Episode 2 - The Economic Case for Valuing Nature as an Asset Class - Eoin Murray
The Economic Case for Valuing Nature as an Asset Class
In a time of increasing climate risks, businesses and investors are being forced to reconsider their approach to sustainability. At Rebalance Earth, we believe the key to securing both economic resilience and environmental health lies in something long overlooked: Nature.
This episode’s guest isEoin Murray, the incoming CIO of Rebalance Earth who we’re thrilled to announce will be joining us next year. Eoin is very well known in the finance world and has been working in investment funds for the last 34 years. He has experience in everything, from a quantitative analyst to a fund manager to more recently the Head of Investment at Federated Hermes. Currently on a sabbatical for 12 months and helping to launch the SEED Index in Switzerland, a comprehensive all-in-one biodiversity index that makes it possible to score ecosystems based on biodiversity, he is also the Chair of the Exmoor Search and Rescue Team, a position that brings him incredibly close to the powerful effects of flooding and water risk.
In this follow-on post, we’ll dive deeper into why he thinks Nature must be recognised as a critical asset class—beyond carbon credits and biodiversity units—and how investing in it can deliver not only credible financial returns, but also profound environmental, social and wellbeing benefits also.
Nature as a Business-Critical Asset
We often think of infrastructure as roads, power grids, or bridges, but Nature is just as important. Healthy ecosystems provide services that benefit businesses daily: flood protection, water filtration, water supply and carbon sequestration, to name just a few.
Yet, unlike traditional infrastructure, Nature’s services are largely unaccounted for on balance sheets. As a result, we’ve neglected the assets that make business possible, and we’re continuing to extract from them with no thought for the maintenance of the things that we so heavily rely on.
But how can we invest something as broad and diverse as Nature?
Beyond Carbon Credits: Nature as an Investable Asset
For years, much of the focus on Nature-based investing has revolved around carbon credits or Biodiversity Net Gain (BNG) units. These are crucial markets, but they only scratch the surface. The UK has an estimated £50 - £100 billion funding gap for Nature restoration (1), and the markets for voluntary credits and regulatory BNG units are simply not large enough to have an impact here.
At Rebalance Earth, we’re taking a broader approach by recognising Nature as infrastructure—an asset that provides a host of services for which companies can and should pay to restore and maintain.
Eoin Murray, our incoming Rebalance Earth Chief Investment Officer, summarised this perfectly when he said, "We are not going to rely first and foremost on carbon and biodiversity markets, but instead look more broadly at other payments for ecosystem services," he said. "Nature-as-a-Service contracts specifically related to water, natural flood management, water quality improvement, and drought mitigation are where we see the most exciting opportunities."
A graphic to show how, through nature restoration, companies (in this case a factory) benefit from and pay for Nature restoration. (Source: Rebalance Earth)
Proving that Nature is an investible asset is vital to unlock the flow of capital needed to restore it, and for that to occur it needs to have three things:
Scarcity: in the case of rivers, over 90% of our rivers are artificially altered from their natural courses.
Utility: Returning rivers to their natural states increases water storage, meanders slow flows and reduce flooding, while allowing for greater filtration. Letting a river flood naturally on a floodplain means that it doesn’t occur downstream in high-impact areas.
Cashflow: Companies, cities and communities in the catchment pay for these reduced risks created by landscape-level catchment-wide restoration.
An infographic to demonstrating how Nature can function as an asset class. (Source: Rebalance Earth)
Take a different form of Natural capital, such as wetlands, for example. Wetlands absorb large volumes of water, reducing flood risk and improving water quality, while also enhancing biodiversity. Sphagnum moss is able to store 20x its dry weight in water, slowing the flow and greatly reducing downstream flood risk. Restoring wetlands is a form of natural infrastructure investment that protects businesses from future climate shocks and enhances the local environment.
Sphagnum moss, a key component of peat bogs, can hold over 20 times its dry weight in water.
(Photo source: Rebalance Earth)
At Rebalance Earth, a comprehensive study of a catchment allows us to identify the key interventions that we could make during the restoration project in order to have the greatest impact on natural water management (such as restoring peat bogs, or rewriggling rivers for example) By working at a catchment level, all involved parties pay towards and benefit from the river restoration.
Nature Investments: Not Just Good for ESG, But Strong Returns Too
Nature-based investments aren’t just about meeting ESG goals—they also offer solid financial returns. Asset managers, especially those in charge of pension funds and wealth portfolios, are starting to see Nature as an opportunity for steady, reliable returns.
