Before he became a leader in the way markets and business can be used to address the conservation of biodiversity in the USA, Steve Morgan was a businessman who loved to hunt. In fact, it was through hunting that he came in contact with the industry he was about to enter. But perhaps it is best to start this story from the beginning…

Flyways vs. highways
The story begins in the late-1980s, when Morgan, a duck hunter and businessman, decided to buy up a piece of land in central California as a way of creating a ‘hunting club’; a place where streams and wetlands would attract the ducks he so loved to hunt. Unfortunately for Morgan, or perhaps it is fortunately in the long-run, the wetlands that served as a rest-stop on the flyway of his beloved ducks was also slated to serve as the site for major highway bypass. In other words, it looked likely that Morgan would lose his land for the ‘greater good’ of the American car.

Naturally, Morgan was furious and he probably could have sued the state and bought himself some time, not to mention perhaps a bit of money. But rather than focus on the bitterness of this particular lemon, Morgan decided to see how he could turn it into lemonade. In discussions with the local authorities, Morgan found out that, while it was perfectly legal for the U.S. government to strip him of his duck-hunting grounds in order to make a highway, it was not legal, thanks to the U.S. Clean Water Act, to damage a wetland without “minimizing and mitigating” (or offsetting) that damage. In other words, the law states that anyone that damages a major wetland considered of national importance, whether it be a private land-holder or the government department of transportation, needs to offset that damage by “creating, enhancing, or restoring” a wetland “of similar functions and values” in that same watershed.

To put it another way, the Clean Water Act of the U.S., a law passed in the 1970s, has provisions that are designed to maintain a particular type of ecosystem (i.e. wetlands) because of the functions and values they provide. In other words, it has a ‘biodiversity protection’ provision.

That, in and of itself, is perhaps nothing radical. Many countries have laws designed to protect biodiversity. The difference, however, is that the U.S. Clean Water Act has in some ways been ahead of its time in that it “requires” that any damage to this particular aspect of biodiversity (wetlands) be offset (or, in the U.S. lingo, mitigated).

Sweet lemonade
Which brings us back to Morgan. When Morgan found out that in order to build the highway bypass on his beloved wetlands, the government would have to go out and find some way of “creating, enhancing, and restoring” wetlands of similar functions and values in that same watershed, his business instincts kicked in and he promptly went across the street and bought 315 acres of his neighbour’s wetlands. He then ‘enhanced and restored’ this wetland (thus attracting his beloved ducks), went to the part of the U.S. government that oversees the Clean Water Act (namely the U.S. Army Corps of Engineers and the U.S. Fish and Wildlife Service), got approval to sell ‘wetland mitigation credits’, thereby creating the first ‘wetland mitigation bank’ west of the Mississippi. He then turned around and sold these mitigation credits to the government department that had taken over his land for tens of thousands of dollars an acre. Steve Morgan had become a ‘mitigation banker’.

Like many hunters, Morgan feels a special connection to nature, to wetlands, and to the animals that make his chosen sport possible. In Morgan’s case, however, this hunter’s sensibility is complemented by an innate instinct for business. For this reason, Morgan quickly realized that mitigation banking could help him marry his two loves: nature and business. And that is why, following the success of his first mitigation bank, Morgan went on to create a mitigation banking company, a company he called “Wildlands, Inc.” Two decades later, Wildlands has grown to become a multi-million dollar company that employs some 100 people and manages thousands of acres of restored wetlands. And just this past March, Wildlands announced that it had received a major capital infusion from Parhenon Capital, a private equity investment firm that manages USD 1.5 billion. Morgan’s wetland ‘lemonade’ has turned sweet indeed.

No one really knows how big the U.S. wetland mitigation banking market is. At the Ecosystem Marketplace, an online provider of news and information on environmental markets, we are aware of more than 400 wetland mitigation banks across the U.S. We estimate that the total business transacts more than USD 1 billion dollars a year. Additionally, the concept of mitigation banking has given rise to a related business, a business aimed at protecting endangered species.

Known as ‘conservation banking’ or ‘species banking’, the process is similar to that followed by wetland banks: developers who harm endangered species habitat need to offset this damage by paying for the creation of similar habitat somewhere else. This process, which began in California (and in which Wildlands is a major player), has now grown to include more than 70 species banks throughout the U.S., for species such as red-cockaded woodpeckers, tiger salamanders, vernal pool fairy shrimp, and swainsons’ hawk. There are even species banks aimed at conserving flies: namely the Delhi Sands Flower-Loving Fly (going price: USD 100,000 an acre for fly habitat).

True costs
If all of this sounds strange, or if you are wondering how this relates to the role that business can play in the protection of biodiversity, here is the connection: the reality of the human condition is that the more we develop, the more impact we have on biodiversity. Whether it is roads and highways, cities and buildings, or even the expansion of soybean fields or palm oil fields, our impact on biodiversity is great and growing greater still. In the past, our economic system has been ‘blind’ to this impact. We have not taken into consideration its true cost, nor has the ‘price we pay’ for damaging biodiversity been incorporated into the cost of houses, shopping malls, or roads. With mitigation and conservation banking, and the concept of biodiversity offsets more generally, this cost is beginning to be ‘internalized’.

Roads that damage wetlands cost more than roads that do not, shopping malls on endangered hawk habitat cost more than shopping malls without this impact, etc. And the more we can incorporate these true costs into our economic system, the better off biodiversity will be.

Then again, perhaps this all sounds familiar, particularly if you are somehow involved with issues of climate change and the Kyoto Protocol. In those circles, the concept of offsets and the use of markets to protect the environment are widespread. Indeed, the carbon markets created by the Kyoto Protocol now transact not millions, but billions of dollars each year. Here, too, we have used government regulation to create markets that help internalize the environmental cost of pollution into the economic system. Only this is a global market, not a local one like wetlands mitigation or conservation banking.

Because if there is one thing businesses are very good at, it is managing things that show up in their economic equations as costs. So if the cost of biodiversity can be made more obvious, perhaps it will be better managed. The converse is also true: if businesses see an opportunity in conserving biodiversity or mitigating climate change — even better, if money can be made by protecting species and habitat, or reducing greenhouse gases —then chances are good that we will be able to protect our environment. Businesses are also good at seizing money-making opportunities.

Which brings us back to Steve Morgan and Wildlands: here is one duck hunter/entrepreneur who has figured out how to turn biodiversity protection into a multi-million dollar business. His attention is now turning to issues such as carbon offsetting and water quality trading. We wish him, and others like him, luck.

At the time of the writing Ricardo Bayon was Director, Ecosystem Marketplace. He is the co-author of Voluntary Carbon Markets: A Business Guide to What They Are and How They Work with Amanda Hawn and Katherine Hamilton (with a foreword by Al Gore) which was published earlier this year by Earthscan.