Political turbulence fails to deter Nature Investments, confirms recent analysis
In a recent study focused on Impact Investing for Pensions and Impact measurement, institutional investors from the UK, US, Australia, Singapore, and Japan have shown a growing interest in nature-based solutions (NbS). This shift comes as investors increasingly recognize the financial and sustainability benefits that NbS offer.
Nature-based assets, such as farmland and timberland, provide portfolio diversification, inflation hedging, and stable returns. Beyond traditional financial benefits, NbS offer solutions to major challenges like climate change and biodiversity loss through activities like restoration, conservation, and improved natural asset management that generate quantifiable ecosystem services (e.g., carbon sequestration, soil health).
The growing interest in NbS is driven by the perception that nature loss is becoming a leading economic risk. In fact, 45% of global institutional investors and 65% in the Benelux region foresee nature loss as a top risk within the next decade. Investors are shifting their mindset from viewing nature as a cost to seeing it as capital and opportunity, moving away from mere compliance or risk avoidance towards active value creation and business alignment.
However, many investors still face challenges in understanding investable nature-based solutions and integrating them into portfolios. Only 30% globally currently focus on nature-related risks, indicating ongoing learning and adaptation. To address these challenges, investors and organizations are taking several steps:
- Increasing investments in biodiversity data and assessment tools, such as the Integrated Biodiversity Assessment Tool (IBAT), which doubled to USD 2.5 million in 2024, improves understanding of biodiversity impact and opportunities, supporting better operational and investment decisions.
- Embracing active ownership and engagement strategies to encourage companies in high-emission or nature-impacting sectors to transform rather than divesting, enabling measurable environmental impacts while maintaining financial returns.
- Focusing on nature-based investments that produce not only traditional financial returns but also ecosystem service outcomes, which can be measured and reported, helping to justify investments and overcome data and valuation barriers.
Despite these challenges, institutional investors are increasing their nature-based investments. In the latest survey, almost all of them (99%) were planning to increase their nature-based investments, up from 68% in a 2023 survey. This increase is accompanied by a shift in the main reason for investing in nature, with 43% of investors citing financial returns as the primary reason, compared to risk mitigation and inclusion in the firm's previous survey.
The study, categorized under Investment, also reveals that in the UK, 42% of investors are planning to buy specialist investment firms to increase their nature exposure. Additionally, chemicals, materials, and manufacturing emerged as the main concerns regarding nature-related financial risk, compared to agriculture and property in the 2023 survey.
Interestingly, a study finds that UK pension funds are overlooking impact reports in their investment decisions. However, positive developments include SHIFT Invest's announcement of a €92m first close of an impact fund. Furthermore, CFM and Argos Partners are set to manage a shariah-compliant Malaysian infrastructure fund.
In conclusion, institutional investors are increasing their exposure to nature investments to manage escalating ecological risks and reap the financial benefits. They are addressing challenges by leveraging improved biodiversity data, shifting mindsets from risk avoidance to opportunity capture, and engaging actively with companies for environmental transformation.
- The study suggests that private equity firms are increasingly investing in nature-based solutions (NbS), recognizing the financial and sustainability benefits they offer in addressing major challenges like climate change and biodiversity loss.
- As part of their strategy, some institutional investors are focusing on nature-based investments that not only generate traditional financial returns but also produce measurable ecosystem service outcomes, such as carbon sequestration and soil health.
- To overcome challenges in understanding investable nature-based solutions and integrating them into portfolios, investors are turning to various tools like the Integrated Biodiversity Assessment Tool (IBAT) and embracing active ownership and engagement strategies.
- The trend toward impact investing in the UK includes a shift in the main reason for investing in nature, with a growing emphasis on financial returns, as demonstrated by 43% of investors citing this as the primary motivation.
- Personal-finance decisions can also be influenced by nature-based investments, as evidenced by the rise of impact funds like SHIFT Invest's announcement of a €92m first close of an impact fund, appealing to those seeking sustainable and profitable investment opportunities.
