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EPISODE 261

Unlocking the Value of Nature with Intrinsic Exchange Group CEO Douglas Eger

43 minutes · September 30, 2021

The NYSE and Intrinsic Exchange Group have partnered on a whole new way to unlock the value stored in the natural world by using an equity exchange to allow trading and investment in an innovative asset called Natural Asset Companies, or NACs. This approach brings promise to drive real progress on ESG issues. Douglas Eger, Chairman and CEO of Intrinsic Exchange Group, shares his vision for tapping the value of the environment and how NACs can help create a more equitable and sustainable economy.

Speaker 1 (00:03):

From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision, and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's Exchanges and clearing houses around the world. And now welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.

Josh King (00:46):

Human innovation is on a constant journey to use technology to create new innovations for old problems. The archive of this podcast is filled with conversations with people who looked at an industry and realized that the status quo was limited not by potential, but by outdated ways of doing business. Often new solutions are built on platforms that use artificial intelligence and machine learning to collect, analyze, and act on data sets far larger than any human could hope to review.

Josh King (01:17):

Take Jeff Brecker and ICE, for example. ICE's network of exchanges allows investors to unlock value and access liquidity created by converting value into a tradable instrument. Over two decades, Jeff has taken the basic idea of using technology to make trading easier to access the world of energy, oil, agricultural products, interest rates, equities, now mortgages, just to name a few.

Josh King (01:43):

Sometimes though, new problems can be fixed using old solutions. That brings us to the topic of our conversation today. The New York Stock Exchange and Intrinsic Exchange Group just announced that they're jointly developing a new class of publicly traded assets called natural asset companies or NACs. The idea is a revolutionary way to unlock the value stored in the environment, the natural world around us, by leveraging the 500-year-old solution of using an equity exchange to allow trading and investment in an asset.

Josh King (02:17):

It's estimated that natural assets produce $125 trillion in value annually and that's four times the total value of all the companies listed on the NYSE. These natural asset companies have the potential to offer more than just an investing opportunity. As Stacy Cunningham, President of the NYSE, said recently, with the introduction of NACs, the NYSE plans to provide investors an innovative mechanism to financially support the sustainability initiatives they deem critical to our future. Our guest today, Douglas Eger is Chairman and CEO of Intrinsic Exchange Group, the organization that we're working with on this effort to tap into our community to drive real progress on ESG issues with a solutions based approach. He'll unpack his vision for unlocking the value of the environment and how NACs can be key to creating a more equitable sustainable economy. Our conversation with Douglas Eger is coming up right after this.

Speaker 3 (03:17):

Board diversity is important.

Speaker 4 (03:21):

Board diversity is important.

Speaker 5 (03:22):

Board diversity is important.

Speaker 6 (03:23):

Board diversity is very important.

Speaker 7 (03:23):

Not just because it's the right thing to do, but because diverse leadership at companies creates better companies.

Speaker 8 (03:30):

This is about value, not values.

Speaker 9 (03:33):

With board diversity you build better companies.

Speaker 10 (03:35):

Diversity of thought, diversity of perspective.

Speaker 11 (03:37):

Different perspectives often yield better outcomes.

Speaker 12 (03:40):

We need to have different perspectives with different backgrounds to really inform and find the best solutions for our organizations.

Speaker 13 (03:46):

Companies that have more diverse boards perform better.

Speaker 14 (03:49):

Diverse teams are better performers, that has absolutely driven the boardroom as well.

Speaker 15 (03:53):

It makes a difference to the employees who work for companies. It makes a big difference for the communities in which they work.

Speaker 16 (03:59):

Our business is about building leaders for the future, and that talent cannot be only half the population of the world.

Speaker 17 (04:05):

What are you waiting for? 50% of the population, for some reason, isn't qualified? Let's put the smartest people we can in the boardroom and why ignore people or to exclude people for any reason other than that they're not qualified?

