Gino Borges:
Welcome the Journey to Impact Series. I’m here with Bettina von Hagen, the Co-Founder and CEO of Ecotrust Forestry Management, also known as EFM, which makes investments and conducts climate-smart forest management focused on natural climate solutions in the Americas. Born and raised in Peru, Bettina now resides in Oregon. She has over 25 years of experience in fund management, impact investing, service markets, commercial lending, and forestry. Welcome, Bettina.

Bettina von Hagen:
Thank you so much. Pleasure to be here.

Gino Borges:
Tell us about your current circumstances considering the Coronavirus pandemic. Specifically, how are you personally affected, and how is Ecotrust professionally affected?

Bettina von Hagen:
I am in sitting in Portland, Oregon. It is a beautiful sunny day. I have the great advantage of having a secure home, a lovely family, the ability to go outdoors, and security in terms of food. I’m feeling very fortunate and yet very distressed about what’s happening in other parts of the world. This is a moment that’s highlighting all of the things that have been bubbling under the surface around access to water, food security, and resource disparity. It’s a big moment. I am personally comfortable, but I am uncomfortable in that comfort, given where all my brothers and sisters in the world are at this time.

In terms of EFM, we are fortunately in a pretty good position for the moment. The wonderful and glorious thing about trees, forests, and investments in forests is that our forests are currently quite happy. They’re probably happier than usual because of the good air quality. Investments in forests are generally indifferent to political cycles. They’re indifferent to economic cycles. In natural forest systems, as long as there is water, soil, sunlight, pollinators, and rainfall, they are very happy. The wonderful thing about forests is that, unlike agricultural crops, trees can go for a long period without any need for market access. As long as you’ve created an investment structure in which you don’t have obligatory cash payments, for example, or have excessive amounts of debt, you can survive quite well through economic turndowns and political cycles. This means our forests are happy. Secondly, forestry is an essential industry. It provides fiber and paper products – the need for which has become quite apparent during the COVID crisis – as well as wood products for construction, fuel, and other necessary products. It’s an essential industry, and we are continuing to conduct operations during this COVID period. There may be long-term financial implications depending on what happens to the economy. But for now, both my family and I and the company are surviving this COVID period quite well.

Gino Borges:
How are you navigating the practical day-to-day business operations among this ongoing uncertainty while also having a long-term strategy? How are you navigating the short- and long-game?

Bettina von Hagen:
One of the aspects of forests is the ability to store value in place. I have a lot of empathy for other businesses that have the need for current sales, a perishable product, or very high fixed costs. Those are very difficult things to navigate in the current circumstances. In forestry, one aspect from an investment perspective is that you have fairly low fixed-costs and the ability to store value in place. What that means is that our forests are creating value as we speak. They’re increasing in value; the trees are getting larger, storing carbon, photosynthesizing, and increasing in volume and value over time. We can monetize that value today through timber harvest, a carbon credit sale, or a conservation easement, or tomorrow through capital appreciation.
These are some of the ecosystem service sales that you referenced in your introduction. We can make those sales next year, or we can do it in five years. The longer we wait, the more trees, carbon, and habitat we will have. It is a very advantageous resource, and advantageous strategy in times like this, which is why it’s considered a great addition to an investment portfolio because of this low risk and counter-cyclical elements. The long game is that forests increase in value with time; what changes is the timing of the cash flows associated with them. That speaks to building a financing structure and investor expectations that are patient, that anticipate these types of cycles and are built to withstand them. That’s the long game.

In the short to medium terms, monetizing trees for timber products or fiber products, depends upon demand. As the number of housing starts decline, lumber prices are affected, log prices are affected, and then timberland prices are affected. But what we do find with forest land is that it’s price is very sticky. Housing demand may be volatile. Lumber follows housing demand, then log prices follow that, and forest land is at the end of that chain but tends to be a lot more stable because it’s looking forward to the next 50 to 100 years of anticipated cash flows as the definer of its value. There are changes in the timing of cash flows that will occur due to changes in market demand, but if you are built to withstand those and you’re built to be able to enter the markets when it’s advantageous for you, managing the forest in a way that creates long-term value, resilience and diversity, then you can be in reasonably good shape in the face of unexpected disruptions.

Gino Borges:
I’d like to understand your story. What was the inspiration for you to get involved in the forest industry?

