Natural capital investment remains a small slice of institutional portfolios despite its sizable role in the economy, according to a new report from Climate Asset Management. The analysis estimates natural capital contributes roughly 4 to 5 percent of global GDP, yet accounts for less than 0.2 percent of institutional allocations.
Natural capital investment as a standalone sleeve
The report defines natural capital as the stock of natural assets, including soil, water, air, and biodiversity systems, that underpin economic activity and human well-being. As what the authors call foundational infrastructure, these systems create long-term environmental, social, and economic value, while helping manage climate and nature-related risks.
According to the World Bank, nearly half of global GDP is tied to biodiversity and natural assets that are deteriorating due to overfishing, pollution, deforestation, and other extractive pressures. Agriculture alone is responsible for about one third of global greenhouse gas emissions, and agriculture, forestry, and other land use changes are estimated to account for about 21 percent.
Climate Asset Management states that investing in Natural Capital solutions and AFOLU measures remains central to keeping the possibility of limiting warming to 1.5°C above pre-industrial levels.
Natural capital has often been grouped within real estate or infrastructure because it shares several characteristics of real assets, such as long investment horizons, stable cash flows, and inflation linkage.
The report argues it also offers distinct advantages, with potential for stronger environmental outcomes than many traditional real-asset strategies. Wetlands can reduce flood risk, and healthy soils support food security and biodiversity that undergirds many parts of the global economy.
Additional revenue opportunities may include carbon or biodiversity credits, conservation easements, and other mechanisms.
As of 2023, the report estimates that about 220 billion dollars went to nature-based solutions compared with 7.3 trillion dollars for activities that degrade nature. Annual investment in nature-based initiatives would need to reach 571 billion dollars by 2030 to narrow that gap.
Investor interest is growing, with more institutions assessing natural capital as a distinct asset class. A survey cited in the report indicates two in five institutional asset owners expect to make their first allocation within five years, and existing investors plan to increase commitments.
Execution quality is critical to scaling. About 68 percent of respondents said clear, project-level KPIs are most important when evaluating strategies. The report notes that investors who see robust evidence in underlying initiatives are more likely to back the long-term economic rationale and increase allocations over time.