Half of UK asset owners currently invest in natural resources or plan to do so within the next 18 months.
A survey has found that 73% of UK asset owners would invest in natural capital – which includes assets such as sustainable forestry and agriculture, carbon forestry and biodiversity creation – to support climate adaptation.
In addition, supporting climate adaptation and mitigation was the biggest driver of investment in natural capital, followed by the good stewardship of members’ assets and reducing nature-related investment risk.
The survey, commissioned by alternative asset manager Gresham House, found that 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%.
The survey revealed a range of approaches to investing in natural capital among institutional investors. 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% putting an allocation in the private markets bucket.
Twenty-three per cent 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 of 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.”
