Investors struggle to price nature’s true value

Despite growing awareness, nature remains a hard sell for investors. As political rhetoric around ESG cools, some investment firms are trying to position natural assets, from forests to oceans, as a credible investment theme. But convincing investors that nature is not just good for the planet, but also for returns, still takes work. “It’s still quite difficult to convince investors to this allocation.”

Despite an overall backlash against ESG policies, “nature is still one of the subjects we can talk about,” regardless of political leanings, Martin Berg, CEO of Climate Asset Management, a joint venture between HSBC Global Asset Management and the climate change and investment advisory firm Pollination, told Investment Officer at the ALFI conference last week.

These investments bring financial benefits as well, he said. Natural capital, like timberland and farmland, has limited volatility, serves as an inflation hedge, is uncorrelated to other asset classes, and has “actually a really good return profile,” said Berg. Focusing on these aspects, “you have a completely different conversation.”

Nature being reframed

“That’s what I hear in the US in general,” he said. “It’s not only on nature, I think the discussion is more: ‘you need to reframe why we’re doing this.’” Renewable energy projects can bring positive economic benefits, even if the politicians in power are not overtly climate-friendly. “The key is to point out where this is already a mainstream investment activity, and where it’s also good from a return perspective.”

Investing in natural capital such as forests, water, and soil is seen as key for “sustainable socioeconomic development,” according to a report from the World Economic Forum. “Over half of global GDP significantly depends on nature and biodiversity.”

Oceans and the blue economy are crucial as well, pointed out Niki Natarajan, head of research at Phenix Capital, during the Association of the Luxembourg Fund Industry’s private assets conference last week in Kirchberg. From jobs to food, the oceans flow through “practically all” of the UN’s 17 Sustainable Development Goals. Take the “zero hunger” goal, for example. According to the Food and Agriculture Organization, fish and other aquatic animal foods contribute to 20 percent of daily protein supply for 3.2 billion people. That’s 40 percent of the world’s population.

Undervalued and overexploited

Natural capital has historically been undervalued and overexploited, said Berg. Natural capital, he explained, includes agricultural land and other nature-based assets, which provide provisioning services (like food or medicines), regulating services (such as pollination, carbon storage, or water purification), or cultural services (like tourism or recreation).

Looking specifically at agriculture, forestry, and fishing, these sectors together contribute more than 4 percent to global GDP, per figures from the World Bank. But institutional resources allocated to natural capital account for less than 0.1 percent. World GDP in 2022 stood at roughly 100,000 billion dollars; agriculture, forestry, and fishing accounted for 4,400 billion dollars of GDP, and institutional allocation only came to 70 billion.

“The world is completely underinvested in nature,” Berg said, speaking in a panel. Breaking down private assets under management, institutional investors’ allocation to “more established” natural capital asset classes like timber and agriculture only come to 2 percent.

Challenges: novelty, financing needs, pricing

So why is there so little investment? Many investors struggle with how to define where natural capital sits within allocation pools, said Berg, and it can be tough to convince investors to actually invest. “We think there are a lot of investment opportunities, but it is still quite difficult to convince investors to find the allocation. Because it is new, no investor wants to be the first.”

When it comes to marine and freshwater environments, 90 percent of the employment in the blue economy is made up of SMEs, said Chris Gorell Barnes, founding partner at Ocean 14 Capital. It’s the biggest companies, those responsible for 10 percent of employment, that get the most attention. But in reality, smaller companies need different capital structures and have other financing requirements.

The pricing and valuing of “this common resource” – the oceans – pose another challenge, added Kris Atkinson, portfolio manager at Fidelity International.

More than just environmental benefits

Natural capital investments aim to have a positive impact on the environment. The world’s population is growing and it’s crucial to shift to “smarter” agriculture methods just to be able to feed everybody living on the planet in the future, said Berg, while soil and trees can help stock carbon.

But climate ambitions have been watered down recently, with US president Donald Trump in January 2025 withdrawing the United States from the Paris climate agreement for a second time. The European Commission in September proposed postponing the entry-into-force of the EU’s deforestation regulation. Article 9 funds, those with a sustainable investment objective, saw outflows for the seventh consecutive quarter in Q2 2025, according to Morningstar.