Almost two-thirds of UK asset owners have yet to make any natural capital investments, with lack of knowledge cited as one of several barriers to progress in research conducted by advisory firm and asset manager member network Pensions for Purpose.

In a report released this week, commissioned by investor Gresham House, Pensions for Purpose found that only 38% of asset managers interviewed had made their first natural capital investments.

“There is a lot of noise in the industry about natural capital and biodiversity, but not much evidence of actual integration of nature in investment decisions or stewardship activities or investing in natural capital assets that help address nature-related issues,” it said.

The study found that most pension funds in the UK don’t consider biodiversity loss as a separate issue from climate change, but instead see it as part of their net zero emissions strategies.

Meanwhile, those that have begun looking at natural capital assets tend to have a fairly narrow outlook and are still engaged in overcoming investment challenges, the report found.

“The asset owners who participated in this research largely focused and engaged on topics such as deforestation and water pollution, with investors seeking to reduce or avoid exposure to nature-related risks and harm to nature,” it said.

“Many are only just starting to think about solutions-based investing in natural capital, primarily due to barriers to investing in private markets and lack of knowledge.”

Some of the barriers to involvement are similar to other new investment areas, according to the report, such as risk, track record, lack of liquidity, and fees.

But surveyed asset managers also mentioned other barriers unique to nature, such as the lack of streamlined data, and pension funds having little specialist knowledge of the financial drivers and still-evolving carbon markets.

“Although many have not incorporated natural capital into their investment decisions and few have directly invested in natural capital assets, 54% of our asset owner interviewees are starting to use nature as a theme for engagement,” said the report.

Survey participants said they would be looking for a 5-8% target return rate for natural capital investments, with some willing to accept a relatively low rate for investments that could offset their carbon emissions and help them meet their net zero targets.

The findings align with other research mapping the involvement of the financial industry in nature and biodiversity-related investments, such as the one released by responsible investment charity ShareAction earlier this week, which found that global asset managers are mostly ignoring biodiversity risks.

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