The New Paradigm of Natural Capital Investment

Winter 2024

A Hedge Against Our Collective Future

In the world of financial services, there is a growing buzz surrounding an unconventional but increasingly important asset class—natural capital. This term encompasses the Earth’s ecosystems, biodiversity, clean air, soil, and freshwater, which form the bedrock of our existence on this planet. Despite its critical role, the concept of natural capital as an investment class is still in its infancy. Nevertheless, it’s becoming increasingly apparent that natural capital is the ultimate “alternative asset class,” for without it, all other investments become completely irrelevant.

As the impact of the climate collapse and biodiversity crisis become increasingly real both across the globe and much closer to home – seen most recently in the form of increasingly familiar unprecedented amounts of rain leading to widespread flooding – the imperative for change has never been greater.

At this point in time, the very existence of natural capital holds a dual role: it is both a potential solution to provide for the future of life on Earth, as well as a hedge against society’s potential failure to act quickly enough. In this article, we will explore the two equally powerful, but very different natural capital investment theses: i) you should invest in natural capital if you want to help save at least a little of the world; or ii) you should invest in natural capital if you don’t believe society will act quickly enough to save the world because you will make a literal killing as the planet and everything on it dies.

Investing in Natural Capital: A Moral Imperative

Let us begin by examining the moral imperative for investing in natural capital. Our planet’s ecosystems, biodiversity, clean air, soil, and freshwater are not mere commodities; they are the essence of life itself. The preservation of these resources is fundamental to our survival, and by investing in natural capital, we can actively participate in safeguarding the environment for future generations.

The degradation of natural capital has far-reaching consequences, from the loss of species and habitats to the deterioration of air and water quality. The moral argument for investing in natural capital is rooted in our shared responsibility to protect the Earth’s ecological treasures. This is not only about doing well financially but also about doing good for the planet. As conscientious global citizens, we must recognise our duty to act in the best interests of the planet and all its inhabitants.

Investing in Natural Capital as a Financial Hedge

Beyond the moral imperative, the financial case for natural capital investment presents a compelling rationale. Many investors are sceptical about society’s willingness and capacity to address environmental challenges with the urgency they demand. This scepticism offers an incredible opportunity, effectively short-selling the planet and investing in natural capital as a unique hedge against societal inaction.

It is a depressing thought, but as our world grapples with environmental crises, those who invest in natural capital may witness their wealth appreciate as the planet’s ecosystems deteriorate. This is a harsh reality: environmental degradation can lead to scarcity, driving up the value of natural resources. This is a paradox we recognise and carry heavily; those who foresaw the crisis, acted, and invested in natural capital could potentially profit as the planet and its ecosystems continue to deteriorate.

The Path Forward: Balancing Profit and Purpose

As the climate rapidly crumbles and we live through the next mass extinction, the idea of investing in natural capital transcends traditional financial motives, offering a solution no matter what the question. It becomes a statement of purpose—a testament to our commitment to securing a better future for the planet and the generations to come.

The interplay between morality and finance in the realm of natural capital investment is complex and will almost certainly require us to endure contradictions and make compromises. But it underscores a new paradigm that demands consideration. As investors, we’ve long been told that we must weigh potential short-term financial gains against the imperative to protect the environment and profit in the long term. Natural capital investment, through the forward sale of credits provides a solution the perceived problem of illiquidity and long term capital commitment.

Striking a balance between profit and purpose is now not only feasible but essential for the well-being of our planet, for future generations, and for the performance of all our investments.

In a world where the UN recently declared that our society has opened the gates to hell and welcomed the time of global boiling, I’m not sure the NPV of our oil and gas investment is going to help in the firefight. Natural capital is not merely a buzzword; it represents the single biggest investment opportunity the world has ever seen and where moral responsibility and incredible financial returns converge. Our choices today will determine whether we are on the right side of history, safeguarding our planet and the prosperity of future generations. Embracing natural capital as a legitimate investment class is not just a decision—it’s a commitment to a sustainable and thriving future for all.

The question isn’t whether you should invest in natural capital, it’s at what point will you choose to invest in the ultimate “alternative asset class” that could shape the destiny of our planet.

Whether we can do enough to save the planet, I don’t know. But I do know that when my time comes to an end I’ll know that I tried…


Rich Stockdale
Managing Director