Institutional investors are planning to increase their allocations to natural capital, expanding from the traditional asset classes of forestry and agriculture to ecosystem services, including flood protection and clean water provision, to carbon and biodiversity credits.
Research from Mallowstreet, backed by BNP Paribas Asset Management, Foresight Group and Rebalance Earth found that 94% of the 68 UK institutions surveyed, plus six European-based investors, “expect to hold an allocation in natural capital in the next five years”. This includes local government pension schemes, 75% of defined contribution (DC) pension funds, 75% of insurers, 58% of defined benefit (DB) pension funds and 50% of charities.
Two in five non-investors in natural capital are planning their first capital allocations to the asset class in the next five years, and many existing investors are looking to scale up significantly, with one third of existing investors expecting to allocate more than 3% of assets to natural capital by 2030, the survey noted.
The Natural Capital Report 2026 reveals that the market is approaching “a critical inflection point”, with institutional asset owners agreeing that investment in natural capital “makes long term economic sense”, but that many respondents need to see more proof of return delivery before they “strongly agree”. However, conviction builds after initial investments have been made and investor experience of the sector is increasing, the study found.
Investor expectations of asset managers are also evolving. While familiar themes such as forestry, timber and agriculture remain popular, contracted payments for ecosystem services, including flood protection and clean water provision, have emerged among the top expected revenue streams, according to the study. By contrast, carbon and biodiversity credits are increasingly viewed as potential upside rather than core drivers of investment.
The survey noted that 59% of UK institutional asset owners “strongly agree” that protecting nature is inseparable from tackling climate change, “underlining a robust foundation of environmental conviction across the market”.
“Investors now prioritise substance over compliance, with 68% saying well-defined project-level KPIs matter most when assessing natural capital strategies. This year’s findings show meaningful progress—but also areas where clarity is still needed,” Mallowstreet stated in the survey.
The report recommends that regulators should “provide clearer guidance on fiduciary duty for pension schemes, so investors can reconcile it with natural capital ambitions; focus less on defining labels and streamlining frameworks, and more on enabling consistent and useful reporting; work with industry to drive convergence around core metrics for impact, risk and performance; and clarify how nature-related risks and returns fit within existing capital and solvency rules”.
Ally Georgieva, head of insight at Mallowstreet, said: “Natural capital is no longer unfamiliar to UK investors, but confidence in how it delivers economically is still uneven. What we see clearly in the data is that experience builds conviction. As investors become more comfortable, expectations rise sharply around evidence, transparency and performance. The next phase of this market will be defined by proof and execution, rather than labels alone.”
Rob Gardner, CEO and co-founder of Rebalance Earth, said: “For years, natural capital sat in the ‘impact’ box. That framing is shifting toward portfolio resilience. As highlighted by actuaries and government analyses, flooding, water stress, and ecosystem failure are no longer theoretical risks; they are already affecting balance sheets, asset values, and supply chains.
“What’s changing is how investors respond. 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: “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. With our experienced team and track record in the sector, we are energised by the opportunities ahead. Our two natural capital strategies in the UK and Europe are well placed to support the growing wave of allocations into natural capital.”
To read the latest IPE Real Assets magazine, with a special report on natural capital, click here.
