Capital at risk: nature through an investment lens

Drivers of asset repricing

The primary driver of asset repricing is increasing physical risks: natural resources are increasingly strained, which pushes up costs for companies that rely on them. Biodiversity loss is reducing nature’s resilience and productivity in many regions, further driving physical risks. In addition to these physical risks, the policy response to natural capital stress is growing, especially in Europe. Technological advances and shifts in consumer and investor preferences can also influence natural capital value in the market.

Identifying risks and opportunities

Fully accounting for natural capital-related risks in investment portfolios depends on overcoming challenges with data and analysis. Right now, there is limited data on how exposed companies are to natural capital risks, but new corporate disclosure standards, data collection tools and models may help in the future. At BlackRock, we are also using new AI tools to help fill the data gap in the near term.

In addition to managing risks, many clients are interested in gaining exposure to natural capital-related opportunities. They include solutions that: 1) use natural capital more efficiently – like precision agriculture; 2) support a circular economy by reducing and recovering waste – like businesses that use waste to create new goods; 3) restore nature – like reforestation; and 4) harness natural capital to generate new products or business models – for example, by using emerging synthetic biology alternatives.

Near-term capital allocation opportunities include thematic strategies and systematic signals, as well as nature- and biodiversity-themed green bonds. In the longer term, we expect private markets to provide a significant opportunity for investing in natural capital solutions.