Bettina von Hagen:
The forest specific story began in Oregon, but my obsession, love, passion, and respect for all the parts of biodiversity, natural systems, and the complexity of ecosystems stems from when I was 13. I was fortunate enough to go spend some time in the Galapagos. The Galapagos is mind-blowing for all people in several different respects, but to be hit that squarely at that formative age as you are in the Galapagos with the wonders of evolution, natural selection, and the individual strategies that are forged by the plants and animals, the uniqueness of it, the complexity of ecosystems, and the fragility and resilience of ecosystems, are an incredible gift.

I went back there when I was 20 and spent a year in the Galapagos, reinforcing that love and passion. After wandering the world a little bit, I got an MBA from the University of Chicago and went into banking. I came to Oregon as a young banker and had several forest product companies in my portfolio as a commercial lender. It was a time in Oregon known as the Timber Wars; everyone in the West will recognize that as a big event. The Timber Wars were a national debate over how federal forests should be managed. Up to that point, there had been a very strong emphasis on timber production in national forests. At the same time, the environmental community was comparing that rate of harvest in national forests with what was happening in the Amazon, capturing global attention. The result of that public attention, combined with some real impacts on forest-dependent species like the Northern Spotted Owl, the Pacific Salmon and other species, launched the summit that resulted in the Northwest Forest Plan, also known as the Clinton Forest Plan, which dramatically changed the way that federal forests are managed.

This big change in forest management on the national forest had big implications for the region in terms of employment, mills, public opinion, the divide between urban and rural communities, and the divide between industry and the environmental community. I was in the middle of all of that, as a banker based in Oregon, and it suddenly became clear that I had a different opinion than my bank colleagues on what should happen in the forest products industry. The battle at that time was framed as: harvest as usual because it will protect jobs versus conservation to save the forest. The perspective that I had, and felt lonely in, was, to envision another way forward in which we think about the long-term health of the forest, recognizing timber is an important human need but that long-term timber provision was dependent on an intact, functioning forest. We didn’t have the carbon storage vocabulary at that point. At the time, the focus was more on biodiversity and water-focused. I was convinced that it wasn’t and shouldn’t be one or the other, but rather that there was a management approach that would sustain forests – and timber harvesting – over the long term. Being in banking, I had a real admiration for business, entrepreneurship, and the type of energy that can be marshaled by entrepreneurs. I thought there was magic in combining entrepreneurship, access to capital, a good idea and a good strategy around forests to provide the things that we need as human societies while also protecting all of the other elements of the natural world that are part of our complex, wonderful, and amazing ecosystem. I started to feel very different and isolated from my colleagues in terms of my perspective on the Timber Wars, which grew into a larger realization about the role of business. Around that time, one of my favorite clients come to me that ran a recycled steel mill that had used, up to that point, 100% recycled steel. They came to me wanting a loan to build an iron facility in the Venezuelan rainforest, which I knew would have a profound impact on forest health and indigenous communities that depended on the intact forest for their livelihoods. That brought the issue home even more sharply, in terms of the impact that lenders and providers of capital had on natural resource decisions in faraway places. All of those things together combined led to a moment crisis about how I could move forward with my job and responsibilities to my clients in the environment that I was in.

There’s the adage: “Vote with your voice, Vote with your feet,” in that order. Voting with your voice for me meant going to the Chairman of the Bank and sharing my concerns. I asked him to consider the environmental and social dimensions of the loans that we were making. Strangely, he didn’t laugh me out of the room. I created an environmental taskforce in the bank. I gave it my all for a year or two. It was not the right venue at that time for deep change. That was 25 years ago, and the banking industry had not yet awakened to the environmental responsibility that comes with deploying capital. Then, I had the incredible good fortune of meeting Spencer Beebe who had just started an organization called Ecotrust, focused on bringing private market solutions, entrepreneurial energy, and other resources to create the kind of change we want to see in the world from the perspective of environmental and social objectives. How do we do forestry in a way that, on the one hand is naturally viable, and on the other hand, also provides communities with the jobs and resources they need in the context of a forest that is resilient, enduring, intact, and fully functioning? How do you bring that same perspective to whatever resource or business endeavor you consider? I finally found an ally in the world. Now, there are lots of them, but back then, it was hard to find. I voted with my feet and joined Ecotrust, one of the most wonderful nonprofits. Spencer and I had this vision of how forestry could be done differently from the very beginning. In 2004 the conditions were right to create Ecotrust Forest Management, or EFM, a for-profit investment management firm with diverse ownership.

That was the start of it: this fundamental recognition that there is a different way of doing business that uses all the good that comes from the private sector, in terms of the ability to work profitably, to innovate, and to accumulate resources but deploy those resources for the way that I think business was always designed to be, to enhance social wellbeing. That includes protecting, restoring, and investing in the resources upon which we depend. That was the path from banking to where I am today.

Gino Borges:
That’s a beautiful story. I remember the Clinton-Gore moment the Timber Wars. Was Julia Butterfly associated the Timber Wars, or was that pre-Timber Wars?

Bettina von Hagen:
It was around the same time. She was very involved in protecting the last old stands and the last old trees. So yes, a very big fundamental part of that was her activism and activism by others like her. That was all part of the larger debate of how we should manage federal forests. That debate continues in different ways today, but we have more information than we had then, and a few more options than we had then, including, since you mentioned it, the understanding, recognition, and path for monetizing ecosystem services. Ecosystem services are the services and products that are provided by nature, generally for free. That includes absorbing carbon dioxide. It includes capturing, cleansing, and providing water, soil formation, and all of those other things that are the basic ingredients of life which we mostly get for free. What is fundamental here is that to place a value on those things, understanding their role, and creating mechanisms to invest in them, is an important component of protecting and valuing those resources. The largest example right now, or the one that probably people would know the best is creating markets for carbon. Forests are integral to the absorption of carbon dioxide by forest soil, leaves, roots, and trunks. With the creation of a market, forest owners, landowners, and community owners that control their forests can adopt strategies that maximize carbon sequestration or protect stored carbon and be compensated for that as an alternative to harvesting or clearing those forests that would otherwise release carbon dioxide and create a further buildup of greenhouse gases. That would be an example of an ecosystem service market, but there are others, in water and in biodiversity, that exist as well.

Gino Borges:
In terms of traditional finance, you’ve put together some pretty creative capital stacks whether it’s Native American lands, working with a public agency or working with a potential seller and mission-aligned investors. Maybe some of your capital is not mission-aligned, and perhaps, it’s some combination of all of that. How do you tread the inspiration, creativity, alchemy and excitement of putting the big package together in a particular moment to fulfill your mission, and then dealing with the inevitable friction that goes with trying to put a lot of things together all at the same time?

Bettina von Hagen:
We’re very lucky in being engaged in the forest sector as a strategy because the things that enhance financial value are a lot of the same things that enhance ecological value. Storing more carbon generally means that you have grown more timber. What’s good for the goose is good for the gander. Often in forestry, it’s a happy coincidence that when you protect biodiversity, protect water, expand riparian buffers, protect important ecological niches within the forest, you’re also enhancing the financial value of that forest. A lot of that rests with the opportunities we have in forestry to monetize those ecological values. We’ve talked a little bit about carbon credits. One of the other mechanisms is conservation easements, which are a permanent commitment to protect certain assets in the forest, or to forego development, in exchange for a payment. Those payments usually come from federal or state governments or potentially other resources as well. There is this very happy coincidence in forestry where creating financial value is not at odds with creating ecological value and not at odds with creating community value in general. That doesn’t mean that there aren’t choices at the margin, but at least you’re generally all walking on the same path. We start with the basic premise that our role is to create permanent ecological and community value. When we consider the acquisition of a property, we have a plan for how we’re going to create that value. The financing structures emerge from that.

We’re also creating jobs and opportunities, particularly for rural residents. We have tax credit financing, PRI financing, and grant financing that has job creation and community development as its primary focus. Then, we’re also creating enduring ecological value. That could be through carbon storage, it could be biodiversity protection, or it could be water protection. We have carbon credits, conservation easements, grants, and other mechanisms with partners, that have an interest in that aspect of forest investing. We always have the strategy that we are taking a piece of forest land that has been, as they say, intensively harvested. We develop a long-term vision for that property, generally rooted in its historical condition and ecological potential, that we call it the “desired future condition,” and then everything else flows from that. It’s not so much friction between private investment vs environmental goals that we experience; it is more the intense desire to have additional mechanisms to monetize all the goodness that forests bring, more ways to monetize all those positive externalities that are produced, so that we can do more of that acquisition and restoration process. Our frustration primarily stems from just how meager the resources still are for protecting and restoring ecosystems and rural communities in need despite the overwhelming recognition of the importance of those things.