Josh King (04:22):

Our guest today, Douglas Eger is the Chairman and CEO of Intrinsic Exchange Group. He's the founder of Entertaining Ideas, the media and ideas incubator from which Intrinsic Exchange was born. He served previously as Chairman of Pet360, Inc. which was sold to PetSmart in 2014. A serial entrepreneur, Douglas has founded several other companies, including Sheffield Pharmaceuticals, TechSource, and Kachina Capital. His career also included producing Emmy Award winning and Oscar nominated documentaries, including War Dance, How to Survive a Plague, and Shoot Down. Welcome Douglas back to the New York Stock Exchange and inside the ICE House.

Douglas Eger (05:01):

Thank you so much.

Josh King (05:02):

So the first step in talking about a brand new concept is to define the terms. Can you explain to the audience really what a natural asset company is?

Douglas Eger (05:11):

Sure. A natural asset company holds the rights to the nature's production of ecosystem services. And what ecosystem services are, are things like production of fresh water, genetic potential for our food, climate stability, so carbon sequestration, soil health. The company is designed to maintain, manage, and grow these natural assets in a variety of different conditions. So it could be natural landscapes, so forest, coral reefs. It can be in agricultural areas, so rebuilding soil, moving from more of an extractive industrial farming to one that is more sustainable. And so these companies then are designed to convert that natural asset value into financial capital so that we could actually use the term natural capital because right now it's a natural asset. It hasn't yet had the ability to be easily converted into financial capital, which is necessary.

Josh King (06:16):

Getting a new asset class off the ground is a formidable challenge that I'm sure requires perseverance and vision, the entrepreneur's really basic building blocks. I mentioned some of your past successes that span sectors from pharma to media to things in between in the introduction, where and when did you realize that this was a passion and talent of yours?

Douglas Eger (06:37):

I've always had a passion for the environment and conservation and it was sort of frustrating because I started between college or high school and college working on a political campaign.

Josh King (06:49):

Where'd you grow up? What college? What political campaign?

Douglas Eger (06:51):

I was in Northern Illinois at the time, but went to the University of Iowa. And so I had an environmental background plus I was in the writer's workshop. I thought policy solutions would be the right way. I thought politics would be a really good avenue and I found it a bit frustrating.

Josh King (07:08):

Which campaign was that?

Douglas Eger (07:10):

Actually my high school counselor ran in the first Congressional District of Illinois. And he said, "Why don't you help me?" And I ended up being the campaign manager. Through that lens, I saw the limitation kind of early about how policy solutions can go so far, but it's very difficult.

Douglas Eger (07:28):

When you think of the macro economy is building it's the engine of our world and it's very hard for policy makers to come in and be on the front end of that. It's usually when there's a big problem, you ameliorate it to a degree. And I had a kind of seminal conversation with my father who is a very successful business person and he kind of challenged me and he said, well, this happened to be in 1980 and he said, "We've been 10 years of the EPA and endangered species at clean water and do you think we're on the right track?" And I said, "Well, it's better but we're still having a lot of intractable problems."

Douglas Eger (08:03):

And at that time I think the knee jerk reaction was business is bad, industry is the enemy, and we need to stop them from doing something. And I just said, "You need to learn how this works and until you do it's going to be very difficult to change the system." So that planted the seed. So the passion has been there. I wanted nature to be more prevalent and protected and it's been a long journey, I need to try to figure out how I could realize that.

Josh King (08:31):

So from that first conversation with your father, how did you go about the process of figuring out how this works? What was the journey when you left the room and said, "Thanks dad."

Douglas Eger (08:40):

I decided to start a company right out of college. I really enjoyed that process of creativity. I sold the company part of it to Igloo, the consumer product company part led to Heartland Diversified Industries. And it was a consumer product based on running because my brother had said, "I'm training for a marathon. There has to be a better way to take water while you're running." So I designed a product around the environmental physiology of how much water you needed. And I really enjoyed that process. And then that led to working with a bunch of consumer products companies to design and develop new of products for them.

