers, new trucks for recycling, new processing centers, and then something to do with all the material that had been collected. So really challenging to get started against the sunk cost of the existing system. And that I think, is part of what we're up against with all of our environmental concerns.

Adam Davis  12:57

Basically, I became a student of incentives and contract structures. How do you reward the environmental good more than the environmental bad? So what's a fair way to allocate costs and create rewards, so that you're rewarding the behavior that you want? And I really got to go to school on this through many, many municipal contracts, including some really big ones like city of Oakland. The law that we were operating under the integrated Waste Management Act basically had a hierarchy, which had the first priority is not making waste, right, waste reduction. Then the second priority is recycling and composting. And then the third priority is landfilling or incinerating what's leftover. But the way the contracts worked was exactly the inverse. You got paid the most and most predictably to throw things away. Because that was the existing infrastructure. You got paid less and less predictably, to recycle and compost. Partly because people had this notion that somehow you were making money on the back end of it, right? You were making money on selling the aluminum cans, so they shouldn't subsidize the recycling. Although you were making much less than landfilling. And then you got paid nothing at all for waste reduction. There was no incentive to not produce waste. Energy and energy efficiency. It's the same question. Which is, how do you reward utilities to produce less energy, to be more efficient when they get paid by the kilowatt, right? But the same thing was true with toxics. And the same thing was true with water. And the same thing was true with other material forms.

Adam Davis  14:35

So along the way, at a conference called the Industrial Ecology Conference, I happen to sit at a small table, and I was seated across from a woman who started talking about the value of nature — literally the economic value of what nature does. At first, I didn't really understand what she was talking about. But her basic point was that in theory, we know that nature is valuable. But for an individual landowner — for someone who owns land — if you cut the tree down it's worth money. It's worth money as lumber or paper. But if you leave it standing, it's worth zero. And what she was saying basically is that's inaccurate. Leaving the tree standing has value. It's called ecosystem services. So this was 1997. That phrase wasn't around in common parlance, I hadn't heard it. And it turned out that this woman was named Gretchen Daily. She was a conservation biologists at Stanford. Because while people had been talking about ecological economics, probably for 25 years in academia, they had been talking about it in a pretty theoretical way. Theoretical exercises to get people to say what they thought they would pay for a park, or how you would replace a natural function if somehow it went away — notions, basically. And Gretchen was saying, it's not going to do. Things are getting bad out here on the surface of the world, and we're going to have to pay people to leave the trees standing. We're gonna have to recognize the financial value of what nature actually does. And what she really taught me was very humbling, because I realized that after having worked in recycling, and environmental economics, basically applied environmental economics, for 15 years, I had never really thought about what the goal was. I mean it's almost embarrassing to say, but I just took it for granted that recycling was a good in and of itself, energy efficiency was a good in and of itself. But of course, those things are a means to an end, not an end in themselves. But what is the end? What is the object of the game? The object of the game is the healthy living world itself, that provides life support services for us, right? It's not an abstract idea. It's a very real material truth. The living world provides a stable climate, resilient living systems, clean water, and other fundamentals that are life support. When we recycle, we rely less on the four primary extractive industries. And there's really only four. Oil, ag, timber, and mining. Those are the four places where all this stuff comes from. If you could pay people to not cut the tree down in the first place, right? If nature was valuable in and of itself, that would create a price signal that would go through the whole system, and help to more accurately reflect the value of nature itself. It was a very abstract idea back in 1997. I really became fixated on it, because there was something so fundamentally powerful about making real the theoretical understanding of the value of nature — so that people could actually get paid in real places for doing real things. For stuff that we know is valuable. It just seemed like such an enormous opportunity, and such a powerful lever inside the system, I couldn't think of a better thing to get involved with. But I came home from that meeting. And I was hanging out with my wife in the backyard. And I said, I'm going to create a career doing value of nature stuff, ecosystem services. And she basically, you know, looked at me very tolerantly and said, that's good.

