Natural capital investing increases

New research commissioned by Gresham House shows increasing institutional demand for natural capital investments.

The report reveals that 50% of UK asset owners say they already invest in natural capital or will do so within the next 18 months.

The research, conducted by mallowstreet, also found that supporting climate transition was the biggest driver of investment in natural capital followed by stewardship and reducing nature-related investment risk. Allocations to natural capital are likely to comprise 3% to 5% of total assets, with 59% of asset owners saying they would invest up to 3% and an additional third potentially investing up to 5%.

Local Government pension schemes would typically invest in natural capital via illiquid assets, with 33% putting an allocation in real assets and a further 25% would put an allocation in the private markets bucket.

23% of UK investors would allocate to the asset class via growth assets, while 18% would align it to an impact allocation, highlighting the need for a wide range of liquid and illiquid strategies to cater to different investors’ requirements.

Rebecca Craddock-Taylor, director, sustainable investment at Gresham House, said, “While there is more work to do to build understanding of natural capital among end investors, the theme is clearly gathering momentum and it is exciting to see that UK asset owners are increasingly aware of the potential to deliver both financial and environmental benefits by backing natural capital solutions.

Equally, it is crucial for asset managers to respond to this growing demand by offering a tailored range of natural capital products that reflects the complex and varied requirements of different types of investors and addresses the wide-ranging challenges facing biodiversity and nature around the world. This will be essential to ensuring that natural capital forms a key part of the portfolios of the future.”