Douglas Eger (09:16):

And at some point along that line, it was, okay, this is a good start, but I'm getting farther and farther from the track of dealing with some of the problems that I thought were so important in the environmental space. And I kind of always thought, hey, if I could be successful in business, I could buy a piece of property and conserve it and that would be kind of an ending point, but it was not as satisfying as I thought. I really learned to create companies and turn ideas into finished products and businesses.

Josh King (09:47):

Douglas, I'm curious how that actually works. With such a wide set of interests, how do you decide, well, I've taken this as far as I'm going to take it. Igloo is interested in a part of it. Another company is interested in a part of it. And then is there a typical way you find yourself heading down the next path?

Douglas Eger (10:05):

I'd love to tell you it was planned, but I think it's more of this is interesting and random connections. I got into technology transfer because I was on an airplane and the Deputy Chancellor of Texas [inaudible 00:10:18] overheard my conversation and he said, "If you think it's difficult in corporate America to innovate, you should see what it's like in universities trying to take this great store of technology and ideas and turn them into product. Why don't you come see me?" So I started TechSource and that was the beginning of helping universities and better inventors than myself turn technology into either licensable opportunities or new companies.

Josh King (10:47):

In the mid 2000s, you turned your eye toward the media industry and you co-founded the incubator that I mentioned in the introduction, Entertaining Ideas. What drew you to the world of entertainment and how does Entertaining Ideas work?

Douglas Eger (10:59):

Well, I felt very strongly that if we could inform people, it would be great to showcase ideas and that then to follow through. If you could have a media event like a film or a television show that highlighted some particular mission, if you will, then you could follow through and you already have kind of a core following, so part of your marketing, and as I was going through that, I found it was a very difficult business in and of itself to do film and television and then to move on to doing the products, there was a political avenue, kind of where a participant went [crosstalk 00:11:42]. And[inaudible 00:11:43] and I thought that was a very attractive model, but then to actually build businesses on the back end and that's the attraction was to communicate ideas and points of view through a variety, whether it be narrative or documentary, and then to turn those ideas into a finished product. And that's how the Intrinsic Exchange Group idea came about.

Josh King (12:10):

One of those documentaries that you worked on was the Academy Award nominated, War Dance about Ugandan child soldiers, focusing on three children, Nancy, Rose, and Domenic of the Acholi ethnic group. Can you tell us about your involvement in these films and the types of stories that you were interested in bringing to life?

Douglas Eger (12:29):

I met Albie Hecht who used to be in children's television, he was at Nickelodeon, and he and his wife formed a company and we were known in the documentary space. And he told me about the idea and Sean and Andrea Fine were the co-directors. And I just found the story so compelling and my wife is my producing partner and director and she said, "This is just amazing. We have to do this." So we signed on as producers and executive producers, helped the film be financed and just directed it through the process.

Josh King (13:06):

The film was released 14 years ago in 2007. Do you have any information on what became of Nancy, Rose, and Domenic?

Douglas Eger (13:12):

It's interesting. All of them came either to the United States or Canada at some point and were educated and their stories were so devastating and that they were able to recover and build a life after what they experienced was heartwarming. And in one way also a little bit sad because here are three stories that were known and the world could respond to it and how many are not known and, yeah, they're going to live the rest of their life dealing with what they have to deal with in their country.

Josh King (13:43):

Also in the early 2000s, and I think you mentioned this a little bit ago about your thoughts when you look at a vast open tract of land, you worked with the Open Space Institute and The Trust for Public Land to preserve and revitalize 7,000 acres of land, including these two historical estates, I believe it's the [inaudible 00:14:01] Estate and Upstate New York, little Southwest of Kingston, not far from where we spend a lot of time in Windham. What was the impetus for that project and how is the land used now?

Douglas Eger (14:11):

I wrote when I was in third grade that I wanted to be a veterinarian and I would make enough money to be able to buy a piece of land and protect it because I grew up in the suburbs. My dad was with Allstate Insurance and so we moved frequently and the things I found compelling, the creeks and woods would frequently be turned into developments and-

Josh King (14:35):

Northbrook, Illinois, right?

