Matthew Roberts, Head of Alternative Solutions at Fulcrum Asset Management, lays out the rationale and design principles for resilient natural capital portfolios.
Natural capital sits at the heart of both our economy and the planet’s stability. As investors increasingly seek to address climate and biodiversity risks, attention is turning to how portfolios can be constructed to support and benefit from the preservation of ecosystems. This is not a niche theme, but a necessary step towards managing systemic risk in long-term investment strategies.
The relationship between finance and nature has become more urgent. More than half of global GDP depends on natural systems, yet six of the nine critical Earth system limits identified by scientists have already been breached. Biodiversity loss, water scarcity and soil degradation now pose direct threats to productivity and economic stability. These environmental shifts are not only ecological crises; they are financial ones. As the Dasgupta Review observed, biodiversity functions within natural capital in much the same way that diversification operates in financial portfolios – it reduces volatility and underpins resilience.
The natural capital universe
Return, risk and impact are essential if natural capital portfolios are to be both effective and durable. Investible firms span established strategies to innovative, early-stage models, expanding from regenerative agriculture to sustainable forestry and biodiversity restoration.
Relevance through reflexivity
Framing natural capital investments can be challenging because many of the benefits are public goods that unfold over long periods. Cashflows from projects that restore habitats or protect watersheds can appear modest next to other asset classes. Yet the concept of reflexivity helps to explain their relevance. Reflexivity describes how investor actions can influence outcomes that, in turn, feed back into markets and society.
Investing in a more resilient natural environment can strengthen the wider economy, which benefits all asset owners. A healthier ecosystem reduces physical risks, stabilises supply chains and supports the productivity on which other sectors rely. In this way, natural capital contributes to overall portfolio resilience, even if its immediate returns are less visible.
The free rider problem highlights another issue. When the benefits of nature-positive investments are shared widely, while costs fall to the investor, there is a temptation to leave the responsibility to others. However, for large, diversified asset owners, these externalities cannot be ignored. Systemic risks from climate change, biodiversity loss and resource depletion cannot be diversified away. Their effects appear across asset classes and geographies. Understanding and managing these risks is therefore not a question of philanthropy but of fiduciary duty.
Geographical diversification and jurisdictional risk
Geography adds further nuance. Jurisdictional risk and governance standards vary widely across regions. We find that private capital can play an active role in markets such as the UK, North America, Australia and parts of Europe, where strategies are supported by clear regulation and evolving best practices. In other regions, such as Singapore, policy intervention is the main driver of change.
Elsewhere, in emerging markets rich in biodiversity, opportunities are significant but so are the legal and operational risks. These areas hold long-term potential for tools such as payment for ecosystem services, but investor control remains limited. Building natural capital portfolios therefore requires careful geographical diversification and an understanding of local frameworks.
The experience of earlier ESG product cycles offers important lessons. Real-world change is difficult to achieve through secondary market transactions alone. Engagement with companies remains critical, particularly with those whose activities have the largest impact on biodiversity. Private markets, where capital can shape outcomes more directly, may hold the highest potential for measurable impact.
However, success depends on patient capital and an appreciation of complexity. Short-termism, or the belief that all ESG strategies should deliver uniform financial outperformance, risks undermining confidence in the broader sustainability effort.
Vertical integration in your portfolio
One approach we find useful is to think of ‘vertical integration’ within the portfolio. Different stages of the natural economy – from primary production through processing to technology and distribution – offer different risk and return profiles. Regenerative farming, for instance, is unlikely to deliver high returns, but it can underpin resilience across the value chain.
By contrast, investing in agricultural technology can offer higher potential growth, though with greater risk. Combining such strategies can strengthen inter-dependencies and enhance overall stability. Evidence also suggests that integrated approaches can support smallholder farmers by improving access to markets, reducing systemic vulnerabilities and aligning incentives along the chain.
Aligning investment horizons with ecological timeframes
Liquidity management is another important consideration. Natural assets regenerate over long cycles, so investment horizons must match ecological realities. This can be considered in the following way: listed equity strategies (highly liquid – ‘Module A’), income-oriented, tradable private market strategies (semi liquid – ‘Module B’) and long-term impactful private market opportunities (illiquid – ‘Module C’). Below is an illustrative portfolio comprising these three modules, which could easily be tailored according to requirements.
Importantly, natural assets regenerate over long cycles, so aligning investment horizons with ecological timeframes is essential to avoid mismatches that could undermine both liquidity management and long-term returns.
Source: Fulcrum Asset Management
A broadening opportunity set
Ultimately, the destruction of nature represents a systemic financial risk, while its preservation offers a path to resilience and long-term value creation. Natural capital should not be viewed as a peripheral impact allocation but as a structural component of a robust investment framework. Building such portfolios requires a balance of risk, return and impact, informed by ecological and temporal realities.
The opportunity set is broadening. Regenerative agriculture, sustainable forestry, and ecosystem restoration are no longer isolated experiments but emerging fields of institutional investment. With improved tools for measurement and engagement, investors can now deploy capital in ways that deliver both financial and ecological benefits. As the Dasgupta Review reminds us, nature is our home. Good economics demands that we manage it better.
This article was co-authored by Shiwen Gao, Executive Director; and Samriddhi Sharma, Director at Fulcrum Alternative Solutions.
