From climate to nature: The next integration challenge
Over the past decade, investors have made significant progress integrating climate considerations into portfolios, stewardship processes and investment analysis. Transition risk, physical risk, emissions pathways and net-zero alignment are now familiar parts of the investment conversation.
However, as the market’s understanding of sustainability matures, an investment strategy that overlooks the connection between climate and nature is only a partial view of risk. This is already visible in the real economy. Heat stress, drought, flooding and wildfires can damage ecosystems. At the same time, degraded soils, weakened carbon sinks and reduced natural flood protection can intensify climate-related risks.
Treating assets that are impacted by climate and nature factors independently risks missing integrated feedback loops, dependencies and local vulnerabilities that determine whether investment strategies are resilient. Combining these assessments under one strategy means portfolios are more likely to deliver long-term value.
Learning from the climate journey
Nature and biodiversity frameworks, tools and initiatives are emerging to help investors understand nature-related risks, dependencies and opportunities, a necessary and constructive stage in the market’s evolution.
Climate integration also required experimentation, data improvement, standard-setting and investor education before it became part of mainstream investment practice. However, unlike climate, nature does not have a single organising metric equivalent to greenhouse gas emissions.
Nature-related risks are often local, contextual and ecosystem-specific. Water risk, biodiversity exposure, soil health and land-use impacts can vary significantly within the same country, region or even catchment area. Nature-related data is improving, but the processes for collecting, verifying and applying it remain less mature than for climate.
This makes the task harder for investors, but no less important. It is not that nature frameworks should be rushed or collapsed into existing climate approaches. Instead, we need to allow dedicated nature tools to mature; while also ensuring they are developed with integration in mind from the outset, rather than becoming another set of disconnected processes.
This is the climate-nature nexus: the recognition that climate change and nature degradation are linked, mutually reinforcing and financially material.
Why integration matters
For a real asset investor, the connections are tangible. Land, infrastructure, energy systems and local communities are all exposed to both climate and nature dynamics, often at the same time.
In Gresham House’s case, natural capital is part of our investment proposition, but it is also a wider way of understanding how nature interacts with long-term value.
Forestry, biodiversity creation, energy transition and sustainable infrastructure are distinct investment areas, but they are also examples of how capital can be directed toward solutions that support resilience under one sustainable investment strategy.
When approached with discipline, integrated climate and natural capital investment decisions can offer a compelling combination: exposure to long-term structural growth themes, the potential for attractive financial performance, and tangible real-world sustainability outcomes.
To test whether collective climate and nature insights improve investment decisions we consider the following: do they sharpen stewardship priorities? do they influence capital allocation? do they help identify assets that are more resilient over time? This is part of our enhanced, high-quality investment management.
A more practical approach to building investment resilience is to identify material climate and nature exposure together, mapping priority geographies, key dependencies and areas that require deeper assessment.
Dedicated frameworks exist for each dimension: The Taskforce on Nature-related Financial Disclosures (TNFD)’s LEAP approach (Locate, Evaluate, Assess and Prepare) and the Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) tool help investors identify nature related dependencies and impacts, while the Institutional Investors Group on Climate Change (IIGCC) Net Zero Investment Framework supports assessment of portfolio alignment with net zero pathways on the climate side.
However, frameworks and tools that fully integrate both climate and nature considerations within a single investment process do not yet exist at the standard required for consistent application across asset classes.
This is a gap the industry needs to close, and one that Gresham House is actively monitoring as the field develops.
Collaboration and continuous improvement
The integration of climate and nature will not be solved by any one institution. Policymakers can provide reporting clarity. Regulators can help align expectations without forcing premature precision. Asset owners can ask for reporting that supports decision-making, not just disclosure volume.
Asset managers can test methodologies in real investment contexts and share lessons from practical implementation. Data providers and scientific experts can improve the quality, comparability and usability of metrics.
This collaborative work is already underway. The Forestry Natural Capital Project, supported by the International Sustainable Forestry Coalition’s, Capitals Coalition and TNFD, is one example of an industry effort to make nature’s value more visible in financial decision-making.
Broader initiatives such as the Finance for Biodiversity Foundation also play an important role in helping financial institutions build capability and improve nature-related approaches.
These collective goals matter for the wider economy as well as for individual portfolios. Climate and nature are not competing sustainability themes but are connected foundations of resilient long-term investment.
Investors have a critical role to play in directing finance into the green economy and ensuring that capital supports a transition that is not only lower carbon, but also resilient, nature-aware and investable.
Nature frameworks need time to mature, just as climate frameworks did, but should be developed as part of a 360-investment strategy.
In the meantime, we must make climate and nature analysis available to allocate capital more effectively, steward assets more actively and strengthen long-term portfolio resilience.