Douglas Eger (14:37):

Yes, for sure. And so I always had it in my mind that what I was going to do is find a way to make enough money I could buy a piece of land and preserve it. And in 2000 we were able to partner with OSI and TPL to acquire the [inaudible 00:14:55] Estate. And we were the conservation private buyer of the property. And what we did is we took the two estates and put them into fee simple and the rest was in conservation easement and forever wild. So we added onto it as about 5,600 acres when we started and we built it up to about 7,000 acres And in a way it was the best thing I've ever done. It was the first partnership of my wife and I to go into and endeavor and very happy with it. But it also pointed out the magnitude of the problem.

Douglas Eger (15:29):

So, some thousand acres is a lot of land, but it's a drop in the bucket for conservation needs. And even if I was Ted Turner and it's two and a half million acres, it's still a drop in the bucket. And so I think it was a bit of an existential crisis to reach your goal and find out that it wasn't what you really want to do accomplish and that's what started media. My wife and I looked at each other and said, "This is great. We love living here, but what comes next?"

Josh King (15:58):

Thinking back on that, were there moments that you look back on and say this helped me sort of internalize the idea behind Intrinsic Exchange Group?

Douglas Eger (16:08):

Absolutely. I think, you know, I'm a hiker. I love hiking and being out in nature has always been that place that I went to to think through things. And so its origin was truly seeing the need and then trying to work out the problem. I was always frustrated that as well intentioned as we've been in the conservation world and the successes that we've had, it just wasn't enough. And at that point, I internalized it to a degree that I think was incredibly painful in one way to say, "Hey, this has been success, but it doesn't feel like success. It actually feels like the realization of what wasn't accomplished."

Douglas Eger (16:51):

And I've been very fortunate. I had a great upbringing, went to a nice college and it felt like I needed to do something more. And so that was the beginning of the thought process that we really needed to find a solution and I thought it would be through media and ultimately it was the road that connected to the development of the company.

Josh King (17:10):

You developed the company, Intrinsic Exchange Group in 2012 and it does seem, as we've gone through this bit of journey of your life, this perfect blend of your entrepreneurial, but also your eco-conscious spirit, can you give us an overview of the company and its mission?

Douglas Eger (17:26):

The fundamental problem that we've been trying to address is that we left nature out of the mainstream of the economy. Economists call that externalities. On the negative side it's pollution and such, and on the positive side, those that are good stewards of the land aren't really properly rewarded for that. And so, I was thinking how could we change that on a fundamental level? And I've always believed in market capitalism and the markets, but they have to be fed the right information. And that's fundamentally what we didn't have. If you can't price nature and you can't properly include it, our aspirations, we may kind of dream green but we live our lives by the red and black of financial statements, personally, companies and countries.

Douglas Eger (18:14):

And so to be able to find a way to incorporate the value of nature without it having to be a policy solution. So my goal was could there be a natural market solution because we've been building slowly kind of an arch, on one side policy and then the realization of the value of nature. And we went from taxes and regulation to transfer artificial markets like carbon and we're getting really close to pricing it in, but we're missing that fundamental piece that said the underlying asset is valuable. And if we could convert that directly into financial capital and allow investors and people to participate and align their financial interests and their financial future and their wealth with nature rather than looking at it as something that you have to extract from to become wealthy to make a living, you could in fact, utilize its intrinsic value and its productive value to drive a financial instrument. So it was kind of a deep dive on how do we create wealth? What's the fundamentals that are required and could our financial creativity be harnessed to solve this problem.

Josh King (19:35):

The company has benefited from these early investments by the Inter-American Development Bank and the Rockefeller Foundation. Can you tell us about the involvement of them getting them on board and how they are built into the firm's mission and its operations?