Matthew Roberts, Head of Alternative Solutions at Fulcrum Asset Management, lays out the rationale and design principles for resilient natural capital portfolios.
Natural capital sits at the heart of both our economy and the planet’s stability. As investors increasingly seek to address climate and biodiversity risks, attention is turning to how portfolios can be constructed to support and benefit from the preservation of ecosystems. This is not a niche theme, but a necessary step towards managing systemic risk in long-term investment strategies.
The relationship between finance and nature has become more urgent. More than half of global GDP depends on natural systems, yet six of the nine critical Earth system limits identified by scientists have already been breached. Biodiversity loss, water scarcity and soil degradation now pose direct threats to productivity and economic stability. These environmental shifts are not only ecological crises; they are financial ones. As the Dasgupta Review observed, biodiversity functions within natural capital in much the same way that diversification operates in financial portfolios – it reduces volatility and underpins resilience.
The natural capital universe
Return, risk and impact are essential if natural capital portfolios are to be both effective and durable. Investible firms span established strategies to innovative, early-stage models, expanding from regenerative agriculture to sustainable forestry and biodiversity restoration.
Relevance through reflexivity
Framing natural capital investments can be challenging because many of the benefits are public goods that unfold over long periods. Cashflows from projects that restore habitats or protect watersheds can appear modest next to other asset classes. Yet the concept of reflexivity helps to explain their relevance. Reflexivity describes how investor actions can influence outcomes that, in turn, feed back into markets and society.
Investing in a more resilient natural environment can strengthen the wider economy, which benefits all asset owners. A healthier ecosystem reduces physical risks, stabilises supply chains and supports the productivity on which other sectors rely. In this way, natural capital contributes to overall portfolio resilience, even if its immediate returns are less visible.
The free rider problem highlights another issue. When the benefits of nature-positive investments are shared widely, while costs fall to the investor, there is a temptation to leave the responsibility to others. However, for large, diversified asset owners, these externalities cannot be ignored. Systemic risks from climate change, biodiversity loss and resource depletion cannot be diversified away. Their effects appear across asset classes and geographies. Understanding and managing these risks is therefore not a question of philanthropy but of fiduciary duty.
Geographical diversification and jurisdictional risk
Geography adds further nuance. Jurisdictional risk and governance standards vary widely across regions. We find that private capital can play an active role in markets such as the UK, North America, Australia and parts of Europe, where strategies are supported by clear regulation and evolving best practices. In other regions, such as Singapore, policy intervention is the main driver of change.
Elsewhere, in emerging markets rich in biodiversity, opportunities are significant but so are the legal and operational risks. These areas hold long-term potential for tools such as payment for ecosystem services, but investor control remains limited. Building natural capital portfolios therefore requires careful geographical diversification and an understanding of local frameworks.
The experience of earlier ESG product cycles offers important lessons. Real-world change is difficult to achieve through secondary market transactions alone. Engagement with companies remains critical, particularly with those whose activities have the largest impact on biodiversity. Private markets, where capital can shape outcomes more directly, may hold the highest potential for measurable impact.
However, success depends on patient capital and an appreciation of complexity. Short-termism, or the belief that all ESG strategies should deliver uniform financial outperformance, risks undermining confidence in the broader sustainability effort.
Vertical integration in your portfolio
One approach we find useful is to think of ‘vertical integration’ within the portfolio. Different stages of the natural economy – from primary production through processing to technology and distribution – offer different risk and return profiles. Regenerative farming, for instance, is unlikely to deliver high returns, but it can underpin resilience across the value chain.
By contrast, investing in agricultural technology can offer higher potential growth, though with greater risk. Combining such strategies can strengthen inter-dependencies and enhance overall stability. Evidence also suggests that integrated approaches can support smallholder farmers by improving access to markets, reducing systemic vulnerabilities and aligning incentives along the chain.
Aligning investment horizons with ecological timeframes
Liquidity management is another important consideration. Natural assets regenerate over long cycles, so investment horizons must match ecological realities. This can be considered in the following way: listed equity strategies (highly liquid – ‘Module A’), income-oriented, tradable private market strategies (semi liquid – ‘Module B’) and long-term impactful private market opportunities (illiquid – ‘Module C’). Below is an illustrative portfolio comprising these three modules, which could easily be tailored according to requirements.
Importantly, natural assets regenerate over long cycles, so aligning investment horizons with ecological timeframes is essential to avoid mismatches that could undermine both liquidity management and long-term returns.
Source: Fulcrum Asset Management
A broadening opportunity set
Ultimately, the destruction of nature represents a systemic financial risk, while its preservation offers a path to resilience and long-term value creation. Natural capital should not be viewed as a peripheral impact allocation but as a structural component of a robust investment framework. Building such portfolios requires a balance of risk, return and impact, informed by ecological and temporal realities.
The opportunity set is broadening. Regenerative agriculture, sustainable forestry, and ecosystem restoration are no longer isolated experiments but emerging fields of institutional investment. With improved tools for measurement and engagement, investors can now deploy capital in ways that deliver both financial and ecological benefits. As the Dasgupta Review reminds us, nature is our home. Good economics demands that we manage it better.
This article was co-authored by Shiwen Gao, Executive Director; and Samriddhi Sharma, Director at Fulcrum Alternative Solutions.
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