Eoin believes that asset managers will likely allocate 3-5% of their portfolios to Nature, with the potential to increase to 5-10% as the market develops. While we firmly believe that a 2% allocation from UK Pension and Wealth Assets will be enough to cover the UK Nature Financing gap of £50 - £100 billion, once Nature is established as a viable and returns-creating asset, it will become increasingly attractive to asset managers.
The expected return on investment (ROI) for Nature projects is around 10-12%, similar to what you’d expect from traditional infrastructure investments like roads or energy. In our case, while up to 80% of the investment returns would come from Nature-as-a-Service contracts with companies, cities and communities, there would still also be returns from Carbon Credits and BNG units.
As Eoin explained, Nature investments offer both strong financial returns, while also helping businesses become more resilient to climate risks.
For asset owners, this is a chance to secure great returns while tackling the growing risks that climate change poses to investment portfolios. The fact that Nature as an asset sits outside the economic cycles of some asset classes makes it an even better option.
The Business Case for Nature Investments
Climate risks to businesses are no longer hypothetical. Every year, flooding costs UK businesses £1.4 billion. And despite the government spending £800 million annually on flood defenses, the risks are rising. The question isn't whether businesses can afford to invest in Nature—it’s whether they can afford not to. (2)
Beyond mitigating risks like flooding, Nature-as-a-Service (NaaS) contracts allow businesses to pay for ecosystem services that directly benefit them. By investing in Nature, companies can reduce insurance premiums, protect their operations from climate impacts, and improve their ESG profiles.
This is also why, rather than with a Chief Sustainability Officer, we will interact directly with the CFO and COO. Nature-as-a-Service takes a business problem which is out of their control (in this case, flooding) with an associated cost which is also out of their control (eg. insurance) and creates a viable solution that not only addresses the underlying cause but also has fantastic additional benefits to the local area.
Nature as the Future of Investing
As the finance industry places increasing value on ESG metrics, the demand for Nature-based investments is growing. Investors no longer seek just financial returns—they want to see positive social and environmental impacts as well. Nature-based investments are particularly appealing to pension funds, which have long-time horizons, as well as impact investors and funds.
One recent success story is the Wyre Catchment Natural Flood Management (3) project, where £1.7 million of public and private capital was invested in restoring river ecosystems. The project returned over £2 million in just a few years, while also delivering flood protection, biodiversity enhancement, and carbon sequestration benefits.
Mark Lloyd, CEO of The Rivers Trust, introduces the project and explains what it involves. (Source: YouTube)
United Utilities took part in the modelling process to value the natural flood management benefits. Some 30 sites and assets were predicted to be positively impacted by the natural flood management interventions, including drinking and wastewater treatment works, and network pumping stations. The estimate was a 5-15% reduction in flood impact, with a middle figure of 10% taken for the subsequent modelling. (5)
Interventions, from leaky dams to ponds and hedgerows, were created on nearby land in cooperation with local landowners, who received payments for this. The Wyre Rivers Trust undertook measurements to monitor river levels, confirming the impact of the natural flood management interventions and providing valuable, real-world data of the impact of NFM.
The funding was raised from both public and private sources, with grants of £627,500 from DEFRA’s Nature for Climate Fund, and a further £650,000 from 5 impact investment funds, the largest of which was the Esmée Fairbairn Social Investment Fund, which originally issued grants to the project at its pilot stage and helped to bring in the other four fund investors.
The stakeholder structure used to facilitate the investment, restoration and returns of the Wyre Catchment Natural Flood Management (Photo source: Green Finance Institute )
This small-scale model showcases how investing in Nature can deliver both financial and environmental returns. As Eoin pointed out on the podcast, at Rebalance Earth, our proposition is “quite groundbreaking ...it's been done at small scale, but here we're going to exploit an opportunity that will allow us to really scale significant amounts of institutional capital in the UK”
Conclusion: Join Us in Valuing Nature
Here at Rebalance Earth, we’re transforming how the world views and values Nature. By treating ecosystems as vital infrastructure, we can unlock the financial capital necessary to restore and protect the natural world. This isn’t just about protecting the environment—it’s about securing a sustainable, resilient future for businesses and investors alike.
As Eoin said, “Let's do what we can within the existing system, [but] then also let's give room for thought towards that bigger picture”.
We invite you to join us in investing in Nature, creating a future where businesses thrive, ecosystems flourish, and the economy is built on a foundation of sustainability.
Quotes
(1) - The-Finance-Gap-for-UK-Nature-13102021.pdf (greenfinanceinstitute.com)
(2) - 7496 Exec Summary Cover 1st (publishing.service.gov.uk)
(3) - Wyre NFM | Wyre Rivers Trust
(4) - Mark Lloyd introduces new project in the Wyre catchment - YouTube
(5) - The Wyre Catchment Natural Flood Management Project (greenfinanceinstitute.com)