For most of modern financial history, the value of nature has sat outside the investable universe. Soil, water, forests, fisheries, and biodiversity were treated as background conditions for economic activity rather than as financial assets. That position is now changing. The World Economic Forum estimates that approximately USD 58 trillion of global economic value generation, over half of the world’s GDP, is moderately or highly dependent on nature. Yet institutional investors hold, on average, only around 0.1% of their assets in natural capital. The combination of material economic dependence and minimal exposure has produced one of the largest allocation gaps and unhedged risks in large-scale and institutional investment portfolios.
Institutional investors, asset managers, and large landowners are now confronting a structural repricing of their natural capital holdings in ways that were unthinkable a decade ago. Three forces are driving the shift: the financialisation of nature-related risks, the stacking of ecosystem service revenues, and the mobilisation of public policy and capital into the asset class. Together, they are reshaping how land is valued, financed, and operated, with material consequences for any organisation whose strategy intersects with the natural world.
The financialisation of nature-related risks
One of the most consequential shifts in recent years has been the formal recognition by financial institutions that nature-related dependencies and impacts present material financial risks. The Taskforce on Nature-related Financial Disclosures, which provides a framework for organisations to assess, disclose and manage their nature-related dependencies, impacts and risks, has accrued more than 700 member organisations. This membership includes 179 financial institutions with more than USD 22 trillion in assets under management. Their framework has been embedded in several regulatory standards and is gaining industry acceptance. For instance, the International Sustainability Standards Board has indicated that future nature-related disclosure standards will draw on the TNFD framework, while major rating agencies such as Morningstar are incorporating TNFD-aligned metrics into their ESG and risk methodologies.
At the same time, regulators in the US and Europe are reshaping the cost base for companies whose supply chains touch agriculture, forestry, or any extractive activity. By attaching commercial consequences directly to land use, regulators are converting what was once a reputational concern into a measurable balance sheet exposure. The EU’s Corporate Sustainability Reporting Directive and the EU Taxonomy already embed nature considerations into mandatory reporting, while the EU Deforestation Regulation will require operators placing timber, rubber, soy, palm oil, coffee, cocoa, or cattle on the EU market to demonstrate that the goods are deforestation-free (with large and medium operators in scope from December 2026 and small operators from June 2027).
Our experts have estimated that more than 25% of the STOXX Europe 600 have some exposure to EUDR transition risks through industries such as food products, automotive components, chemicals, and pharmaceuticals, and so the material impact of these regulations is set to be substantial and long-lasting.
Stacked ecosystem services
The maturation of ecosystem services markets has also fundamentally changed the economics of land ownership. A single hectare of well-managed land can now generate stacked revenue across several distinct revenue streams: timber and produce from provisioning services, carbon credits from regulating services, biodiversity and habitat credits from supporting services, and, increasingly, water quality and water yield credits. The result is not only additional revenue but also greater resilience: each cash flow has a different cycle and market.
These supplementary revenue streams add to an asset class that already delivers competitive returns in its own right. Sustainable forestry has historically delivered net internal rates of return in the range of 5-10% in developed markets and 8-12% in emerging markets, with low correlation to listed equities and bonds. Layering carbon credit revenue on top of these base returns has the potential to add 200-400 basis points to portfolio performance in some regions, and regenerative agricultural practices can boost results even further, provided operational improvements have time to compound.
Crucially, this divergence from traditional markets and the fact that timber prices have historically outpaced general inflation make natural capital assets a useful hedging instrument.
Furthermore, many of these markets are already growing at double-digit annual rates. For instance, the voluntary carbon market exceeded USD 1.4 billion in 2024 and is projected to grow at roughly 25% annually through to 2034. The global biodiversity credit market, valued at approximately USD 2.8 billion in 2025, is forecast to reach USD 18.6 billion by 2034 on a compound annual growth rate above 23%.
The premiumisation of these markets is also rewarding higher-quality assets, as buyers and ratings agencies increasingly favour quality over volume. Reforestation credits certified under both carbon and biodiversity standards have commanded premiums of 25-40% over carbon-only equivalents, and projects with top-tier co-benefit scores can attract premiums of more than 50% on baseline pricing.
The implication for landowners and managers is that the highest-value strategy may no longer be the most intensive one, but the one that monetises the broadest set of ecosystem services.
How public policy is crowding in private natural capital investment
Governments and multilateral institutions are using a combination of policy levers and capital instruments to mobilise private investment into nature and absorb early-stage risk. For instance, the Kunming-Montreal Global Biodiversity Framework, which was adopted by 196 nations in 2022, calls for the redirection of approximately USD 500 billion of annually harmful subsidies toward biodiversity-positive investment. Elsewhere, development finance institutions such as the African Development Bank, the European Development Bank and countless others have developed similar vehicles in emerging markets to enable ecosystem service delivery.
The collective effect of these policies is to raise the floor of returns available from environmental land use and to narrow the relative attractiveness of intensive, single-output models. Natural capital investment is following the regulatory and revenue signals. Recent UK asset owner surveys indicate that 57% of asset owners now hold natural capital investments, and 41% of those without exposure plan to make their first allocation within five years. Appetite for investment is heavily concentrated within investment vehicles with long-dated liabilities: 94% of local government pension schemes, 75% of defined contribution schemes, and 75% of insurers expect to hold natural capital allocations by the end of the decade. This is unsurprising given the underlying assets’ slow maturing nature aligns closely with the duration of pension and insurance liabilities.
The natural capital investment base is widening from a small group of specialist allocators into a broader set of mainstream pension, insurance, and sovereign investors. However, it is worth noting that portfolio fit is a key consideration. Natural capital assets are inherently long-dated and slow to compound, and the ability of permanent capital vehicles to hold through the regenerative transition and capture the resulting appreciation makes them particularly suitable to these assets. In contrast, the short-term investment cycles typically associated with closed-end private equity vehicles are often poorly matched to these investments, as the value of the underlying asset accrues over decades as opposed to years. Managers operating under shorter time horizons need to be mindful of the risk of having to prematurely exit investments before underlying gains materialise.
Capturing value in the natural capital era
Increasingly, natural capital investments are justified on financial as well as environmental grounds, and the commitments now being signed have the potential to move natural capital from the margins of institutional portfolios into the core. For landowners, agribusinesses, and operators, the implications run well beyond compliance and disclosure and into the strategic questions of how land is valued, financed, and operated.
At Farrelly Mitchell, our agribusiness and natural capital investment specialists provide strategic, technical, and commercial expertise to help landowners, investors, and asset managers navigate the structural repricing of nature. We offer comprehensive support in natural capital assessment and investment facilitation across forestry, regenerative agriculture, and ecosystem service markets. With a proven track record across the agricultural value chain and deep expertise in integrating environmental considerations into commercial strategy, we combine sectoral insights with global best practices to optimise land-use decisions and facilitate long-term value creation on natural capital investments. Contact our experts today to discuss how we can support your organisation’s continued growth and profitability.