Douglas Eger (19:49):

Sure. We were incredibly fortunate that the Inter-American Development Bank early on recognized the potential of the idea and it was nascent when they first heard it and you don't think Development Bank is your first kind of risk investor, but in a way it makes sense. They're on the front line of a lot of problems and they're trying to solve them. And I think this is true of Rockefeller Foundation and a lot of philanthropy. I think being on the front line and often filling the starter role, putting in seed money to try to get an idea going. And it oftentimes it's like putting a little bit of gas in the engine, it would start. But without a natural market to keep it going, you just have to either keep funding it through philanthropy or grants or whatever or it will retrograde. And so I think that the IDB understood that and they said, "We're moving closer to this solution. This seems like a good idea. Let's figure out a way to work together and try to realize it."

Josh King (20:57):

After the break, Intrinsic Exchange Group's CEO, Douglas Eger, and I are going to discuss the company's work in more detail to quantify and capitalize this seemingly invaluable contribution of nature. That's all coming up right after this.

Speaker 1 (21:13):

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Josh King (21:47):

Welcome back. Before the break, Intrinsic Exchange Group's CEO, Douglas Eger, and I were discussing his wide ranging background and the path that led him to start his current company. So Douglas, the Intrinsic Exchange website talks about three land and marine categories, natural, working, and hybrid areas. Can you break down the differences between the areas and share examples of each of them?

Douglas Eger (22:10):

Sure. So natural areas you can think of either highly degraded landscapes that you want to restore, preserved areas, conserved areas, and those you'd like to be in conservation and protected. And a good example, we're working with the government of Costa Rica, who is a leader in conservation. They've been incredibly successful in pioneering payment for ecosystem services. And they're looking for the next way to continue that history and that track record of success to meet both their terrestrial goals and also marine. And so in a case for natural lands, you're looking at the value of the ecosystem services that are produced. So you can kind of look at three main categories of value that nature has, intrinsic, it's valuable in and of itself.

Douglas Eger (23:05):

You can kind of think from a human perspective, that's like art, we value because we value it. You may love rainforest or coral reefs or whale or elephants or whatever it is. And then it's productive. And in that way, it's a bit more like a traditional industrial company. You've got your plant and equipment, which is the geomorphology and nature is your workforce. And it works 24/7, 365, to produce the goods and services that allow us to live on the planet and underpins maybe half of our industrial economy. And so you would take an area, it has to be large enough to kind of meet the capital market scale. And we're in discussions for areas that are like 400,000 hectares. One is in the north of Costa Rica. It goes from the Atlantic tropical rainforest to the cloud forest, dry forest, all the way down to the Pacific and has a marine component. And also lands around it that are currently in agriculture. And the idea is to provide buffers with regenerative type practices and those, so there isn't incursion into the natural areas.

Douglas Eger (24:17):

But the primary mission of the natural asset company for natural lands is to convert that green wealth into financial capital so countries can continue their mission of conservation, fund that, and if it's significant enough to fund more sustainable development goals.

Josh King (24:39):

IEG has established this accounting framework to value the ecological performance of the natural assets that you just talked about, Douglas. For our listeners who may not be familiar with it, what exactly are natural assets?

Douglas Eger (24:52):

Yeah. So these are things like forest, coral reefs, ocean systems, grassland, and the life that's inherent in those ecosystems. And they're production of services. So, we know carbon sequestration because of climate change is a big issue, fresh water production, oxygen production, all the fundamental infrastructure that we need to live on the planet. And they have been categorized over probably 20 plus years and given a dollar value because we realized in conservation world and in policy world, until you could say these are the economic values, it's very difficult to say, is this practice or is this policy, is this the right development goal?

Douglas Eger (25:46):

And so it developed the language of finance, natural capital, natural capital accounting, those are all the things that have been going forward. So you have the ecosystem service valuations. So you can kind of think of that as the audit of the land and the production of those goods and services and a dollar value is ascribed to them. So that's the fundamental that the industry of ecosystem service valuations has been putting forward used by governments, by companies, it's been used to settle lawsuits, so it's a great framework to inform investors of the value of those natural assets.

Josh King (26:26):

Did you have to put new work into that accounting framework or was it basically existing? How did you tweak the process?

