What UK Pension Investor Said
A UK pension investor — specifically TPT Pension — has publicly stated that allocating to natural capital is tough because it doesn’t yet fit neatly into mainstream portfolios. The investor noted that:
- Long lock‑up periods (often required for natural capital investments),
- An unclear return profile compared with traditional assets like equities or bonds,
- And challenges in portfolio risk/return alignment
make it difficult to ‘place’ natural capital strategically. (Responsible Investor)
This comes even as other UK pension schemes — especially Local Government Pension Schemes (LGPS) — are increasing commitments to nature‑related investing, including natural capital and biodiversity‑linked strategies. (netzeroinvestor.net)
How Natural Capital Is Being Approached (Real‑World Examples)
Emerging Natural Capital Interest Among UK Investors
Even though pension schemes like TPT find the asset class hard to integrate, others are actively exploring or committing to natural capital:
Brunel Pension Partnership — a major UK local authority pension pool — has been lining up a natural capital mandate as part of its sustainable infrastructure push. (Agri Investor)
South Yorkshire Pension Authority — while an outlier — has pursued a 3.5 % natural capital allocation as part of its long‑term net‑zero strategy. (Agri Investor)
These cases illustrate that some defined benefit schemes see value in nature‑based assets — forestry, regenerative agriculture, ecosystem services — but their scale and structure differ from mainstream asset buckets.
Why It’s Hard to Place Natural Capital
Many pension investors cite practical barriers that make natural capital a tricky fit:
Liquidity & Lock‑Up
Natural capital investments are often in illiquid, long‑term real assets (e.g., forestry, habitat restoration), unlike stocks or bonds. This makes them harder to fit into funds needing flexibility or liability matching.
Uncertain Return Profiles
Traditional pension allocations rely on clear return expectations (e.g., yield from bonds, long‑term equity growth). Natural capital, while offering impact returns and environmental benefits, currently lacks standardised return data that trustees are comfortable with. (Pensions Age)
Valuation & Product Supply Gaps
Despite growing awareness, investible natural capital products that match pension risk‑return expectations are relatively scarce. Industry surveys show that many funds struggle with availability of fiduciary‑suitable solutions in this area. (Pensions Age)
Governance and Expertise
Integrating nature‑based investments requires new governance frameworks and expertise on biodiversity and ecosystem risk — something many pension schemes are still building. (Impact Investor)
Industry & Advisory Commentary
Wider Pension Community Views
- Reports suggest that at least 62 % of UK pension funds are not yet invested in natural capital, despite strong awareness of nature‑related risks such as biodiversity loss. Barriers include data limitations, investible product availability, and uncertainty over how to classify natural capital within standard asset buckets. (Pensions Age)
- Some investors point to the success of traditional real assets (e.g., forestry) as a stepping stone toward broader natural capital allocations, but emphasise that explicit natural capital products remain niche. (pensions-expert.com)
Consultant & Practitioner Insight
Investment consultants note that integrating natural capital effectively often requires blend strategies (e.g., combining carbon sequestration mandates with forestry or regenerative agriculture exposure), but these are still early‑stage compared with other alternative asset classes. (pensions-expert.com)
Case‑Style Comparisons in Practice
Successful Allocations
- South Yorkshire Pension Authority achieved a measurable 3.5 % allocation to natural capital in support of environmental targets, showing that with tailored governance and long horizon orientation, natural capital can be integrated. (Agri Investor)
- Brunel Pension Partnership signalling a move toward dedicated natural capital mandates points to growing institutional interest when there is a strong framework and bespoke vehicle. (Agri Investor)
Challenges Highlighted by TPT
In contrast, TPT Pension’s comment reflects a wider caution across pension funds that are:
- prioritising liquidity,
- focusing on liability‑matching assets, and
- requiring more established track records before committing meaningful capital to natural capital solutions. (Responsible Investor)
Why This Debate Matters
Link to Net‑Zero & Biodiversity Goals
Natural capital investments are increasingly seen as core to climate and biodiversity strategies; however, regulatory frameworks and reporting standards (e.g., TNFD) are still evolving, adding complexity to allocation decisions. (Seneca ESG)
Fiduciary Duty vs Impact
Trustees must balance fiduciary responsibility (secure returns for members) with impact objectives (nature‑positive outcomes). This dual mandate is a central tension shaping debates about natural capital in pension portfolios. (uksif.org)
Emerging Momentum
Industry research shows momentum — with many asset owners planning small allocations (often 3–5 %) to natural capital over the next few years, even if adoption is gradual. (pensionsforpurpose.com)
In Summary
Natural capital investing is gaining traction among UK pension funds, but remains challenging to fit into traditional asset allocations because of:
Liquidity and lock‑up concerns
Unclear or non‑standardised return profiles
Limited investible solutions matching pensions’ risk models
Ongoing governance and expertise hurdles
Some schemes like Brunel and South Yorkshire are pursuing mandates or significant allocations, signalling growing interest, while others such as TPT Pension highlight practical constraints that are slowing wider adoption. (Responsible Investor)]
Here’s a detailed case‑study‑style look and commentary on the recent statement from a UK pension investor about how hard it is to place a natural capital allocation inside institutional portfolios — plus real examples, broader market context, and expert views from the pension and sustainable‑investment world. (Responsible Investor
Overview: What the UK Pension Investor Said
A UK pension fund (TPT Pension) recently acknowledged that it is “difficult to figure out” where natural capital fits within its portfolio strategy. This reflects broader uncertainty about the return profile, lock‑up periods and strategic role of natural capital as an asset class for long‑term institutional investing. (Responsible Investor)
Key challenges cited include:
- Long lock‑up or illiquidity of many natural capital investments. (Responsible Investor)
- Unclear expected financial returns compared with traditional asset classes. (Responsible Investor)
- Difficulty aligning these investments with risk/return frameworks and liability‑matching requirements. (Responsible Investor)
This statement echoes a broader theme in institutional investing where nature‑based assets have not yet found a clear home in mainstream portfolio construction, despite strong policy and impact intent.