Gino Borges:
When you look back at your portfolio of opportunities, which one is the standard-bearer for the work that you’re doing?

Bettina von Hagen:
It’s so hard to choose one; maybe I’ll offer a couple. One that has given me the most pleasure is a property that we purchased 12 years ago in Southern Oregon. It was a pretty beat up property in many ways, but one of the things we look at is landscape connectivity and the larger landscape context for property. This property had been logged hard, was coming back in a mixture of hardwoods and conifers – scrappy with some invasive species at the edge of it. But, it had this incredible creek running through it, and it was surrounded by wilderness and national forest. In the little creek that ran through it was about 60 to 80% of all of the Chinook salmon spawning in the larger river system. The creek was absolutely magical, alive with salamanders and juvenile salmon – almost impossible to take a step without trampling on a living creature.

We also knew that the property been incredibly important to the Native tribe that has inhabited that region since time immemorial. We purchased it and started the process of invasive species control and protection, and working with the local tribe. That was just an incredible process. We invited elders of the tribe onto the property. The first time we did that, some of the elders recognized plants and began to remember names that had been long forgotten. It began a process of repatriation of that land to the tribe. They ended up acquiring the land from us a few years ago, so that acquisition and that transition to the tribe and their memory of that place and settlements on the banks of the river and the creek is probably one of the happiest moments during the life of our company. What makes us happy is to acquire a piece of property that’s, like many forest properties today, sadly, a little bit scrappy, a little overused, a little over-harvested, begin the process of restoration, and then find its forever home. In some cases we hold properties for the long-term ourselves. In other cases we look for who we think are the natural owners of the property, and tribes would be at the top of that list. Helping them repatriate land that was part of their former ancestral lands, or former reservation lands, is incredibly gratifying.

That particular tribe has just been incredible in what they have endured: the land that has been taken from them, their commitment to staying in place, their patience in working through this process, and their incredible generosity towards the larger community. They have gone in the last 30 years from being a tribe with basically no land to now owning thousands of acres, not just the piece that we sold but also other federal lands as well that was granted back to them.

They are creating health and dental clinics, casinos, hotels and resources that are now one of the main economic drivers in the rural county. It’s just been incredible to witness that type of a Renaissance. The tribal Renaissance has been top of the list for me. That’s both an ecological story and a sociocultural story.

Another example we’re working on right now is a 40,000 acre property in Northern California that has incredible potential and has an incredible landscape context. It touches three different wilderness areas. It connects the wilderness to the valley bottom, largely agricultural and ranching. It has the highest conifer diversity per acre in the world. The remarkable thing about this property is not just the restoration potential that we get to witness by doing the right things for this property but also the unleashing of all of the community interests and potential. When you have an owner like us that wants to cooperate, that wants to restore it, it unleashes this incredible energy and resources. We’re participating with dozens of agencies, conservation groups, and community groups with whom we all share the same objectives. We all want a forest that’s intact, functioning, and being restored – providing cold, clean water, becoming fire resilient, and set up to provide a consistent flow of goods and services in the future. That’s what we all want. When you see that type of energy unleashed, it’s just so symbiotic. You open one door, and then somebody else comes in and opens another one. Soon there’s all these doors open to restoration. The State of California has been amazing. One of the resources we’ve been able to access in that forest is carbon auction revenues – the revenues that have been collected by the State of California from selling allowances for the cap and trade program have created a source of funding for forest restoration and for many other environmental programs throughout the state. It’s been beautiful to be able to participate in that program and use that as a source of restoration. It seems to make everything come full circle. Those are just two examples, to that terrible question you asked me, because I feel like I have to choose among my children.

Gino Borges:
I know you’re being asked to choose your favorite child for sure. Thank you for sharing your inspiring vision and your story. You found a way to team up with folks that found a middle way. It just seems so relevant for what we’re going through today. Not just in terms of ecological resiliency, but beneath the surface and beneath, your narrative is a deep desire for connection in terms of community and realizing that they go both hand in hand. Congratulations to you on softening those silos between ecology and the social world. Again, thank you. I feel fortunate to have you as part of the Journey to Impact Series.

Bettina von Hagen:
Thank you so much! It was a pleasure to be here today.