Douglas Eger (26:32):

The work that's been done so far, which is fabulous in the pioneering work, was largely similar to an ESG. So what's the effect my company or my country's policy has on natural capital and the flows of ecosystem services or conversely what's the risk to my company from a natural event? Is it drought? Fire? It could be hurricanes, floods, that sort of thing. And it's close, right? Because you're saying if there's a material event, an oil spill or something, you say this is reportable. But until that, it's guidance. And so what we had to do is say, how would you look at the asset itself, price it, and its productivity in active management situation within a corporation.

Douglas Eger (27:22):

So it was that more direct pathway rather than indirectly valuing through the lens of the company, saying as a new asset class how should we think about its value and what would that be?

Josh King (27:36):

So what types of people and organizations are working with Intrinsic Exchange Group now to develop these natural asset companies?

Douglas Eger (27:45):

We've worked with environmental economists that have been doing a fabulous job of trying to figure out these values and the best way to measure them. I was very fortunate to meet Bob Herz, the former chair of FASB. I thought this would be the most difficult conversation, right? Accountants and lawyers you don't expect to be the most forward thinking, [crosstalk 00:28:05], tell you what's wrong and what you shouldn't do. And in probably less than five minutes, Bob said, "I really like this idea. This is what we need to do," and you're taking a much more direct path because he was at FASB and then he's been instrumental to FASB.

Douglas Eger (28:23):

And he said until we make that leap and make it a financial transaction that's material, that's reportable, it's very difficult to get companies or countries to pivot broadly. So he was instrumental in helping us put this accounting framework together, which we call the statements of ecological performance, and then socialize it with the large accounting firms, with the idea that eventually they're going to have to do an assurance opinion to say, yes, this was collected in the correct way. These numbers are reasonable and they've been presented in a consistent, transparent way, so we can accurately inform investors.

Josh King (29:06):

So earlier this month, Douglas, the New York Stock Exchange and Intrinsic Exchange announced their partnership to establish NACs as a new class of publicly traded companies. What's the significance of having NACs list and trade on the NYSE?

Douglas Eger (29:22):

Wow, it's huge. So I would say, first off, why a public company? Because people have asked that. These are assets that are public good. They belong to everyone in the world but they have to be managed and the finance has to come through a channel. So it's at a scale of the public markets. And we wanted to be able to have the signature brand in the financial markets with the New York Stock Exchange. And, frankly, it was a little bit shocking that it was the oldest largest exchange that said, "We want this very forward looking innovation."

Douglas Eger (30:02):

And so I think what it's done is a number of people reached out immediately after we made the announcement and said, "Okay, we like the idea. We're thinking you're moving in the right direction." Now it seems like this is coming to market and it's real. This is novel. It's not something that has been done before and you need the right partners to be able to achieve it. The private markets wouldn't have been the right approach. Maybe much easier to do that. But if these are assets that governments, they're [inaudible 00:30:35], right? And these are assets that are in public trust and they are a public so we believe they really should live in the public markets for everyone to participate in.

Josh King (30:48):

You celebrated the announcement at the NYSE by ringing the opening bell here on September 14th. And you did it with our Chief Operating Officer, Michael Blaugrund. And then he mentioned that the NYSE's involvement began the way so many of these great business relationships begin through a conversation at a bar. Can you tell us about the partnership from your end and the ensuing two years between that happy hour with Michael and today?

Douglas Eger (31:14):

A gentleman, Paul Adcock, that used to work at the Exchange was in Chicago at a Ritz-Carlton. And he was at the bar and a gentleman that I've been working with and a good friend, [John Veir 00:31:24], who's an attorney who had been early supporter of what we were doing, they got chatting. And Paul said, "This is interesting." And he said, "Well, could you make an introduction?" And so that's what began the discussion. So Paul set up an initial meeting and Mike was there, I think John [inaudible 00:31:43] was there. And it was, "Okay, this is different. We haven't heard this before. We're going to need to digest it." And so, that's why it took time to mature all the different aspects. That's how it started. So, all good things happened at a bar over a drink, right?

