NATURE’S FORTUNE TOUTED BY FORMER GOLDMAN DIRECTOR By Ellie Winninghoff

NATURE’S FORTUNE TOUTED BY FORMER GOLDMAN DIRECTOR

By Ellie Winninghoff

“We love nature, but we make it sound like a luxury.”

That’s how Nature Conservancy president and CEO Mark Tercek, formerly a managing director at Goldman Sachs, opened his remarks earlier this month at a gathering at Town Hall in Seattle, where he discussed Nature’s Fortune: How Business and Society Thrive by Investing in Nature, the book he co-authored with conservation biologist Jonathan S. Adams.

Nature is “as central and important a driver of economic activity” as manufacturing or agriculture, Tercek said. And he argued that the concept of conservation must be expanded to include not just the “dynamics of the forest” but also specific decisions businesspeople make up and down the supply chain.

“If you add up all the NGO investment in nature, it would be trivial relative to the opportunity,” he said in an interview with Private Wealth before the event. “There is a very sophisticated understanding of natural capital in the academic world, but much less in business or government. The art of this is to translate those ideas into actionable plans that people who make big investments can make.”

Tercek said he agrees with futurist Hazel Henderson’s paradigm shifting depiction of the economy–not as a pie (divided between the public and private sectors) but as a cake, a four -layer cake where three layers of infrastructure support the private sector. In addition to bridges and roads (the public sector), there are families and communities (which she dubs the “love economy.”) But the foundation of that cake–the mother of all infrastructures–is nature, or natural capital.

Or, to put it another way:

“The global economy is a wholly-owned subsidiary of the environment,” some explain.

Tercek takes that a step further by actually comparing the economics of built or gray infrastructure such as pipes and treatment plants with green infrastructure consisting of woodlands and grasslands, wetlands and rivers.

“Green infrastructure is usually cheaper than gray,” he says, “and it’s more efficient.”

To make his point, Tercek cited the filtration system for New York City’s water supply–most of which is not treated with either chlorine or fluoride.

After a series of cholera epidemics in the l800s, city officials scoured the countryside in search of a more reliable source of water than local wells. They invested in aqueducts that brought water from the Croton River just 25 miles north of the city, and eventually expanded the system to include 2000 square miles of mostly forests in the Catskills and then to the Delaware River Watershed. All told, the system includes 300 miles of tunnels and 6000 distribution mains, as well as three lakes and nine reservoirs.

“Soil and tree roots filter water, microorganisms break down contaminants, plants in streams absorb nitrogen from automobile emissions and fertilizer runoff, and cattails and other wetland plants suck up nutrients while trapping sediments and heavy metals,” he points out. “”Protect these services–which improve with age–and everything else is merely maintenance.”

By the late 1980s, however, there was so much pollution run-off into the reservoirs from the suburbs growing around Croton, which accounted for 10 percent of New York’s water supply, that the city built a new filtration plant that cost $3.4 billion. But then when pollution mushroomed in the Catskills, too, and it looked like the city would have to build an even larger filtration plant at an estimated cost of $8 billion, the city looked into how it could invest to protect the watershed instead.

Ultimately, it agreed to spend $1.5 billion. Among other things, it paid to control pollution on farms in upstate New York. That meant that farmers had a new crop to sell: clean water.

“Catskill farmers, who had previously thought of the environment as something that forced them to spend money to solve somebody else’s problems, now made money by becoming environmentalists,” Tercek writes.

“It’s win-win-win,” he adds, explaining that the farmers get paid to provide a service they once gave away for free at the same time that more land is protected and New York City residents get a secure source of clean water.

Tercek’s other key point was that green infrastructure, unlike gray, accomplishes many things at once. He compared oyster reefs to seawalls–in terms of what they do and their economics.

Both, of course, are meant to be coastal buffers. Whereas oyster reefs absorb the energy from wind and waves, though, seawalls tend to redirect the wave energy back into the water thus compounding habitat damage.

“Engineered structures meant to protect the shoreline do just one thing and not always well,” he said. “A living shoreline is a far better idea.”

Both cost about $1 million per mile to build. A seawall depreciates over time, however, while an oyster reef will hold its value. And oyster reefs provide a host of co-benefits.

For one thing, an adult oyster can filter up to 50 gallons of water per day. Before the Europeans arrived, Tercek writes, scientists estimate that oysters filtered all the water on Chesapeake Bay in three days. Now, with fewer oysters and more pollution, it takes over a year.

Oysters and other shellfish also reduce the algal blooms that create the dead zones in the Gulf. And oyster reefs provide habitat for other fish and shellfish, which in turn supports commercial and recreational fisheries.

“On Grande Isle [Louisiana], fishermen almost immediately noticed that redfish and spotted sea trout like to lurk near the new reefs,” Tercek writes, noting that it was the same story near uninhabited Coffee Island in Alabama, where 2010 stimulus money was spent on creating almost two acres of oyster reef. “The restored reefs are already producing new commercial flounder catches, just two years after the reefs were completed.”

A former investment banker, Ellie Winninghoff is a writer and consultant specializing in impact investing. Her writing about impact investing is linked at DoGoodCapitalist.com, and she can be reached at: ellie.winninghoff (at) gmail (dot) com.