IN FOCUS6-8 min read

Investing in natural capital – benefits and barriers

Natural capital is vital for our economy, people, and planet. But is it investible?

2021-11-30
forest-natural-capital
Read full reportschroders-investing-in-natural-capital-11.30.2021
0 pages2034 KB

Authors

Duncan Lamont, CFA
Head of Strategic Research

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 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 full reportschroders-investing-in-natural-capital-11.30.2021
0 pages2034 KB

Authors

Duncan Lamont, CFA
Head of Strategic Research

Topics

In focus
Alternatives
Commodities
Multi-Asset
Sustainability
Climate Change

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser providing asset management products and services to clients in the US and in Canada, NRD Number 12130, registered as a Portfolio Manager with the securities regulatory authorities in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec, and Saskatchewan.SFA markets certain investment vehicles for which other Schroders entities are investment advisers. 

Schroders Capital is the private markets investment division of Schroders plc.Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit www.schroderscapital.com

SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.