Josh King (32:01):

Exactly. And they also happen on a nice vacation to Costa Rica. You laid out this image of sort of moving up through the rainforest and the cloud forest and back to the Pacific Ocean in Costa Rica. But I'm curious if you could walk us through what it would look like actually for Costa Rica to license the rights to an ecosystem service for its rain forest, for example, the country still retains ownership of the land, right?

Douglas Eger (32:27):

Yes. Yeah. And you can think of this like a concession or a license and traditionally that would be maybe mining or timbering or some other extractive. And here it's the right to the production of those ecosystem services. And on most public lands, we would not have ownership of the underlying asset or the land, but it's like a water right or a mineral right that you can exploit as a private company and that's the asset, whether they're monetized today, in the future, we continue to monetize ecosystem services or not, that's the value that's inherent.

Douglas Eger (33:04):

So we have been working with the government to develop a public private partnership and the right structure, the hope is that we could get a significant valuation for these assets and that there would be proceeds so that the government can continue through the private corporation to fund necessary efforts and continue their transition on a really strong, sustainable path. Costa Rica has largely decarbonized their electric grid and they would like to do same thing in the transportation sector. And you need to have fuel to do that, financial fuel. And this is a way that they feel could be very innovative in the next step in conservation finance.

Josh King (33:53):

You got to find buyers for these assets too. Who do you see is the potential buyers of publicly traded NACs? And can you explain and how their investments will directly fund land preservation and transformation?

Douglas Eger (34:04):

The growing desire for sustainable investment ESG is difficult to find at scale. So as we've talked to investors, they're very interested in investments that move the needle on climate change on biodiversity, moving to a sustainable economy. So the mix of investors that we've spoken to are high net worth, family offices, sovereign wealth funds, development banks, and those funds that were specifically earmarking for sustainable investment. And what we found, I thought maybe 10 or 20% of the cohort that we were speaking to would go, "This is interesting." And I've been really pleasantly surprised. They said, "It's more like 80 or 90%." And are they gong to jump in with all their portfolio and the more conservative funds? No. But that's not what you need to start a market.

Douglas Eger (35:01):

The other big group is the corporates, both to change their supply chain and their practices. But also we've heard from them that they'd like to leverage their balance sheet to create that financial infrastructure, because it gives them the ability to change their practices and have a market based financial story to tell around what's today in expense, right? That conversion to sustainability is hard to finance and investors can often push back. So here we're aligning that and saying, you have the opportunity to make money by doing these things.

Josh King (35:36):

The press release for the announcement, Douglas, noted that natural assets around the world produce an estimated 125 trillion in ecosystem services annually, and implying that the potential value of this new market is greater than the global GDP. What are the broader consequences of finally tapping into this immense value?

Douglas Eger (35:58):

What it would do is finally align our business objectives and our investment objectives and our policy with integrating to a sustainable future and including nature so that it's not a decision of, okay, do I develop my business? Do I develop my economy? Or do I do conservation? And now we can tap into this value to not only do conservation, but be a bridge to the sustainable future. So not only capital and formation is important, but also the price signaling that comes as a result. So, if I have a rain forest and which happened, let's say in Ecuador, and President Correa was approached by the Chinese and they said, "We'd like to develop the oil reserves." So there was something like 20 billion of potential reserves under a national park.

Douglas Eger (36:56):

And what's your choice. Your choice is, I don't develop it or I do develop it, right? And the value proposition for a forest, what park revenue ecotourism, very small, the potential of a billion barrels of oil is significant. So he asked the world, "Would you be willing to pay me the royalty? So two billion dollars and we'd be happy to leave the rainforest alone." And the world didn't come up with two billion dollars, I think it came up with 40 million. And so they began exploration and development of that "natural" resource because we don't have the comparative value of that rainforest producing ecosystem services. It doesn't show up in a balance sheet, it doesn't provide wealth, and you can invest in that directly. That's the problem that we're addressing.

Josh King (37:48):

In the 10 years that Intrinsic Exchange Group has been around, we have seen examples like the one you just cited, but also the acceleration of the climate crisis as natural design disasters like wildfires and hurricanes grow in magnitude, frequency, and devastation. As the collective sense of urgency rises, how will natural asset companies be part of the solution?

