Learn more about the opportunities associated with natural capital assets
Thirdly, environmental markets have also grown in prominence. The most notable has been the carbon markets, but there are also a range of biodiversity, water, and other complementary markets nationally and regionally.
And finally, corporates and financial institutions are also ramping up their efforts to mitigate impacts on climate and nature within their supply chains and portfolios. This is partly driven by broader sustainability trends, as well as voluntary measures, for example the Taskforce on Nature-related Financial Disclosures (TNFD), and regulated measures, such as the Corporate Sustainability Reporting Directive (CSRD).
We believe these trends are opening new avenues for value creation for natural capital assets, offering opportunities for diversified revenue drivers and increasing investment demand in the sector.
In its simplest terms NbS, is often defined as “a set of actions that restore, manage and protect natural ecosystems”
What do you mean by nature-based solutions?
Natural Capital consists of the resources derived from the natural environment. It is both the earth’s stock of natural assets and the benefits that flow from them and includes, water, air, land and biodiversity.
Critically, nature provides the fundamental capital businesses and whole economies need for the production of goods and services. It is estimated that $58 trillion of global GDP is moderately or highly dependent on nature.
However the earth’s stock of natural capital and the benefits they provide are declining. Globally we have seen a loss of species, habitats and ecosystems, with a commensurate decline of ecosystem services, such as the ability to maintain, absorb and regulate carbon in the atmosphere. We believe investing in the protection and restoration of natural capital is critical.
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In this video, Nicholas Moss, Head of Nature Based Solutions, shares his perspective on trends that are driving investor interest in natural capital assets, the potential benefits to investors, and how to manage risk while investing in the sector.
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This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor's objectives and circumstances and in consultation with their financial advisors. Financial professionals should independently evaluate the risks associated with products or services and exercise independent judgment with respect to their clients.
Important information on risk
Past performance is no guarantee of future results. All investments carry a certain degree of risk, including the possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Certain products and services may not be available to all entities or persons. There is no guarantee that investment objectives will be achieved. See the applicable product literature for details.
As an asset class, Nature Based investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Nature Based investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance and risks related to leasing of properties. Changes in the rates of exchange between currencies may cause the value of investments to fluctuate.
Investors should be aware that alternative investments are speculative, subject to substantial risks including the risks associated with limited liquidity, the potential use of leverage, potential short sales, currency exchange rates, and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits.
Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well.
This information does not constitute investment research, as defined under MiFID.
Nuveen, LLC provides investment solutions through its investment specialists. 4937625
What are you the trends in the market that are driving investor interest in NbS investments?
Whilst there have been many developments in the sector over the last few years, there are a few trends of note contributing to growing interest in NbS type investments.
Firstly, we have seen growing investor interest in natural capital broadly. The sector’s attractiveness has been driven by certain fundamental macroeconomic trends, such as the growing demand for food, fibre, and timber, as well as a shrinking supply of productive land and technological advances increasing productivity.
Secondly, the net zero transition is very much underway…but is now accompanied by growing recognition of the importance of nature…driven by increasing action at a global, regional and national level.
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Nature-based solutions
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There are a range of technical definitions, but in its simplest terms NbS, is often defined as “a set of actions that restore, manage and protect natural ecosystems”. For natural capital investments, such as farmland and timberland, investing in these types of activities allows for value recognition for more than just timber and crops, but can also provide the potential to produce quantifiable ecosystem services (e.g. carbon sequestration, soil health, water quality).
Increasingly, there can be options to realise additional value and returns from these activities and investments. One example of this is through environmental markets, such as the carbon markets.
At Nuveen Natural Capital, our approach focuses on strategies which aim to balance returns from natural capital
What are some examples of investible NbS?
At Nuveen Natural Capital, our approach focuses on strategies which aim to balance returns from natural capital (e.g. from crops, timber and land), provide opportunities for exposure to revenue streams from existing and emerging environmental markets, whilst delivering nature and climate benefits.
We have identified three core areas that we consider to be investable at scale - 1) regenerative agriculture, a mixture of practices that aim to improve soil health and other ecosystem services; 2) carbon forestry which aims to conserve, improve and restore forests to increase carbon sequestration or avoid future emissions; and 3) ecosystem restoration, investing in ecosystem assets that provide an ability to monetise restoration and protection through environmental markets.
Why are NbS attractive, and what are the benefits to investors?
As well as the core portfolio-level benefits of natural capital investments that may come with timber and agricultural crop production – such as acting as an inflation hedge, offering income and appreciation return, and the asset’s low volatility – NbS strategies can offer a range of other potential benefits for investors.
NbS strategies can offer positive contributions to nature and climate, opportunities for additive and diversified sources of uncorrelated returns through exposure to environmental markets, and asset-level diversification opportunities through investments in new projects or operational strategies. At a portfolio level, as well as the financial benefits outlined, there is the potential to contribute to realising a net zero and nature positive portfolio.
How can investors realise the benefits and manage the risks of investing in the sector?
While there is growing interest from investors in natural capital strategies, they do come with complexities and risks.
We believe these can be managed through a number of strategies, including targeting large and mature markets (e.g. US farmland and timberland), diversifying portfolios across geographies, crops and timber species; seeking portfolio strategies and assets which allow for a diverse range of natural capital benefits – incl. carbon, biodiversity and water; developing and implementing a range of operating strategies to realise these benefits; and putting in place strong portfolio monitoring and evaluation frameworks.
In addition, to approach these investments with confidence, investors should partner with an asset manager who has an established track record in natural capital investments, and the local capabilities and expertise to originate, underwrite and manage these assets.
Managing risk
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1. Managing nature risks: ‘From understanding to action’ PWC, 19 April 2023
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Why are NbS attractive, and what are the benefits to investors?
Investor benefits