Adam Davis  18:47

There are a lot of things in our lives that are sacred, or inherently valuable, in such a way that applying a price to it, or a monetary value to it, seems to cheapen or degrade the thing itself. And yet, we don't bristle at art and music being paid for. There's a market for music, there's a market for art. But we would never say that art is only worth money, or music is only worth money. They are worth money, but there's also something else much different going on. So in nature, natural systems are valuable. We know this. We know that they're valuable. And this bright line between, I would say, spiritual value and economic value is necessarily going to make people uncomfortable. The other part of it is that the idea of not doing it, not putting a number on it, simply won't work in the current moment, and it's deeply sad in some ways that that's true. But I believe it is really true... that every acre of the world is already valued for what we can build on it or take from it. There is a known property owner for all the land in Canada, and all the land in the United States, and most of the land every place in the world. There's a process called appraisal, where people can put a dollar figure on that land based on what it can do for us, without reference to the natural world — housing, and natural resources. Building on it and taking from it. And because that's true, we have to fight back. We have to say that not building on it or taking from it is also worth money — for people who own it, for people who can benefit from stewarding it, and restoring it, and managing it. Those people have to be able to make more money, or at least get something from doing something other than wrecking it. And that's the same economics as recycling. Appraising land for water purification, for biodiversity, for flood protection, the other functions that natural systems provide is new, just like recycling was new just 50 years ago. There were no economics for recycling 50 years ago. and now it's commonplace.

Adam Davis  21:39

It was the official policy of the United States to drain wetlands, on purpose, for most of our history. It wasn't until really 1970 that we changed our policy to say actually, those things are really valuable, and we should stop wrecking them. But there's still a department in our federal government called the Bureau of Reclamation. And what reclamation means is draining wetlands, or creating dams and putting water on dry land, to reclaim it for economic use — for people.

Assorted Environmental Protesters  22:10

[Chanting] No means no!

Assorted Environmental Protesters  22:14

What do we want? Change? When do we want it? Now!

Assorted Environmental Protesters  22:19

This is what democracy looks like!

Adam Davis  22:20

The conservation movement is noble, and I believe in it, and I'm part of it. I mean, I want to protect the things I love. And the beauty of the natural world is so sort of obvious to me and so important that of course, you want to protect every bit that you can. But the context is that in the United States, the population has doubled since I was born. There was 180 million people in 1960, there's 340 million now. Vancouver was 600,000 people when I was born. It's 2.7 million today. This is going on everywhere. There's 8000 million of us now. And we're consuming more per person, not less. Conservation misses the mark in a few ways. You win temporarily, but then you lose over time, right? You can protect this little bit here and this little bit here, but there's these enormous forces coming at you. And you can never really fully hold the line. So it's the right impulse. It's a noble impulse. But it's insufficient to the task. Conservation because of where it came from, tends to see the natural world as like the backdrop, or the stage set for the human play. And so what you do is you make a park, right? You take a piece of nature, and you put a fence around it, and you make it safe. It's a wilderness, right? And then meanwhile, the human drama goes on over here separately. So there's actually two groups of people, the conservationists, and the environmentalists. And they're quite different. Sometimes it's often as if they've never met each other. The conservationists are about taking land out of the economy. And the environmentalists are about stopping the bad things going on in the human economy. But governments who ultimately make the rules for all this, are in an impossible situation. They can't really fix it for us just with policy. Because on the one hand, they have endangered species protection, they have clean water laws, they have clean air laws. And the basic message there is "Stop it. Stop doing bad things. Not so much. Not here, not there. Not now." Right? But on the other hand, they need job creation, and economic development, and GDP, and there's growth — real need for growth, somehow.

Adam Davis  24:57

So conservation is necessary. It's contributed a ton of good things to most of our lives, right? I love the parks near where I live. But as a solution for the overall problem that we face now, with increasing scarcity of the life support services that nature provides, conservation — just stopping bad things — is not going to achieve what we need to achieve.

