UK investors signal natural capital's move into the mainstream
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Natural capital is approaching a critical inflection point in institutional portfolios, according to new research published today by mallowstreet. The Natural Capital Report 2026, produced with support from BNP Paribas Asset Management, Foresight Group and Rebalance Earth, finds that asset owners are no longer questioning whether natural capital belongs in portfolios, but how quickly and confidently they can scale allocations.
The research is based on responses from 68 UK institutional asset owners representing more than £3 trillion in assets, spanning local government pension schemes (LGPS), defined benefit (DB) and defined contribution (DC) pension schemes, insurers and charities. Together, the findings point to a market moving beyond early adoption, with growing intent to commit capital and increase exposure over the coming years.
Momentum is already evident. Two in five investors who do not currently hold a natural capital allocation say they plan to make their first investment within the next five years, while many existing investors are preparing to scale up. Looking ahead to 2030, 94% of LGPS respondents expect to hold an allocation, alongside 75% of DC schemes and insurers, 58% of DB schemes and half of charities.
Despite this growing appetite, conviction remains uneven when it comes to the economic case. Investors broadly agree that natural capital makes long-term economic sense, but many stop short of strong agreement until returns are proven in practice. The data shows that confidence strengthens materially once investors gain experience. Among those planning to increase allocations beyond 3%, nine in ten strongly agree that protecting nature is inseparable from tackling climate change, and six in ten strongly support the long-term economic rationale for natural capital.
Environmental conviction across the market is already high. Almost 60% of UK institutional asset owners strongly agree that protecting nature is inseparable from tackling climate change, providing a robust foundation for further growth. What differs is how quickly that conviction translates into capital allocation.
As investors become more comfortable, expectations of asset managers are also rising. Rather than relying on regulatory labels, asset owners are prioritising substance and evidence. More than two-thirds say well-defined, project-level key performance indicators matter most when assessing natural capital strategies, signalling a shift away from compliance-led frameworks toward decision-useful reporting.
The research also highlights how perceptions of natural capital are evolving. While familiar themes such as forestry, timber and agriculture remain popular, investors are increasingly focused on revenue streams that align with portfolio resilience. Contracted payments for ecosystem services, including flood protection and clean water provision, have emerged among the top expected sources of returns. By contrast, carbon and biodiversity credits are more often viewed as potential upside rather than core drivers of investment decisions.
Rob Gardner, CEO and Co-Founder of Rebalance Earth, said the framing of natural capital is shifting: “For years, natural capital sat in the ‘impact’ box. That framing is shifting toward portfolio resilience. Flooding, water stress and ecosystem failure are no longer theoretical risks; they are already affecting balance sheets, asset values and supply chains. Natural capital is increasingly being assessed as infrastructure, with a focus on cash flow, resilience and risk reduction. In practice, this means that a modest allocation can help reduce risk across the rest of the portfolio over the long term.”
Robert Guest, Co-Lead of Foresight Natural Capital, said the report provides valuable insight into evolving client expectations: “This report offers a remarkable trove of insights for asset managers seeking to understand the natural capital priorities of their institutional clients, and for asset owners looking to gauge sentiment among their peers. Our UK and European natural capital strategies are well placed to support the growing wave of allocations into the asset class.”
The Natural Capital Report 2026 explores in detail how UK and European institutional investors are approaching natural capital, what is driving allocation decisions, and what is needed for the market to move decisively from early adoption to long-term scale. The full report is available HERE.
The research is based on responses from 68 UK institutional asset owners representing more than £3 trillion in assets, spanning local government pension schemes (LGPS), defined benefit (DB) and defined contribution (DC) pension schemes, insurers and charities. Together, the findings point to a market moving beyond early adoption, with growing intent to commit capital and increase exposure over the coming years.
Momentum is already evident. Two in five investors who do not currently hold a natural capital allocation say they plan to make their first investment within the next five years, while many existing investors are preparing to scale up. Looking ahead to 2030, 94% of LGPS respondents expect to hold an allocation, alongside 75% of DC schemes and insurers, 58% of DB schemes and half of charities.
Despite this growing appetite, conviction remains uneven when it comes to the economic case. Investors broadly agree that natural capital makes long-term economic sense, but many stop short of strong agreement until returns are proven in practice. The data shows that confidence strengthens materially once investors gain experience. Among those planning to increase allocations beyond 3%, nine in ten strongly agree that protecting nature is inseparable from tackling climate change, and six in ten strongly support the long-term economic rationale for natural capital.
Environmental conviction across the market is already high. Almost 60% of UK institutional asset owners strongly agree that protecting nature is inseparable from tackling climate change, providing a robust foundation for further growth. What differs is how quickly that conviction translates into capital allocation.
As investors become more comfortable, expectations of asset managers are also rising. Rather than relying on regulatory labels, asset owners are prioritising substance and evidence. More than two-thirds say well-defined, project-level key performance indicators matter most when assessing natural capital strategies, signalling a shift away from compliance-led frameworks toward decision-useful reporting.
The research also highlights how perceptions of natural capital are evolving. While familiar themes such as forestry, timber and agriculture remain popular, investors are increasingly focused on revenue streams that align with portfolio resilience. Contracted payments for ecosystem services, including flood protection and clean water provision, have emerged among the top expected sources of returns. By contrast, carbon and biodiversity credits are more often viewed as potential upside rather than core drivers of investment decisions.
Rob Gardner, CEO and Co-Founder of Rebalance Earth, said the framing of natural capital is shifting: “For years, natural capital sat in the ‘impact’ box. That framing is shifting toward portfolio resilience. Flooding, water stress and ecosystem failure are no longer theoretical risks; they are already affecting balance sheets, asset values and supply chains. Natural capital is increasingly being assessed as infrastructure, with a focus on cash flow, resilience and risk reduction. In practice, this means that a modest allocation can help reduce risk across the rest of the portfolio over the long term.”
Robert Guest, Co-Lead of Foresight Natural Capital, said the report provides valuable insight into evolving client expectations: “This report offers a remarkable trove of insights for asset managers seeking to understand the natural capital priorities of their institutional clients, and for asset owners looking to gauge sentiment among their peers. Our UK and European natural capital strategies are well placed to support the growing wave of allocations into the asset class.”
The Natural Capital Report 2026 explores in detail how UK and European institutional investors are approaching natural capital, what is driving allocation decisions, and what is needed for the market to move decisively from early adoption to long-term scale. The full report is available HERE.
