Capturing the nature investment opportunity with enhanced indices
How Schroders’ NatCapEx model embeds nature insights into index design, supporting nature-positive, investable portfolios.
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This article explores how Schroders is leveraging its proprietary NatCapEx model to integrate nature-related insights directly into index construction. By embedding nature considerations within a systematic, rules-based investment approach, the methodology aims to improve portfolio exposure to nature-positive outcomes while maintaining core investment characteristics.
As nature-related risks rise up the global agenda, investors are increasingly seeking ways to understand and manage their exposure to biodiversity loss and ecosystem degradation. Yet, despite growing awareness, nature finance remains a relatively underdeveloped area, with significant funding gaps and limited scalable investment solutions. The latest UNEP-FI State of Nature Finance report found that financial flows that directly harm nature reached $7.3 trillion in 2023. This compares with an estimated $1.3 trillion annual investment shortfall by 2030 to meet global biodiversity goals.
At Schroders, we are seeking to address this challenge by integrating nature considerations directly into index construction. Using our proprietary NatCapEx model, which quantifies companies’ nature-related impacts, we have developed a managed index methodology with dual objectives: seeking improved investment performance and stronger nature exposure versus a benchmark. This allows us to consider nature loss not only as an environmental and social issue, but as a potential driver of long-term investment value.
The article highlights a case study of an enhanced nature-tilted index based on an existing Developed Markets Managed Multi-Factor Index. Through targeted exclusions, portfolio tilts and portfolio-level adjustments, the approach aims to reduce exposure to companies with the most negative impacts on nature while increasing allocation to those contributing to nature-positive outcomes.
The findings suggest that nature considerations can be incorporated into portfolios in a scalable, transparent way without materially altering sector, regional or factor exposures. By combining proprietary sustainability insights with systematic portfolio construction, Schroders aims to help investors manage emerging nature-related risks and opportunities while supporting the transition towards more nature-positive economic outcomes.
The full article is attached as a PDF here.
For more information about our proprietary model, NatCapEx, and its application within portfolio construction, read here and here.
For more information on how we have also leveraged NatCapEx within our Advanced Bonds Beta team, read here.
For more information on why investors need to pay attention to natural capital and biodiversity, read here.
This primer series is accompanied by our Natural Capital & Biodiversity Cheatsheet, which outlines key concepts and frameworks in more detail to support understanding of this topic.
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