Adam Davis  25:22

There are shelves and shelves of books that are, I think, in the category of "Nature is Amazing". And I love those books. I read them all the time, And every time I do, I'm learning something new about some amazing facet of the natural world. I mean, I just read this book about eels called the Book of Eels. Have you read this thing? It's stunning. It's stunning, what els go through. 100 years, they live up in some stream. And then they wake up one morning, and they realize it's time, and they change color, and they go down the stream. And they're go out into the Atlantic Ocean, and they swim across the entire Atlantic Ocean to the Sargasso Sea, where they disappear into this cloud of seaweed and mate in secret. And then all of a sudden, baby eels are born, and they're carried on currents to rivers all over the world. And then they migrate up these streams, and they can live for 100 years, up on the top of these streams. And it's happening all over the world, and almost all the eels come back to the Sargasso Sea. And we don't know how or why this works. It's amazing. Really, it's amazing. But everything is amazing, right? And so the other category of books, is that "Nature's in Big Trouble". The environmental story is one of two things — this amazing thing is getting wrecked, or the good environmentalists against the bad producer of goods and services, right? The bad people who make oil, the bad people who mine, the bad people who do these things, this economic activity, while we, the good and noble people, try and protect the amazing flowers and the amazing orcas. And this storyline is so tired, it is no longer helpful. And I'm not saying that there aren't any bad people. There are bad people in the world. But most people aren't. Even the people who are mining something. They're not, like, trying to hurt you or hurt the natural world. They're trying to provide the goods and services that we all use. We're sitting in a room full of incredible technology, right? All this stuff was mined. When you start to really grok where things come from and where they go, the simple narrative that there are bad people who are damaging the world, while we are trying to save, doesn't really hold water. It doesn't really work. And plus, even if you were right, so what? You know, like, what are we going to do? How are we going to influence these enormous systems?

Adam Huggins  27:54

Yeah, if it held water, it would be a dam. Sorry...

Adam Davis  27:59

[Laughing] No, that's great. Levity is helpful. Thank you. I'm getting very sincere here.

Mendel Skulski  28:04

I think this is the perfect moment for you to recapitulate what... what is the big idea?

Adam Huggins  28:09

Yeah I was gonna say, let's hear about the stuff you do now.

Adam Davis  28:18

So, I came across this definition fairly recently, and was fascinated to learn that the word "bank" comes from the Italian word Banco, which meant table. And so back in early days of commerce, the bank was a table, on which exchanges occurred. But there turns out there's a much older word, which is Old Norse, or Old German, I don't know how to pronounce it, but Banki, B A N K I. And that meant a curve, like the curve of a river bank. And we use that kind of expression today, when we talk about an airplane banking into a turn. A river bank would pile up as sediment would accumulate on the inside curve. So river beds and plains, flood plains, accumulate material from upstream, which makes fertility. So I guess that's a good source of a word for a place where we keep that which we value.

Adam Davis  29:30

In the work that we do, we create things called mitigation banks. That's the term of art. And people often think of them when they first hear of them as financial institutions of some sort. But they're not, they're places. They're like parks or other protected areas. But they are a store of ecological value that comes through restoring degraded landscapes — wetlands, streams, habitat for endangered species — and then where you measure what happens.