Douglas Eger (38:11):

We've looked at these problems in isolation. So, there's the carbon silo. We have biodiversity silo. We really need to broaden that and say the collective value of nature, even things that we may not understand today have value. And the amount of underfunding, even with big announcements, like philanthropy putting five billion into biodiversity over the next 10 year. There's an estimate we're underfunding just conservation by 700 billion a year. I think the Paulson Institute put that out. To combat climate change, maybe we're underfunding that three to five trillion per year. And if we're really going to make a more sustainable and more equitable economy, it's probably orders of magnitude more that's required, that has to come from a capital market. There's just not enough wealth to transfer from one entity to the other to do that successfully. It's a good start but we have to find a way to really power this to make it work.

Josh King (39:15):

As we wrap up, Douglas, we are recording this conversation during Climate Week NYC, which coincides with the first week of the UN General Assembly. In November, the UN's going to hold its 2021 Climate Change Conference known as COP26. As world leaders, local elected officials, businesses, climate experts, and activists, organizations meet, what issues do you expect to rise to the top of their conversations?

Douglas Eger (39:40):

I think it's how can we not only achieve the targets, but we need to go beyond it. So I think climate change, biodiversity, and how we can actually achieve those goals. And I think the challenge is, we really don't have the resources at the table yet to do that and we need a mechanism that can more broadly be applied to work with the market systems that in a way you could say, cause the problem in the first place, they were powerful enough to drive what we've done, a change in the entire planet. It's that strength that we need to tap to turn around to solve the problem. So I think if we can offer a viable alternative that works with markets, that includes the values that we have in environment and social policy, and then we supercharge that with what finance can do and capital markets can accomplish, that we'll be on the road to a much better future.

Josh King (40:45):

On the road to a much better future. And in the immediate horizon, these conferences, how is the Intrinsic Exchange Group going to be participating in them?

Douglas Eger (40:54):

A number of potential companies and issuers have said, "We'd like to make an announcement coming into the COP," so do governments that see this as a viable alternative. So hopefully we'll be able to bring those to the market awareness and say, "These are the first companies that we'd like to be listing," and use that stage to introduce the work that we're doing here with the NYSE.

Josh King (41:21):

So, Douglas, once the SEC approval is secured and the first NACs can list on the NYSE, let's look ahead a little bit, what's your vision for this marketplace over the next five to 10 years?

Douglas Eger (41:35):

Our hope is, as you said, this is an economy that's equal to our recorded GDP. If we can take even a fraction of that and begin to move it in, I think that's significant. And so if we can ultimately develop hundreds of natural asset companies and they begin to have a network effect, so the more that we create these companies, the more natural capital that we're building, the more nature based solutions that we're able to finance, they'll reinforce each other. So we could more rapidly reach these goals. So I'm very hopeful that we can realize what's been the vision of conservation and social policy folks for a long time of truly including the value of nature and to an extent human and social capital into the mainstream of the economic system.

Josh King (42:32):

Over the horizon, hundreds of natural asset companies and the corresponding network effect. Can't wait to see it brought to reality. Thanks so much Douglas for joining us inside the ICE House.

Douglas Eger (42:41):

Thank you for having me.

Josh King (42:43):

And that's our conversation for this week. Our guest was Intrinsic Exchange Group Chairman and CEO, Douglas Eger. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question and you'd like one of our experts to tackle on a future show, email us at [email protected] or tweets at us @ICEHousePodcast. Our show is produced by [Grace Devlin 00:43:05] and Pete Asch with production assistance from [Stefan Caprio 00:43:08] and Ian Wolf and [Ken Able 00:43:10]. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.

Speaker 19 (43:18):

Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, expressed or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the [inaudible 00:43:34], all of which is presented solely for informational and educational purposes. Nothing here constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of [inaudible 00:43:50] clarity.

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Information contained in this podcast was obtained in part from publicly available sources, and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice.