To most entrepreneurs, regulation is a dirty word. But not to Elliott Bouillion. As CEO of Resource Environmental Solutions, based in Baton Rouge, Louisiana, Bouillion has found a way to build a company on regulations.
Founded in 2007, Resource Environmental Solutions is in the wetland mitigation business. What exactly does that mean? The United States has a zero-tolerance policy on destruction of the country’s wetlands and streams, so when an oil and gas company wants to build a pipeline through historic wetlands, it needs to offset the damage by restoring wetlands elsewhere.
That’s where Resource Environmental Solutions comes in. It helps other businesses minimize damage and deal with regulators, who determine the offset projects that will be required. These projects typically include restoring waterways and planting trees. Once the plan is set, the company finds the land and restores it, a process known as mitigation banking.
And here's where RES makes money: The company earns government-issued "offset credits" based on the type and size of the restoration. Those credits can be sold off, often for million of dollars. It is, perhaps, the most lucrative way to save the planet.
“For us, regulations really enable a business opportunity,” Bouillion says.
A Growing Industry
Over the past five years, as the Environmental Protection Agency and other government agencies have imposed more restrictions on damaging the environment, the environmental consulting industry's revenue has grown 39 percent. And for entrepreneurs who can help businesses deal with regulations, there’s plenty more where that came from. The industry is expected to increase revenue another 45 percent by 2017.
Bouillion became interested in mitigation after spending years working for the oil and gas industry with a company called Landmark Graphics. The company, which was acquired by Haliburton in 1988, made 3-D software to map the earth’s subsurface. It allowed oil and gas companies to improve their accuracy in finding oil reservoirs, which led to more oil and gas being drilled.
"This is not a business for the faint of heart. You have to have a long-term goal. It takes time for trees to grow. If you do it right, it may take more investment than you think, but it’ll be lucrative long term."
The technology was groundbreaking, but, says Bouillion, “We were so focused on the earth’s subsurface, we spent little time looking at what was happening to the surface.”
Around 2005, he began looking into ways to undo that damage. By that time, Bouillion was working in private equity and investing in tech start-ups. Buying land and restoring wetlands would certainly be a new kind of investment for him, but Bouillion figured it was one of the few types of investments that would give him an immediate financial return.
Plus, it would satisfy his urge to undo some of the damage the growing onshore oil and gas industry had done. He approached four friends from the private equity world, including Whole Foods chairman Dr. John Elstrott, and together, they founded Resource Environmental Solutions in 2007.
Paving the Way for Innovation
At the time, most mitigation banks simply restored land and sold credits, without helping companies avoid damage or deal with regulators.
“To me, that seemed a little like opening a store and only selling bread,” Bouillion says. RES, he decided, would be a full-service company that did both the regulatory and restoration work.
The timing proved auspicious. In 2008, the Environmental Protection Agency passed a new regulation, tightening the rules around wetland mitigation. In the past, companies could conduct restoration projects themselves, but the National Research Council found that those projects often failed over time because of neglect. The new legislation stated that before a company could acquire a construction permit, it would need to identify a restoration project, put financial assurances in place for long-term stewardship of the land, and purchase offset credits from a mitigation bank. According to Bouillion, “That was a big part of making our company successful and why we were able to grow.”
RES landed its first contract that year, and since then, it has bought a total of 25 mitigation banks. Restoration involves removing dirt and invasive species, as well as planting trees and opening natural waterways. Since 2007, RES has planted over five million trees and restored more than 3 miles of stream. Meanwhile, annual revenue has grown to $14.6 million.
Big Barriers to Entry
Of course, Bouillion warns that mitigation banking is an industry in which it takes money to make money. RES’ founders have pumped $60 million into buying and restoring land, and though the company is constantly getting paid through its new contracts with oil and gas companies, municipalities, and utilities, the full return on that investment won’t come until much further down the line. Mitigation banks receive credits to sell little by little over time. They don’t get the full amount of credits from the government until the wetlands have grown.
“This is not a business for the faint of heart,” says Russ Krauss, RES VP of marketing and business development. “You have to have a long-term goal. It takes time for trees to grow. You’re restoring the natural ecosystem. If you do it right, it may take more investment than you think, but it’ll be lucrative long term.”
A Sustainable Business Model
The benefit of the business model is that as long as there are more credits to sell, RES has a guaranteed source of revenue. So far, none of the banks have sold out, meaning RES still has plenty of inventory to offer new customers. Plus, the company also operates a nursery in Point Aux Chenes, Louisiana, in which it grows marsh grass and black mangrove. Both are critical to coastal restoration projects.
Recently, RES supplied coastal grasses to the so-called "floating islands" off the coast of Louisiana. These manmade islands have the duel purpose of restoring the state’s marshes as well as protecting the coast from potential disasters like the Gulf oil spill. So far, RES hasn’t done any work on land that was damaged by the spill, but Bouillion expects that work to be a major source of business in the future.
According to Bouillion, his is a “win-win” business, one where he can actually make money by taking part in environmental conservation, historically the jurisdiction of nonprofits and charities.
“Private companies can do it, too,“ Bouillion says. “There are good opportunities out there for companies that have quality staffs and the knowledge that’s needed to do it.”