Adam Davis  30:04

So if ecosystem services theory is correct, and what nature does is valuable, how would we know? How would anyone actually get paid? The first thing that you need to be able to do, and I know some of the listeners are gonna hate this too, is you need to be able to put a number on it. You gotta do it. And I'm gonna go to the medical metaphor. If you're not feeling well, and you go to the doctor, the doctor is going to do a test. And what they're looking for is the absence, presence, or concentration of something, right? Some indicator of function. So whether it's red blood cells, or cholesterol, or lipids, or anything else, they want to know if your health is being affected by something that's out of range, right? It's out of the healthy range. As above, so below, right? The same things that happened in your body are also happening out in the bigger world. Now they're happening at a much different scale, and much different pace. So it's much bigger out there and much slower. Which is one of the reasons it took us a long time to understand this. But you can actually look at indicators of functions of natural systems — so the health of a wetland, the health of the stream. There are chemical, physical and biological things that you can measure, and know something about the system. That's not to say that we know everything, but we don't know everything about how your liver works either, right? But we know how to do some things that are helpful in a crisis. Like if you were going to fix it, what would that mean? What would you be going for, and how would you know it if you saw it? In some systems, the living things actually are the things that you would measure. So it's not the fish in and of itself, any more than it's the red blood cell itself. Like, the red blood cell in your body is great. But really, it's the whole proliferation of them, it's the concentration of them. Do you have a sufficient amount of red blood cells? It's the same with the Delta Smelt in the Delta. If they're going away, it's because something is fundamentally wrong. And that's why the law steps in and says "You can't make it go extinct. Because that's an indicator that the entire thing is falling apart."

Adam Davis  32:29

The term of art is a functional acre. So you're measuring either the biodiversity, the water quality, the flood protection, the functions that are provided by that acre. And you can tell that something that's degraded doesn't have much function. But something that's been restored has more function. You can measure the uplift, and you can compare that to natural healthy systems called "reference ecosystems" or a "reference system". And that would be one way of thinking about what you're trying to do.

Adam Davis  32:58

So the measurements part of it, the science is part of it. But the real thing you need if you're going to be able to make money or invest in this stuff is a customer — someone has to want to buy it. And it turns out, there's really only two types of customers for nature and what nature does. The first type of customer is someone who needs compliance with an environmental law. If the law says you cannot have a permit that will damage a natural system, unless you restore an equivalent amount or more, than that creates a demand for restoration. So that's what happened in the US, after the passage of the Clean Water Act. The idea was called No Net Loss. So we're going to allow some loss, but not net loss. We're not going to allow the entire system to be degraded further. But what we can do is say "if you impact something, you have to make up for at least that amount in the same watershed — before you get a permit."

Adam Davis  33:59

At the beginning, everyone was trying to do their own restoration. So every highway department, every housing development, every mining project, every energy project was going out and hiring consultants and trying to figure out how to restore some amount of wetlands or streams that had a scientifically verifiable relationship to the thing that they were impacting. So there was tons of trial and error, lots of experiment. But pretty quickly, there were entrepreneurs who said "we could probably do that more efficiently and effectively than all these random people doing it, if we just specialize and focus on it and get better at it." And so that's when mitigation banking was born. People would bank a bunch of restoration. And then they had a ledger. The credits on that ledger are meaningful things. I know people have a lot of reaction now to carbon credits or other types of credits that don't have sufficient evidence to demonstrate that they really make up for the problem. I would say that at the beginning, that was probably also true of mitigation banks. But over 30 years of trial and error and meaningful improvement in the regulatory policy, the credits now actually do meaningfully make up for the impacts that occur. The reason why I can say that with confidence is that the standard that they're held to is higher than the standard for any type of other public protection. There's three fundamental parts of a credit. One of them is the science part — ecological success criteria, the measurable stuff we were just talking about. But then you'll also have legal and financial assurances for durability over time. This was one of the big criticisms of banks, is that you could protect something, but what guarantee did the public have that it wouldn't get messed up later? So, there are permanent conservation easements or deed restrictions that mean that land can never be converted out of this use of conservation. But there's also a financial endowment for long term monitoring and maintenance, that goes into the credit. So the thing that's generated off the land is not just science-based restoration, that measures ecological uplift, but also legal and financial assurances that make sure it's durable over time.

Adam Davis  36:16

And actually, people often will say that mitigation excuses damage, or it allows damage. It somehow makes the damage possible. And this is fundamentally incorrect, for two reasons. One is without the mitigation, the road would still be built. The alternative to No Net Loss is net loss. There would be damage, if there was no restoration. We know this for a fact. It's happening everywhere around us. And the alternative to holding people to a standard and making the mitigate is not holding them to a standard. It's not stopping it. Not realistically. At least when you have some restoration, you're making up for some of the damage that does occur.

Adam Davis  37:03

But even more so or at least as importantly, because restoration is held to a high standard, it's not cheap. The fact that you need to buy mitigation means that damage is more expensive than it used to be, right? So it used to be cheap to damage stuff. Now it's more expensive. So there's real incentive to not damage or damage as little as you possibly can. Because of the existence of required mitigation.

Adam Davis  37:30

As, really, an industry began to grow of companies that did restoration professionally — they don't do anything else. The activities they do are real estate, design, permitting, and construction of restoration projects. As the industry grew, then it became obvious that those skills — of real estate, design, permitting, and construction — could be used to solve other problems. Not just compliance, but actually solve problems for the second type of customer, which itself is trying to restore things — government. Matter of fact, the largest expenditure on environmental health is of course, government agencies themselves that are trying to, at a societal level, make up for the total impacts, the cumulative impacts that society has created. This is no criticism of government agencies, I'm really not slamming these people. But the resource agencies are staffed, really, with a lot of environmental scientists and natural resource scientists. And for them to be expected to go out and do real estate deals and construction projects, at the same time that they're also regulating — really complicated for them. And so the ability to contract, not just through grants that pay people for an effort to try something, but to actually buy a credit that represents a finished result. That's the new transition that's going on. Where the skills and capacity of the mitigation banking industry are now being contracted by government agencies that have mandates to restore really big, important natural systems. And it's been really hard to actually get the job done. The gap between planning and doing is enormous. There's lots of planning, there's lots of big ideas. But to actually get projects finished on the ground is extremely hard.

Adam Davis  39:32

If you can align reward so that every unit of restoration that you do is worth money, then people will do more restoration. The reason that there's a financial model is because what nature does is worth money. And the reason that that's true, is because money is the thing we use for value. That's what it is, right? Money is this thing, that you know... it's this infinitely malleable substance that we can attach to anything that we value, including art and music, but also, you know, a piano, or a new car.

Adam Huggins  40:10

Or a wetland

Adam Davis  40:11

Or it turns out, a wetland. But because what nature does has been so systematically ignored, misunderstood, and undervalued for so long, it's a radical idea, still, to say that a wetland is valuable. People think, well, that's what nonprofits do. You need a grant for that, you need philanthropy. So what is philanthropy? It's people who made their money doing traditional economic activity, and then they give some away later. But where did that money actually come from? It didn't come from the value of nature. It came from mining, oil, ag and timber, or biotech, or iPhones, or Facebook, or something. Some form of economic activity, that's where the money came from. Look, it's a noble thing to give money away. I can't criticize people who do that. It's noble. But I do think that saying that things that are funded by philanthropy are inherently more ethical than things that are funded by investment is incorrect.

