Nature-Based Investing: Unlocking Long-Term Value

How Nature-Based Solutions Can Drive Long-Term Value for Institutional Investors

Nature-based solutions (NBS) are increasingly viewed by institutional investors as a sustainable way to create long-term value while advancing sustainability goals. By protecting and restoring ecosystems – from forests and wetlands to regenerative farmlands and coastal habitats – investors can tap into new revenue streams (e.g. premium commodities, ecotourism, high-quality carbon or biodiversity credits) and mitigate portfolio risks linked to climate and environmental crisis.

Research shows that NBS could deliver roughly 37% of the cost-effective climate mitigation needed by 2030 [1]. In addition, natural capital underpins the economy: roughly 55% of global GDP is dependent on ecosystem services [1]. Thus, aligning investments with nature preservation and restoration (Revenue stacking) both hedges against the growing costs of ecosystem loss and opens up financial returns. For example, sustainable forestry and regenerative agriculture are real asset classes with established returns, and many investors find that nature-positive projects can yield competitive risk-adjusted returns over the long term [2] [3]. These projects also generate co-benefits such as cleaner water, flood protection or community livelihoods that further strengthen corporate resilience. In short, nature-based investments can diversify portfolios and enhance resilience, making them a value-add rather than purely an ESG compliance measure.

Key pathways to value creation include carbon and biodiversity markets, sustainable yield premiums, and risk mitigation.

• Carbon credits and ecosystem services: Restoring forests, wetlands, or mangroves sequesters CO₂ while generating credits that companies can buy to meet net-zero targets. For instance, at COP28 Costa Rica and Ghana agreed to supply over $60 million of high-integrity forest carbon credits to corporate buyers [2].
• Sustainable production: Regenerative crops and sustainably managed timber offer higher long-term yields and market premiums (certification or “nature-positive” labelling can command better prices).
• Risk reduction: Natural infrastructure like mangroves and peatlands buffers storm and flood damage, reducing costs for insurers and governments. By contrast, neglecting these services creates risks: global flows harmful to nature (e.g. deforestation for agriculture) now exceed $7 trillion annually – more than the GDP of the UK and India combined [3]. By investing in natural capital, institutions not only capture new income but also safeguard the economic systems they rely on. Importantly, leading investors increasingly recognize these returns: as one strategist notes, “nature is the next obvious [investment] trend,” with growing prospects in sustainably managed land and regenerative agriculture [4].

Several factors signal strong long-term opportunity in natural capital investing:

• Underinvestment and financing gap: The scale of unmet need creates opportunities. World Economic Forum analysis shows the world needs about $2.7 trillion per year of investment in nature-positive activities through 2030, but actual private investment is tiny by comparison [5]. In 2022, for example, only ~$200 billion flowed into nature-based solutions globally – versus ~$7 trillion in nature-degrading flows [5]. Even by 2024 private finance for nature totalled only about $35 billion in the prior year [5] (UNEP FI similarly reports private nature finance rose from $9.4 b in 2020 to $102 b by 2024 [6], but this remains far below the total need). This huge gap means committed investors who can mobilize capital now will enjoy relatively uncompetitive “greenfield” opportunities. Importantly, institutional allocators control roughly $87 trillion in assets [7], so even a small shift into natural capital could close funding shortfalls and unlock value.
• Evolving policy and standards: Global policy is increasingly prioritizing nature. Frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) and planned accounting standards (e.g. future IFRS biodiversity disclosures) will force companies to account for natural capital on their balance sheets. Governments are also directing funds: at COP28 new climate/nature financing pledges included a £576 million UK commitment for sustainable forestry and land use, and the Asian Development Bank launched a “Nature Finance Hub” aiming to catalyse $3 billion ($1 b public plus $2 b private) into climate-and-nature projects by 2030[4]. These public actions de-risk private investment. Meanwhile, multilateral agreements stress nature’s importance: the COP28 Leaders’ Joint Statement explicitly affirmed that no climate or biodiversity goals are attainable without addressing climate change, biodiversity loss and land degradation together[4], and it calls for “scaling finance and investments for climate and nature… through nature-based solutions”. In practice, this means future policy (carbon pricing, deforestation regulations, biodiversity credits) will reward nature-positive investments, shifting expected returns in their favour.
• Corporate commitments and market momentum: A wave of investor coalitions and mandates highlights a market shift. Global frameworks like the Kunming-Montreal Global Biodiversity Framework (CBD) set corporate action targets (e.g. Target 15 on ecosystem restoration), and groups such as the Financial Sector Deforestation Action (34 institutions, ~$8 trillion AUM) pledge to eliminate deforestation in portfolios by 2025[3]. Over 200 investors (>$15 trillion AUM) back PRI’s new “Spring” nature stewardship initiative[3]. Such commitments signal that major asset owners expect nature-related risks (e.g. supply-chain disruptions from biodiversity loss) to affect returns, so they are actively seeking nature-based solutions. This creates feedback: as demand rises, more investment products and scales emerge. In fact, Nature4Climate reports that leading firms like Bank of America, AXA IM, Schroders and Aviva have collectively deployed over $3 billion into nature-based solutions already, and they see forestry projects as particularly compelling for scale and risk/return.
• Innovation in finance and technology: New instruments and data tools are making nature investments more attractive and bankable. Innovations range from biodiversity credit markets and “nature asset companies” to advanced earth-observation platforms that value ecosystems in real time. For example, the University of Oxford–led LEON project use AI and satellite imagery to quantify land’s natural capital and connect it to capital flows. Likewise, insurers are creating nature-positive products (e.g. parametric insurance for regenerative agriculture) and guiding industry on nature risk. These trends improve risk management and transparency, boosting investor confidence and expected returns. Indeed, WEF notes that dozens of nature-positive business models could unlock $10.1 trillion in economic opportunity by 2030, with returns comparable to or exceeding traditional approaches. In short, emerging markets (carbon & biodiversity credits), accelerating tech, and policy drive (TNFD, ESG) are aligning to turn global environmental challenges into investable strategies.

