Investing in natural capital – benefits and barriers
Natural capital is vital for our economy, people, and planet. But is it investible?
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:
- Make a specific allocation to projects that establish, preserve, protect, and enhance it.
- 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.
- 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.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.