Adam Davis  41:24

When we started Ecosystem Investment Partners in late 2006, there were probably between 700,000 mitigation banks around the US. But generally, they were pretty small and opportunistic. They were certainly undercapitalized — there was no source of capital in the business at all. So who was it? It was farmers and ranchers that had low wet ground on a corner of their property that they couldn't really farm or make use of. And so someone turned them on to mitigation banking and said "this could be worth money". There were also a lot of developers who had been forced to buy mitigation, who thought they might like to try and sell some mitigation instead. So they weren't ecologist or scientists, they were entrepreneurs. But there were some successful early banks, where people with business and real estate skills tried to, you know, do ecological stuff. But there was no source of capital. Because I had come to learn the business through consulting, I got invited to some conferences, and I had the great good fortune of meeting a guy who had had a successful career in private equity, which I knew nothing about. I really didn't know what private equity meant. Turns out, it means just not public equity. It means not stocks, but other forms of ownership that are private. Anyway, this guy, Fred Danforth, when I started to tell him about mitigation banking, he had already been doing stream restoration, about four and a half miles of stream restoration on his own ranch — which is very expensive and painstaking work. So the whole notion that you could possibly make money, doing the same thing that he was paying a fortune to do, was intriguing. And he had all this experience in structuring money — being able to access big pools of private capital, if you could make a fair return. And then we had another stroke of luck by meeting my partner today, a guy named Nick Dilks, who was working at the Conservation Fund, which is one of the largest land conservation groups in the US. He had probably done a million acres of conservation real estate transactions. So Nick really knew land, Fred really knew how to structure money, and I had some experience with mitigation banking, and had been thinking about incentives and contracts for a long time.

Adam Davis  43:43

So we started this thing called Ecosystem Investment Partners. We raised a pilot round of capital, if you will. It was $27 million, which seems like a big number. For a private equity fund, it's a really small number. It's like too small to actually run a fund. But we raised that amount and invested it in three projects. At the time, the average size of a mitigation bank around the US was probably 100 acres. So these were big projects for the time. They were 2000 acres each. One in Louisiana, one in Virginia, one in Delaware. So we were able to do well enough on the three of them together, that in 2012, we were able to actually go to the market and raise a full institutional round of capital, which was $180 million. That was significant in a bunch of ways. First of all, I think it was the first time that a private equity fund for ecological restoration had ever been tried. The second reason it was really significant is that the lead investor was a public pension fund. So it was the New Mexico Education Retirement Board.

Adam Davis  44:55

When a pension fund invests in a private equity group, you know that that investment meets pure fiduciary standards. So it's objective analysis of risk and reward. That's fundamentally different than socially responsible investment or impact investment, both of which are important. But a lot of times those words are code for below market rate. right? So you'll take something below market rate, because of the environmental or social good, which is fine. But the problem is that the big pools of money in the world exists in things like pensions or endowments that can't choose because of social or environmental attributes — because it's not their money! That's what a fiduciary means. You're investing somebody else's money. And it turns out, the people that they're investing for are teachers, firefighters, people who are going to retire maybe 30 years from now. And so when you're investing their money in these public pensions, you have to invest in a way that's as smart as you can so that the retirement money will be there for them. That moment went up public pension invested in an ecological restoration investment firm meant that these decades — of trial and error, and improvement in policy, improvement in science, improvement and practice on the ground — had led to a place where a pure fiduciary could look at that activity, and say "It makes sense. This is a reasonable risk adjusted decision that I'm making. Just like investing in timberland or farmland, or mining or other things." Ecological restoration ascended to that place. Ecological Restoration had arrived.

Adam Davis  46:46

So with that $180 million, we invested in eight major projects, including some of the largest privately funded restoration projects ever done in the US. Tens of miles of stream restoration in Appalachia, in particular, Kentucky and West Virginia. 17,000 acres of coastal Louisiana on the land bridge that separates Lake Pontchartrain from the waters of the open gulf — and actually filling areas that had subsided and eroded below sea level back to create healthy marsh. And 23,000 acres in northern Minnesota, about an hour north of Duluth, in what is actually the t shirt I'm wearing today, the Sax-Zim bog. In the 1920s, as people tried to farm that area, they had cut ditches. So we restored over 80 miles of ditches in this remote landscape. And it worked. The hydrology began to return, and water that had taken three hours to go through the site began to take three days. And by slowing everything down, and returning the natural hydrology, the health of the system began to come back. And we could make money doing this stuff, because of the need for compliance with the Clean Water Act.

Adam Davis  48:09

And it is amazing what nature will do if you just give it a chance, right? If you just bring back some of the fundamental conditions to allow health, it's like restoring blood flow. And then all of a sudden, the healing process begins, and the seed bank that was not functioning for 100 years starts to come back. Those seeds are still alive underground. It's so exciting.

