EIP closes third fund on $303m

Ecosystem Investment Partners (EIP), a firm that invests in US wetland areas that qualify for revenue-generating environmental offset projects in the US, has reached a final close on $303 million for its third fund.

Ecosystem Investment Partners III (EIP III) overshot its $200 million target by more than $100 million and attracted first-time commitments from pension funds, endowments, financial institutions and family offices, according to a statement. EIP’s previous fund closed on $187 million in June 2012, exceeding its $150 million target.

The firm expects to make 10 to 15 investments in properties that qualify for wetland, stream, endangered species and other environmental preservation credits, valued between $10 million and $40 million each. It will eventually divest from restored lands.

EIP favours large-scale mitigation banking projects enabled by the US Clean Water Act of 1972 and Endangered Species Act of 1973. Those now required to buy credits by US law include commercial and agricultural development businesses. US farmers who drain or otherwise affect wetlands for production of commodity crops must offset that impact by restoring wetlands elsewhere or purchasing credits from a mitigation bank.

“What we sell is outsourced compliance with environmental laws,” EIP partner, Adam Davis, told Agri Investor‘s sister publication, Low Carbon Entergy Investor.

Davis told Agri Investor that mitigation credits from its investments until now have been sold “almost exclusively to industrial, infrastructure, energy, commercial and residential development.”

He added: “If you talk to real asset investors […] they are probably aware of mitigation banking as an investable category now, which is a relatively new development.”

EIP projects also generate ancillary revenue through timber production. However, sustainable forestry is not a significant enough area in EIP’s strategy for it to impact the firm’s choice of acquisitions, Davis told Agri Investor.

“[EIP employs] an ecological investment strategy that will occasionally brings in revenue from timber, where production is intrinsic to the restoration process,” said Davis.

EIP’s sustainable forestry projects include the harvesting and sale of non-native tree species from land acquired from a timber investment management company.

Investment in offset projects has also been backed by government resources. Last month, the United States Department of Agriculture launched the Natural Resources Conservation Service (NRCS) Wetland Mitigation Banking Program. The NRCS has pledged $9 million to the establishment of state and local mitigation bank programmes that help farmers and ranchers access wetland mitigation banks.

In 1989 the US adopted a “no net loss of wetlands policy”, mandating that negatively impacted wetlands must be replaced elsewhere through restoration of similarly functioning wetlands of equal size.