In focus

Investing in natural capital – benefits and barriers


Investors cannot afford to ignore natural capital – the elements of nature that directly or indirectly produce value to people – in their investments. The financial risks and non-financial risks, such as climate change and biodiversity loss, are too great.

In this new paper (available here and at the foot of this article) we explain the three main ways that investors can take account of natural capital in their investments, and the benefits this can yield to their returns, and life on earth:

  1. Make a specific allocation to projects that establish, preserve, protect, and enhance it.
  2. Incorporate an investment’s impact on natural capital when assessing its risks and the sustainability of its growth rate. Use this information when allocating assets.
  3. Engage with companies you are invested in, to increase understanding of how they affect, and rely on, natural capital. Encourage them to incorporate this in their decision-making and shift towards approaches which are more sustainable.

Improving data quality and availability is making it easier to do the second and third today. And this is only going to get better.

The first is more challenging. Projects which yield carbon offsets – instruments which reflect an emissions reduction of one metric tonne of CO2 (explained in more detail in the paper) – have attracted most interest. They are likely to continue to do so, given the collective drive towards net zero emissions. If approached correctly, carbon offset projects can be done in a way that is sensitive to natural capital, while also creating jobs among local communities, along with many other benefits.

But a focus on carbon offsets should not be at the expense of projects spanning other areas. Although there are barriers, innovative, collaborative, financing structures show that these are not insurmountable.

Creative thinking, and collaboration between all stakeholders, will be needed if we are to find solutions to these pressing problems.

 

Read the full report

Investing in natural capital - benefits and barriers 11 pages | 1,992 kb

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This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.