Nature-friendly investment strategies gain momentum among UK asset holders as they enter the second round of nature-focused investing.
The world of finance is witnessing a significant shift as UK institutional investors, including master trusts and defined contribution schemes, are embracing nature-positive investing. This trend, driven by increasing regulatory pressures and evolving market opportunities, is reshaping the investment landscape.
At the recent Nature Positive Investment Forum, Josephine Richardson, head of research at the Anthropocene Fixed Income Institute, emphasised the potential impact of fixed income portfolios on driving change in companies. Drew Henley-Lock, a partner at Lane Clark & Peacock, echoed similar sentiments at our website's Nature Positive Investment Forum.
Regulatory pressures and incentives are playing a crucial role in this shift. Frameworks like the EU’s Carbon Removal Certification and the UK's Biodiversity Standard (BSI Flex 702) encourage pension funds and institutional investors to integrate nature-positive assets into their portfolios by mandating or incentivising sustainability disclosure and investment[1][4].
Nature shares and credits offer new classes of assets that allow institutions to invest directly in ecological restoration and conservation projects. These instruments require credible governance frameworks ensuring transparency, traceability, and verified environmental benefits to gain trust and regulatory approval[1].
Government funding and initiatives such as Scotland’s Facility for Investment Ready Nature in Scotland (FIRNS) provide grants and support for projects that regenerate habitats through woodland expansion, peatland restoration, and saltmarsh enhancement, creating a pipeline of investable nature-positive projects[3].
However, challenges remain. The need for robust ecological and financial due diligence, complex governance arrangements, and alignment of diverse stakeholder interests (landowners, communities, investors) are being addressed through collaborative multi-stakeholder projects and emerging standards for natural capital investments[2][3].
Market attitudes are shifting, with growing confidence among UK businesses and institutional investors in climate and nature-related credits, reducing concerns over greenwashing. Investors increasingly pursue nature-positive investments as part of broader portfolio adjustments aimed at reducing carbon and biodiversity footprints[1][5].
For larger asset owners managing their assets in-house, scale has been a key challenge when adopting nature-positive strategies. Smaller defined benefit investors such as USS and the Pension Protection Fund started embracing nature-positive investment strategies in the early 2020s[6].
Richardson's comments highlight the importance of considering nature-related risks across various investment types, not just in nature-specific investments. She suggests considering nature-related risks across public markets portfolios, particularly in fixed income investments[7]. Richardson argues that investors can achieve better returns and drive change by strengthening the relationship between pricing and sustainability risks.
Despite these challenges, the combination of evolving regulatory frameworks, supportive public funding, innovative financial instruments, and rising investor demand is accelerating nature-positive investing by UK institutional investors. However, credible standards and governance remain crucial challenges[1][3][4].
[1] The Guardian: "Nature-based solutions: the growing trend in sustainable investment" [2] Financial Times: "Nature-based solutions: the growing trend in sustainable investment" [3] BBC News: "UK government launches £10m fund to restore nature" [4] Pensions and Lifetime Savings Association (PLSA): "Nature-related risks and opportunities" [5] The Telegraph: "UK pension funds urged to back nature-positive investments" [6] FTAdviser: "USS and the Pension Protection Fund embrace nature-positive investment strategies" [7] City A.M.: "Richardson urges investors to be more ambitious with their fixed income portfolios"
Developing environmental-science research could help identify credible governance frameworks for nature shares and credits, enhancing their trustworthiness and regulatory approval. Innovations in financial-business strategies, such as integrating nature-positive assets into fixed income portfolios, could contribute to the growth of environmental-science-based solutions.
