Asset managers with natural capital strategies are now in higher demand among asset owners than those in real estate, according to consultancy bfinance.
“The last year saw ‘natural capital’ manager searches for bfinance clients outpacing real estate manager searches for the first time,” said the firm, which specialises in mandate searches for asset owners.
A report due to be published today found that more than 50 asset managers now provide natural capital strategies, which bfinance defined as those with a forestry, agriculture, timberland or carbon credit-related theme, as well as some renewable energy themes.
Spealing to IPE, Nikki Howard, a senior associate in the consultancy’s private markets team, said that demand in the real assets space was driven by “the rise of science-based [climate] targets across fund managers and LPs”.
“In real estate, for example, the move towards decarbonisation, and the thematic of needing more timber for new building development, is one I’m seeing in all of my work in real estate and manager selection,” she explained.
More broadly, Howard noted, there was a desire for exposure to assets that would help to offset residual carbon emissions in the future.
Returns vs. impact
The report observed “very different return objectives, asset allocation constructs and ESG/impact objectives” among investors interested in natural capital strategies, saying “some seek stable cashflows to match liabilities; some want high annualised returns; some prioritise capital preservation”.
Bfinance urged investors to “develop a broad understanding of the sector before determining what a natural capital allocation should deliver”.
Director of ESG, Sarita Gosrani, told IPE that while most investors are driven by the financial dimension of natural capital – including its non-correlation with markets, diversification, and strong returns over recent years – some have asked for “on-the-ground impact” as part of mandates.
“There are big differences in how seriously managers are taking that,” she noted, saying that carbon sequestration and the secondary societal benefits of nature-based assets are sometimes considered carefully, but not always.
Gosrani added that there was still confusion among investors about the interplay between natural capital and biodiversity. The latter has been a growing focus for investors, standard-setters and regulators over the past 18 months, with new reporting requirements and science-based targets suggesting it is poised to become as big a theme as climate change.
“But just because you’re investing in timber, for example, doesn’t mean you’ll gain exposure to ‘biodiversity impact’,” Gosrani explained.
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