Asian investors can benefit from early mover advantage in nature investments: fund manager

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30-01-2025

Asian investors should view nature investments favourably despite volatility in returns and longer investment horizons, as they offer diversification benefits and tackle climate change, according to an asset manager.
There is an "early mover advantage" for investors in nature assets before it becomes mainstream, said Ben O'Donnell, chief investment officer of Climate Asset Management (CAM). The London-based fund manager is a joint venture formed in 2020 between HSBC Asset Management and climate change investment and advisory firm Pollination.
"There will be a first-mover advantage for people who put capital in this space, particularly when regulations come in forcing people to put more capital into investments that enhance climate and environment outcomes," O'Donnell said. "Nature capital investment is underpinned by the megatrend of population growth and finite natural resources."
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Nature capital refers to natural resources such as forests, soil and water that make human life possible and are essential to a sustainable economy. Their productivity and benefits are endangered by more frequent extreme climate events, pollution and over-exploitation, which are gradually being tackled through conservation regulations and incentives to reverse damages.
Although nature investments, such as afforestation and regenerative agriculture, can generate "high single to low double-digit" percentage annual returns, comparable with stocks, property and infrastructure, investors - particularly from Asia - are underinvested, O'Donnell said.
Globally, nature investments accounted for 0.1 to 0.2 per cent of professionally managed capital, compared with 60 per cent in equities, 30 to 35 per cent in fixed income and 5 to 10 per cent in alternative investments, he added.
At the same time, the contribution of the agriculture, forestry and fishery industries to global economic output is 4 per cent according to World Bank estimates, O'Donnell said.
"There is a huge scope from an underlying value perspective for investment in the sector to increase," he said. "We anticipate that to happen gradually."
While some Hong Kong and Japanese investors have invested in CAM's funds for diversification, many institutional investors are averse, including a Hong Kong-based insurer, citing volatile returns, long investment durations and lack of liquidity, he said.
Meanwhile, Asian investors prefer regionally focused investments, according to Martin Berg, the CEO of the asset manager.
"Our strategy in this new field is that one should be as diversified globally as possible to mitigate risks," Berg said.
Last September, CAM raised more than US$1 billion for natural capital projects through two 15-year close-ended funds.
Roughly half was designated to its Nature Capital Fund that invests mostly in sustainable forestry and regenerative agriculture in developed markets. The fund has committed to a project to transition 1,800 hectares (4,450 acres) of sugar cane farmland into one of the world's largest macadamia orchards in Australia. Some of the outlay has also gone towards adopting regenerative practices on 3,000 hectares of almond, walnut, pistachio and olive farms in Spain and Portugal.
The other half was for the Nature-based Carbon Fund, which aims to generate high quality carbon credits from large-scale landscape restoration and conservation projects that deliver climate, biodiversity and community benefits in developing economies. Tokyo Gas has pledged to invest up to US$25 million in the fund.
The focus of this fund is not to generate returns from the sale of carbon credits, but to deliver them to their corporate investors to offset greenhouse gas emissions and meet climate pledges, O'Donnell said.
"The carbon market is still relatively nascent and complex, while the biodiversity credit market is still embryonic," he said. "We aim to deliver attractive risk-adjusted returns - cash yield and capital appreciation - via production of high-quality timber or agricultural commodities, portfolio diversification, and measurable and verifiable environment and climate benefits."
The strategies employed at CAM's agricultural projects include landscape mapping with drones, weather monitoring stations, moisture sensors and soil-quality monitors for more efficient use of farming inputs to reduce negative environmental impact, O'Donnell said.
"These changes do not happen overnight, it is necessary to manage the farm or forest over a period of time to improve the quality of the asset," O'Donnell said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
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