Strong institutional demand for natural capital investments, research reveals

Written by Adam Cadle

19/11/2024

Fifty per cent of UK asset owners are either already investing in natural capital or will do so within the next 18 months, as they become increasingly aware of its potential to deliver resilient, impactful returns, a new report commissioned by Gresham House has revealed.

Alongside financial performance, the report found that 73% of asset owners would invest in natural capital to support climate adaptation. Other drivers for investment included good stewardship of members’ assets and reducing nature-related investment risk.

Fifty-nine per cent of UK asset owners said they would invest up to 3% and an additional third potentially investing up to 5%.

Twenty-three per cent of UK investors said they would allocate to the asset class via growth assets, while 18% would align it to an impact allocation.

The study also explored institutional investors’ attitudes to carbon and biodiversity credits, finding overwhelmingly that investors prefer to generate their own credits from their investments, rather than buying them. Fifty-two per cent of investors said they would primarily generate credits to offset nature loss or emissions in their portfolio, while 48% would sell the credits they generate to deliver a return.

However, investors remain keen to see a more formal international market and consistent global standards to increase confidence in trading these assets.

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.”

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