Originally published in the Baltimore Business Journal.

A Baltimore firm that preserves wetlands and sells credits to help companies comply with environmental laws closed a $400 million fund this month.

Mt. Washington-based Ecosystem Investment Partners last week announced the Oct. 8 closure of its fifth fund, which includes private and public investors ranging from the investment arm of IKEA to the Montana Board of Investments.

The 20-person company plans to use the fund to restore and conserve over 8,000 acres of wetlands and 23 miles of streams around the U.S. on behalf of companies that need to comply with federal and state environmental regulations. The firm uses its restoration and conservation work to create environmental mitigation credits, which it then sells to generate returns for investors.

The Clean Water Act and other environmental laws require development projects that hurt fragile ecosystems like wetlands to conduct environmental remediation to make up for the harm they caused, and the fund’s business model gives corporations an easy way to conduct those remediation projects. For example, if a company destroys a wetland to create a shopping mall, they are required to make up for that destruction by preserving wetlands somewhere else.

Ecosystem Investment Partners gives companies the chance to have a big impact on an ecosystem by combining the mitigation needs of thousands of firms into large restoration efforts. When each developer conducted their own restoration projects to comply with federal law, the impacts were relatively small, Managing Partner Nick Dilks said. A developer might create a small pond in a parking lot to fulfill their restoration requirements, whereas Ecosystem Investment Partners allows companies to contribute more meaningful work at a cheaper cost because they can take advantage of economies of scale.

Investors get to exit the fund through the sale of credits earned from those projects.

“If the credit costs us $5,000 an acre to generate and we’re selling it for $10,000 a credit, that’s how our investors make a return,” Dilks said.

Ecosystem Investment Partners is involved in environmental restoration everywhere from Maryland, where the company has invested $25 million in projects to improve the Chesapeake Bay, to Alaska, where the company has worked with Native American groups to protect wetlands.

Ecosystem Investment Partners even attracts investors beyond the United States. European pensions are especially interested in investments around sustainability, Director of Investor Relations Catherine Carmen said. That wide market contributes to the company’s success in fundraising: Ecosystem Investment Partners has raised nearly $1.5 billion since its founding in 2006.

Governments are increasingly source of business for Ecosystem Investment Partners, Dilks said, opening another potential client base. The Maryland State Highway Administration, for example, hired the company to restore over 10 miles of creeks in Cecil County to make up for the nitrogen, phosphorus and sediment pollution that runs off state roads.

“The government buys lots of other stuff from private companies,” Dilks said.

“They buy pickup trucks, they buy yellow paint, they buy lightbulbs. They don’t make that themselves. In environmental restoration, it was assumed that the government was the only entity that could do things like stream restoration. You couldn’t buy a unit of stream restoration from a company. That’s really flipped around.”