Adam Davis  48:30

But so to answer your question about how we do it... the skill sets that it takes to do this are sort of unusual, right? I mean, it definitely involves money — knowing how to organize and responsibly manage capital. So there's lots and lots of reporting, but there's also real estate, and in particular, conservation real estate. So looking for pieces of land that aren't necessarily priorities for traditional development, or traditional ag or timber. There's also really deep understanding of policy. You need to understand environmental law. And of course, the science. You need to understand both engineering, as well as hydrology, botany, fisheries, you know, whatever the issues are in that particular location. So we made a pretty conscious decision early on that we would never be able to hire all those people in-house, especially if we were going to work in a bunch of different states. So the fundamental idea was to hire enough staff that understood the basics of this stuff, and then partner with the local experts — the best people we could find in each ecology.

Adam Davis  49:36

One of the hallmarks that I'm really proud of is an innovation which seems obvious in retrospect, but no one was doing, which is to identify the contractors that actually do the physical work, and bring them into the design conversation. The design and the implementation had always been in separate rooms, and still are for most projects. So you don't have the benefit of the experience of the people who actually do the work. And so you have designers designing sort of theoretical answers, without someone to say "that's not going to work," or "maybe if you tried it like this." But in the people who are actually doing the work, there's tons of knowledge and tons of experience, but we need to lift up and sort of ennoble those jobs, which are a huge part, both of the work but also should be part of the movement, right? Because there's now meaningful employment coming from ecological restoration. If you talk to those people, you'll find that a lot of them worked in traditional civil engineering-type construction, roads, bridges, parking lots. And they find so much meaning and purpose in restoring the natural places that actually near where they live, compared to the type of work that they did before. In Appalachia, we have people that used to work in coal mines that are now restoring some of the streams that were damaged by coal mining activity. In the Gulf coast of Louisiana. There are people that used to work on oil rigs that are now restoring some of them coastal marshes that support the fisheries where they grew up fishing.

Adam Davis  51:19

The ability to make a living doing ecological restoration is really meaningful for people. It elevates jobs that are often considered menial. It gives people more skills, more engagement, more involvement, more learning, and seeing results that they can personally care about. It's really about providing specialized training for equipment operators, and laborers who work in restoration and giving the specialized skills to work in sensitive areas. But then also learning from the people who are seeing things on the ground every day. And building better trust between the construction folks and the regulators, who are very defensive about any activity on the ground that involves yellow equipment —understandably! The permitting process to get permission to damage something is easier than the permission process to be allowed to restore something. And you would think, how can that possibly be? But when you're building a road, or you're building a pipeline, or permitting even a mine, you're often working in an area that is somehow zoned or slated for an economic development. Whereas when you're doing restoration, you're going to the sensitive areas. You're going to the areas where the endangered species want to be. So there's lots of reasons why regulatory agencies have had trouble figuring out how to give permission for environmental restoration in a responsible way. It's really a challenge.

Adam Davis  53:04

When environmentalism came along, it was really critical that we stopped the most egregious behavior. But now we're at a point where we have lots of environmental laws, but things are still going badly. So we need to internalize the externality. We need to make that damage part of the cost of doing business. And that's where I see this going. What we're doing is in a microcosm of the natural world — which is wetlands, under one section of law, in the United States. right. But even that is billions of dollars of activity. And it's creating an industry, an ecological restoration industry, that's actually tapping into the largest pools of private capital and public capital in the world. So they're now seeing that you can make a fair rate of return through ecological restoration. That's important. Because if ecological restoration is valuable, then they're going to want to do more of it. And the amount of capital that you have to work with will not be limited. It's not limited by agency budgets, or philanthropy. It's actually the endless pool of capital, which is the investment capital of the world. But even more important than that, is that it's a mechanism by which you can measure damage and require offsets for it. And that doesn't have to be limited to wetlands or streams. That could be a principle that you begin to apply more broadly, across environmental regulation and across the economy.

