Increased allocations to UK forestry, regenerative agriculture and nature-based infrastructure are essential to portfolio resilience, says Robert Gardner, CEO and Co-founder of Rebalance Earth.
There is a point in every market cycle when volatility stops looking cyclical and starts signalling structural change. For long-term asset owners, that point is now.
The warning lights are not flashing on equity screens. They are emerging in insurance pricing, infrastructure strain and correlated stress across assets once assumed to diversify one another. The assumptions embedded in portfolio models, insurability, water availability, and infrastructure reliability, are quietly degrading.
When system stability becomes the constraint, diversification does not protect you. It simply spreads exposure to the same underlying risk.
What the authorities are already saying
The UK government’s national security assessment on ecosystem degradation concluded that biodiversity loss and ecosystem collapse pose a direct threat to UK prosperity, with cascading risks across food, water, supply chains and geopolitical stability. This is not advocacy. It is state intelligence categorising ecological breakdown as a material risk.
Regulators are following suit. The Prudential Regulatory Authority (PRA) now requires banks and insurers to embed physical climate risk into governance, risk management and scenario analysis. The Climate Financial Risk Forum, established by the PRA and the Financial Conduct Authority (FCA), has updated guidance to integrate adaptation into investment decisions. Physical risk is being hardwired into supervisory architecture — and repricing will flow into portfolios regardless of whether asset owners prepare.
Last year, UK insurers paid nearly £6 billion (US$8.10 billion) in property claims, a record. More than six million properties are now classified as flood-exposed, projected to rise significantly by mid-century. The issue is not frequency alone. It is correlation. Flood risk simultaneously affects property valuations, infrastructure performance and sovereign balance sheets.
For Local Government Pension Scheme (LGPS) pools managing almost £400 billion and defined contribution (DC) master trusts constructing long-term defaults, there is no diversification away from systemic degradation. You own the system. Its resilience determines your returns.
The allocation gap
The mallowstreet Natural Capital Report 2026, surveying nearly 70 UK asset owners overseeing more than £3 trillion, found that three quarters of LGPS funds have already allocated to natural capital. Most expect to increase exposure this decade.
Yet natural capital remains largely absent from DC defaults and from many consultant-approved architectures despite policy actively encouraging domestic private-market investment.
The Mansion House Accord commits DC providers to 10% in private markets, with at least half allocated to the UK. The government’s ’Fit for the Future’ framework requires LGPS funds to define local investment plans and report on place-based impact. Both explicitly reference infrastructure and real assets.
UK natural capital — sustainable forestry, regenerative agriculture and nature-based infrastructure — sits precisely at this intersection. These are real assets delivering measurable outcomes: flood mitigation, drought resilience, water quality improvement, biodiversity uplift and carbon storage. Revenue is increasingly structured through regulated biodiversity markets, carbon codes and long-term ecosystem service contracts.
A 2% allocation across pools and master trusts would not be thematic. It would be structural embedding portfolio resilience against physical risks, already repricing traditional holdings.
The question is not whether natural capital fits existing mandates. It fits squarely within real assets and private markets. The question is why implementation still lags policy and risk signals.
What fiduciary duty now demands
Physical climate and nature risk is already embedded in property, infrastructure, credit and sovereign exposure. Choosing not to allocate to resilience does not eliminate that exposure. It simply leaves portfolios long risk and short hedge.
Natural capital will not replace traditional infrastructure. It complements it. Concrete alone cannot absorb intensifying rainfall or restore degraded catchments.
LGPS pools are consolidating. DC defaults are growing in size and scale. Consultants are revisiting strategic asset allocation frameworks. This is the window to deliberately embed resilience, rather than retrofit it after the next repricing event.
Ignoring system degradation is no longer neutral. It is an active asset allocation decision.
Long-term capital cannot diversify away from system failure. It can either assume stability or allocate to preserve it.