Role of LCAW, COP in Shaping the Market

High-profile climate forums are actively building momentum and norms around natural capital investing. London Climate Action Week (LCAW), for example, has elevated nature as a core agenda. At LCAW 2025 the “Nature Hub” convened leading banks, corporations and government officials (from Bank of America, Nestlé, KPMG, GSK and more) to devise public-private nature finance partnerships. The UK government highlighted its £400 million tree-planting and peatland program and urged that economic planning must “integrate nature” to meet biodiversity and climate goals. Discussions at LCAW explicitly

connect to the COP cycle: as Nature4Climate notes, outcomes from London will “shape the priorities, coalitions, and investments” carried into COP30. In effect, LCAW acts as a mid-cycle checkpoint, aligning investor strategies with policy deadlines.

And as CAM’s Martin Berg stated, investor interest is shifting: “Nature is the next big thing in climate investment. We are seeing investment prospects increase for more sustainably managed land as well as regenerative foods and agriculture”. Dedicated firms like Climate Asset Management are putting these principles into practice. CAM (a joint venture of HSBC Asset Management and Pollination) has raised over $1 billion for its natural capital funds, underlining rising institutional interest. By building a pipeline of NBS projects (from European farmland restoration to African landscape reforestation), CAM and its peers (e.g. Lombard Odier, Mirova) are turning nature protection into investable assets. They also participate in alliances: CAM is a founding member of the Natural Capital Investment Alliance, whose members pledge to mobilize at least $10 billion into this asset class[9]. Through such collaborations, industry leaders help set market standards and de-risk pathways (for example, by working with TNFD or engaging with government biodiversity strategies). In essence, these efforts create the “global tone” for natural capital markets – defining what quality, integrity and scalability mean, and signalling to mainstream investors that natural assets belong in diversified portfolios.

Key Takeaway

Institutional investors are beginning to recognize nature-based solutions as not just a moral imperative but a value driver. Biodiversity and ecosystem services underpin huge swathes of economic activity, so protecting them aligns with long-term returns. The evidence of underinvestment is stark, implying early investors can earn “first-mover” returns as markets develop. Signs of momentum abound: global financing events (LCAW, COP) and initiatives (NCIA, FSDA, TNFD) are building the scaffolding for large-scale natural capital markets, while data and tech are making projects more bankable. In practice, nature-based strategies offer diversified cash flows (e.g. timber sales, carbon credits, premium yields) and mitigate real risks (floods, supply interruptions), so they complement traditional asset classes and deliver “nature-positive” financial returns. Armed with the latest insights and global commitments, forward-thinking institutions can therefore harness nature-based solutions to enhance portfolio value – turning ecosystems into a source of competitive advantage even as they advance global climate and biodiversity goals.

References

[1] Rana, D. (2023). COP28 and Beyond: From Pledges to Action, Nature Takes Center Stage in 2024 | WBCSD

[2] McKinsey & Company. (2024). Nature-positive investments: Good for the planet and long-term value.

[3] Nature4Climate (2024). Recap: key takeaways from the Nature Positive Hub at LCAW.

[4] McKinsey & Company. (2023). COP28: Nature.

[5] Voss, A., Kohli, S. and World Economic Forum (2024). Why innovation is key to unlocking more investment in natural capital.

[6]  Trends and innovations in nature finance: what to look out for in 2025.

[7] Investing in nature-based solutions State-of-play and way forward for public and private financial measures in Europe.

[8] COP28 Joint Statement on Climate, Nature and People.

[9] Natural Capital Investment Alliance | Sustainable Markets Initiative