If the decade from Paris to COP30 was defined by decarbonisation and net zero, the next decade will be re-defined by resilience; marking an essential shift from degraded to living infrastructure, and from unmanaged risk to investible protection.
We’re not closing the book on measuring, cutting and disclosing carbon. This an ‘and’, not an ‘or’. But the next chapter is clear: nature must now be recognised as critical infrastructure and a core part of our financial systems.
Until very recently, capital markets treated natural ecosystems as externalities: scenic, important, intangible. A ‘free input,’ ultimately irrelevant to portfolio construction. That assumption is now untenable. As physical climate risk accelerates, the cost of ignoring nature is showing up in asset impairment, insurance pricing, sovereign credit ratings and supply chain disruption.
Floods, droughts and ecological decline are now financial realities, not future scenarios. Over $44trn, which is more than half of global GDP, depends on nature, and degradation could erase $2.7trn a year in output by 2030. Arguably all of our economy is dependent on nature.
What’s more, in the UK, flood losses topped £333m in 2019-20 and one in six properties faces significant risk, rising to one in four over the next 25 years.
We have reached the point where the investment question is not whether nature matters, but whether investors can continue to price risk accurately while excluding it.
Nature is the infrastructure we forgot to value. Wetlands, forests, mangroves and floodplains perform the same functions as pipes, sea walls, reservoirs and carbon capture plants. However, these ecosystem services come without construction costs, with negative emissions, and with self-repair built in.
In short: nature is infrastructure renewal. Yet it’s only the engineered equivalents appear on balance sheets; a huge blind spot when you consider that concrete can only buy time, and only nature can buy tomorrow. In fact, the Flood Action Coalition was set up to address these issues in the UK.
This accounting blind spot is materially expensive. Every pound not allocated to nature-based adaptation today becomes a multiple of economic loss tomorrow. Because nature offers the same three foundations of value as any other core holding:
- Utility: essential, measurable services the economy relies on, such as reducing flood peaks, storing water, removing nutrients.
- Scarcity: Ecosystem capacity is shrinking just as demand for resilience is increasing, which drives willingness to pay and underpins durable value.
- Cash flow: Payments for Ecosystem Services (PES) contracts convert ecological performance into long-term revenues with clear counterparties.
For example, mangroves alone prevent more than $65bn in coastal flood damage every year. Their replacement cost, if we were to engineer concrete sea walls to provide the same level of protection, would exceed $1trn. And yet mangroves do not appear as infrastructure assets, despite functioning as infrastructure in practice.
The investment case for resilience
For years, institutional portfolios have searched for assets that behave differently to listed markets, hedge inflation and hold their ground when everything else turns red. Natural-capital strategies are beginning to do exactly that, as a new class of resilient, real-world infrastructure.
Across Europe, the proof points are already here. Oyster reefs are filtering water and buffering coastlines. Peatlands are locking in carbon while regulating water flow. Re-wiggled rivers are absorbing flood peaks and, in many cases, increasing surrounding land values. These aren’t feel-good projects; they’re revenue-generating systems that convert ecological function into financial returns, whether through avoided losses, verified nature credits or contracted service payments.
Resilience can be monetised. Payments for Ecosystem Services allow companies to pay for outcomes, such as cleaner water, flood protection, carbon storage, all of which reduce their own risk.
The numbers are becoming increasingly hard to ignore. Allocating as little as two per cent of a portfolio to natural capital can materially reduce climate-driven risk across the remaining ninety-eight. In other words, resilience pays, not just in planetary terms, but in hard numbers.
Integrating nature into portfolio construction
As with assessing any risk, CIOs serious about long-term performance should already be mapping exposure to water, land and biodiversity dependencies across property, infrastructure and supply chains.
The tools are in place. Frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) and the UK’s Sustainability Disclosure Requirements (SDR) are designed to turn those exposures into data, making nature risk visible, reportable and fully actionable.
Research from Fulcrum Asset Management shows that the same institutional due-diligence frameworks used for private markets can be applied directly to nature-based assets, blending macro-trend analysis, governance discipline and risk control into portfolio construction for clients looking to invest in natural capital.
Governance and fiduciary duty
Trustees are expected to manage material environmental risks, not ignore them. That means stewardship must extend beyond TCFD report to earnings-at-risk from deforestation, biodiversity loss and water stress.
The decade ahead
Institutional investors have always chased two constants: predictable cashflows, and less volatility. Natural capital offers both, with the added advantage of protecting the very systems every other asset relies on.
We are seeing a significant change in how big institutions invest, with many now focusing on nature. Cushon Master Trust has invested 2% of its assets in natural capital through the Aviva Investors Carbon Removal Fund. HSBC’s DC Pension has also made an investment in the Fulcrum Diversified Private Markets Long Term Asset Fund (LTAF) to address the risks that come from nature degradation.
In addition, Smart Pension has removed investments that contribute to deforestation caused by commodities. The West Yorkshire Pension Fund has made an innovative investment by supporting Europe’s largest native oyster reef, with Purina paying for important ecosystem services.
When nature fails, portfolios fall; and when nature functions, economies endure. Increasingly more and more investors are addressing this, not only protecting portfolios for clients, and creating a world worth living in.
