‘Natural capital is no longer peripheral’: Asset manager report explores rising portfolio integration
Institutional investors are increasingly allocating towards natural capital as they view it as a way to strengthen portfolios by lowering correlation, preserving capital and providing attractive risk-adjusted returns, according to a report.
Natural Capital: A Guide for Institutional Investors was created by Kana Earth, Aberdeen Investments, Gresham House and Rebalance Earth to dispel common misconceptions around natural capital investing and provide a clear framework for asset owners integrating this asset class into portfolios. It found 50% of UK asset owners are already investing in natural capital or plan to do so by the end of 2025.
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The report explained how “natural capital can offer institutional portfolios diversification, inflation protection, and the potential for strong, stable returns, alongside measurable climate and nature-related outcomes”.
It highlighted £33trn of global value creation relies on nature, and £2trn of global GDP is at risk annually by 2030 due to nature-related risks.
Further, around 50% of the global population depends directly on nature for livelihoods in agriculture, forestry, and fisheries, while £177bn worth of annual global food production relies on pollinators.
“The value of nature has long been excluded from financial models or severely mispriced,” the report said. “The result has been widespread degradation, overuse and underinvestment. That is now changing. Markets, policies and regulations are starting to reflect the materiality of nature-related risks and benefits. This creates a structural opportunity for natural capital investments going forward.
“As economies become more exposed to environmental change, the economic significance and value of natural capital is becoming clearer. From supply chains and infrastructure to financial stability, natural systems are not optional; they are embedded in the functioning of markets.”
The report sets out three pillars of investable opportunities – sustainable agriculture, sustainable forestry and nature‑based solutions – and explains how they can fit within portfolios while also supporting existing governance and risk frameworks.
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Kana Earth’s CEO, Andy Creak, commented: “Natural capital is fast becoming a strategic allocation for institutions seeking resilient, inflation‑hedged returns with measurable climate and nature outcomes. This guide translates a complex, evolving market into actionable steps for institutional investors.
“This collaboration highlights the importance of natural capital investing in medium/long-term strategic asset allocation decisions.”
The asset managers Aberdeen, Gresham House and Rebalance Earth added: “‘Pension schemes are increasingly recognising the role of natural capital in portfolios. This report provides a clear mapping of natural capital across familiar asset classes (real estate, infrastructure, private equity and other alternatives) and how it can fit within existing governance and risk frameworks.
“Natural capital is no longer peripheral – investor expectations, regulation and disclosure frameworks such as TNFD are embedding nature into financial oversight. The result is a growing alignment between sustainable land use, climate goals, and long-term value creation.
“It’s great to work together on such an important topic and highlight why it so important for capital to flow into this area.”