ASSET OWNERS, BIODIVERSITY, BIODIVERSITY RISK, CLIMATE ADAPTATION, CLIMATE RISK, Featured2, FIDUCIARY DUTY, FORESTS, INVESTMENT STRATEGY, LGPS, NATURE, NATURE-BASED SOLUTIONS, PENSION FUNDS, PHYSICAL RISKS, REGENERATIVE AGRICULTURE, SUSTAINABLE AGRICULTURE
Increased allocations to UK forestry, regenerative agriculture and nature-based infrastructure are essential to portfolio resilience, says Robert Gardner, CEO and Co-founder of Rebalance Earth.
There is a point in every market cycle when volatility stops looking cyclical and starts signalling structural change. For long-term asset owners, that point is now.
The warning lights are not flashing on equity screens. They are emerging in insurance pricing, infrastructure strain and correlated stress across assets once assumed to diversify one another. The assumptions embedded in portfolio models, insurability, water availability, and infrastructure reliability, are quietly degrading.
When system stability becomes the constraint, diversification does not protect you. It simply spreads exposure to the same underlying risk.
What the authorities are already saying
The UK government’s national security assessment on ecosystem degradation concluded that biodiversity loss and ecosystem collapse pose a direct threat to UK prosperity, with cascading risks across food, water, supply chains and geopolitical stability. This is not advocacy. It is state intelligence categorising ecological breakdown as a material risk.
Regulators are following suit. The Prudential Regulatory Authority (PRA) now requires banks and insurers to embed physical climate risk into governance, risk management and scenario analysis. The Climate Financial Risk Forum, established by the PRA and the Financial Conduct Authority (FCA), has updated guidance to integrate adaptation into investment decisions. Physical risk is being hardwired into supervisory architecture — and repricing will flow into portfolios regardless of whether asset owners prepare.
Last year, UK insurers paid nearly £6 billion (US$8.10 billion) in property claims, a record. More than six million properties are now classified as flood-exposed, projected to rise significantly by mid-century. The issue is not frequency alone. It is correlation. Flood risk simultaneously affects property valuations, infrastructure performance and sovereign balance sheets.
For Local Government Pension Scheme (LGPS) pools managing almost £400 billion and defined contribution (DC) master trusts constructing long-term defaults, there is no diversification away from systemic degradation. You own the system. Its resilience determines your returns.
The allocation gap
The mallowstreet Natural Capital Report 2026, surveying nearly 70 UK asset owners overseeing more than £3 trillion, found that three quarters of LGPS funds have already allocated to natural capital. Most expect to increase exposure this decade.
Yet natural capital remains largely absent from DC defaults and from many consultant-approved architectures despite policy actively encouraging domestic private-market investment.
The Mansion House Accord commits DC providers to 10% in private markets, with at least half allocated to the UK. The government’s ’Fit for the Future’ framework requires LGPS funds to define local investment plans and report on place-based impact. Both explicitly reference infrastructure and real assets.
UK natural capital — sustainable forestry, regenerative agriculture and nature-based infrastructure — sits precisely at this intersection. These are real assets delivering measurable outcomes: flood mitigation, drought resilience, water quality improvement, biodiversity uplift and carbon storage. Revenue is increasingly structured through regulated biodiversity markets, carbon codes and long-term ecosystem service contracts.
A 2% allocation across pools and master trusts would not be thematic. It would be structural embedding portfolio resilience against physical risks, already repricing traditional holdings.
The question is not whether natural capital fits existing mandates. It fits squarely within real assets and private markets. The question is why implementation still lags policy and risk signals.
What fiduciary duty now demands
Physical climate and nature risk is already embedded in property, infrastructure, credit and sovereign exposure. Choosing not to allocate to resilience does not eliminate that exposure. It simply leaves portfolios long risk and short hedge.
Natural capital will not replace traditional infrastructure. It complements it. Concrete alone cannot absorb intensifying rainfall or restore degraded catchments.
LGPS pools are consolidating. DC defaults are growing in size and scale. Consultants are revisiting strategic asset allocation frameworks. This is the window to deliberately embed resilience, rather than retrofit it after the next repricing event.
Ignoring system degradation is no longer neutral. It is an active asset allocation decision.
Long-term capital cannot diversify away from system failure. It can either assume stability or allocate to preserve it.
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