Adam Davis  54:31

I mean, it's a little bit of a fantasy today, to think that the ecological restoration industry can provide a model that can be used for, you know, more sustainable production of all goods and services. But why not? I mean, what the heck. You know, the approach that we're taking now, which is basically fines and fees, and then, you know, trying to stop people by punishing them if they stray out of bounds... like, that's good, we should do that, for sure. But it's not really getting us where we need to go. We need to do something that sends an economic signal so that the basic impulse is to do the right thing, because it's more profitable than doing the wrong thing. And if you can get that mechanism right, you don't have to be an advocate anymore. You don't have to protest anymore, because the machine will do it in order to be profitable. It may seem fantastic to even think that thought, but I'm telling you, we're seeing billions of dollars of institutional capital come into ecological restoration, and make the impacts — that are happening — less damaging and more responsible than they were before. We're seeing it.

Adam Davis  55:45

That's why I got involved with money, because it was obvious that all the money was in the bad stuff — the things that were wrecking the world that I love. And so how on earth can you get the money to line up with what you care about? You have to think about the economics, about the contract structures, about the regulations, about the deals. People have to make a fair return on investment. They have to. It's not a variable. It's a constant in the equation. And it's a discipline. It requires a discipline of thought, which actually has been a constant challenge for my scattered mind, but also a really refreshing practice, like, you know, Aikido or something... like a martial art. Like, you have to just do it over, and over, and over again, and think about it day after day. But the discipline of making a return through something that is really good, is so rewarding, because... that's where the problem is, and that's where the solution is. It's... it's so funny, but it's in the money somehow.

Adam Davis  57:02

And so, last thing I'll say, we need not leave behind the sacred, the miraculous, the poetic, the ancient ways of experiencing the living world, the unique. Those things are the reason why I do what I do. Someone told me a long time ago, a mentor in the garbage business. He said, "If you want to solve a problem, you got to go where the problem is, can't just be a critic from the outside." But being next to it in it near it allowed me to understand it, and contribute to solutions, at least in some way, at some level. And that's how I feel about money. You know, last thing I wanted to be was a business guy. And to actually be a partner in a private equity fund, are you kidding? Like that was not on the radar screen. I didn't do it to make money. I make money to do what I do. It's all the difference in the world, between those two things.

Adam Davis  58:19

If you go out of business trying to save the world, then you're out of business. But if you can make money through good things, then the more good you do, the more money you make. And that is the trick.

Adam Huggins  58:56

This episode was produced by Mendel Skulski and myself, Adam Huggins with the voice of Adam Davis.

Mendel Skulski  59:02

And with music by Thumbug, Local Artist, Yu Su, and Sunfish Moon Light.

Mendel Skulski  59:16

Special thanks to Ian Wyatt and Mood Hut records, to Alé Silva for the cover art, and to our interns, Ava Stanley, Aila Takenaka, and Alex Janz.

Adam Huggins  59:29

Future Ecologies is an independent podcast supported by listeners just like you. Join our community for as little as $1 each month, and your return on investment will be early episode releases, exclusive bonus content, access to our Discord server merch, and best of all, we get to keep making the show for you.

Mendel Skulski  59:48

And keep it ad free for everyone.

Adam Huggins  59:50

So if you think what we're doing has value, you can prove it.

Mendel Skulski  59:54

at futureecologies.net/join

Adam Huggins  59:59

but money isn't everything. So, please leave us a rating and review wherever you listen, and share it widely.

Mendel Skulski  1:00:05

It really helps.

Adam Huggins  1:00:07

'til next time.

Mendel Skulski  1:00:08

'til next time.

Adam Huggins  1:00:09

Thanks for listening

Mendel Skulski

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