Natural systems don’t always adhere to traditional investment expectations. Nature-focused investors are increasingly designing their investments to align with natural cycles.
More than half of nature-related deals – 54% – in the last decade were designed to generate multiple income streams, encouraging long-term commitments from investors, according to “Gaining ground,” a new report from Forest Trends and The Nature Conservancy.
North Carolina-based Aurora Sustainable Lands, for example, established a permanent capital vehicle to invest in sustainable timberland management rather than the fixed-exit timelines that most timber funds use. The joint venture between Anew Climate and T. Rowe Price’s Oak Hill Advisors provides regular payments to investors through timber sales and carbon credit sales. Backers include Temasek-backed GenZero, Microsoft and TotalEnergies.
“From an impact perspective, the movement toward multiple revenue models brings manager business models into closer alignment with how ecosystems actually work – as a bundle of diverse and mutually connected ecosystem functions,” the report states. This, “in theory, creates greater incentives for more holistic management.”
Capital flows
Investors have committed at least $61.4 billion to nature-based deals since 2016. That includes sustainable agriculture and forestry, ecosystem restoration and conservation, nature-based carbon deals, and technologies that support all of the above. The volume of capital is increasing, as institutional investors plug in – largely in more mature markets, like regenerative agriculture and sustainable forestry.
Nevertheless the roughly $14 billion invested last year is a paltry sum compared to the $700 billion needed annually to bolster natural ecosystems.
“Institutional participation remains selective,” the report states. “Institutions concentrate in familiar asset classes, with well-established managers, and in specific geographies.”
In Aurora’s case, an equity-centric model and diversified income streams enable the company to own and manage nearly 1.7 million acres of timberland in 11 US states and generate 6.4 million tons of carbon removal credits.
“Aurora harvests at levels that would not be viable without carbon revenue, which is also what makes its additionality credible,” the report states.
Amazonia Impact Ventures, a UK-based manager, invests in sustainable forestry and agriculture livelihoods in the Amazon that yield diversified income streams. A $200,000 flexible loan to Ecotierra, a reforestation company in Brazil, supports agroforestry projects that supports farmer incomes while facilitating carbon credits.
Corporate engagement
Corporations are also piling into nature-based solutions in order to support procurement and resilience in supply chains threatened by climate change. The Nature Conservancy and Forest Trends identified more than $7.8 billion in corporate commitments to climate, deforestation and biodiversity initiatives last year.
The latest example: Mars, Danone, Hermès and 17 other food and consumer-goods companies backed Livelihoods Carbon’s fourth fund, which has a goal of raising $150 million for agroforestry, mangrove restoration and regenerative agriculture projects in emerging markets. Livelihoods has invested in 47 projects that have planted more than 160 million trees since 2011.
Catalytic capital
Catalytic investors are getting creative with investment structures to bring capital into less popular niches.
“Freshwater and marine/ocean finance has produced some of the most innovative debt structures in the dataset, including blue bonds, debt-for-nature swaps, and sustainability linked blue loans,” the report authors find.
A deal in 2024 that helped the Bahamas refinance some of its debt in order to free up capital for marine conservation was backed by a $270 million credit-risk guarantee from the Inter-American Development Bank and Lukas Walton’s family office, Builders Vision, for example.
Still, the report continues, “private capital in this space remains dependent on public sector origination, credit enhancement, or first-loss coverage to reach scale.”
