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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For Accredited Investors Only. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument and is not intended to provide and should not be relied upon for accounting, legal or tax advice, or investment recommendations.

The information in this market outlook is derived from sources which we consider to be reliable. However, it may not in all cases be verified independently and we do not attest to its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Forecasts may be the consensus of extremely divergent possibilities and the full range of potential outcomes should be appreciated. No representation or warranty is made that any value (or proximity to) any value, return or forecast will be achieved. The opinions expressed are those of employees of Schroder & Co. (Asia) Limited, and reflect their judgement at this date and are subject to change. Reliance should not be placed on the views and information in this market outlook when taking individual investment and/or strategic decisions. 

No part of this document may be reproduced in any manner without the prior written permission of Schroder & Co. (Asia) Limited.

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Jasper Lai

Jasper Lai

Head of Client Advisory, Asia
Telephone:
jasper.lai@schroders.com