Case Studies & Examples in the UK Context
1. Local Government Pension Scheme Explorations
Although some schemes find it hard to formally allocate to natural capital, others in the UK are testing the waters with explicit commitments:
a. South Yorkshire Pension Authority
- This local authority pension fund stands out as an innovator by adopting a 3.5 % natural capital allocation as part of its long‑term net‑zero and impact strategy. (Agri Investor)
- Its journey illustrates how a defined benefit scheme can integrate natural capital alongside climate goals, though it is atypical and tailored to its specific policy priorities. (Agri Investor)
Takeaway: This allocation shows what’s possible when trustees align impact goals with strategic asset allocation frameworks — albeit with specialist governance and careful design.
2. Brunel Pension Partnership’s Emerging Mandate
- The Brunel Pension Partnership — a large UK local government pension pooling vehicle — is preparing a dedicated natural capital mandate, signaling institutional interest even if deployment is still nascent. (Agri Investor)
Takeaway: Brunel’s signal reinforces that large pooled schemes see potential in natural capital beyond traditional infrastructure or real assets, even as they work out allocation mechanics.
3. Broader UK Trends & Surveys
Sector‑wide research complements these specific examples:
- Surveys of UK institutional investors show momentum: about 50 % of pension asset owners are investing or plan to invest in natural capital within the next ~18 months, although most intend small allocations (e.g., up to ~3 %) initially. (pensionsforpurpose.com)
- Pension funds often channel natural capital via real assets or private markets buckets rather than as a standalone allocation, due to product and mandate design realities. (Pensions Age)
Takeaway: While interest is rising, small pilot allocations or integration inside other alternative buckets remain the norm rather than large, distinct natural capital allocations.
Why Natural Capital Is Hard to Place — Expert Perspectives
1. Illiquidity & Investment Characteristics
Natural capital assets — such as forestry, habitat restoration, regenerative agriculture, and biodiversity credits — often resemble illiquid private investments with multi‑year horizons, sparse secondary markets, and bespoke governance requirements. (Bidwells)
This contrasts with the expectation that pension portfolios should provide liquid, predictable, and scalable returns, making trustees cautious about large allocations.
2. Unclear Risk/Return Profiling
Many schemes struggle to quantify expected financial returns and risk relative to benchmarks, which complicates integration into strategic asset allocation models commonly used by pension trustees. (Pensions Age)
3. Product & Data Gaps
A consistent barrier in surveys and practitioner discussions is the lack of investible products that both deliver financial returns and meet trustees’ fiduciary risk thresholds, as well as consistent impact and financial measurement frameworks for natural capital. (Pensions Age)
4. Nascent Reporting and Governance Frameworks
Frameworks such as the Taskforce on Nature‑related Financial Disclosures (TNFD) are improving awareness of nature‑linked risks, but many trustees and advisers are still developing the data, skills and governance frameworks required to oversee explicit natural capital mandates. (Seneca ESG)
Comments & Commentary — Sector Voices
Institutional Investor Commentary
UK pension investors and consultants frequently note that:
- Climate commitments are driving interest in nature‑related assets, but biodiversity and natural capital are still viewed as extensions of climate strategy rather than standalone asset classes. (Seneca ESG)
- Some schemes adopt hybrid approaches, embedding natural capital inside infrastructure, forestry mandates, or private equity strategies to manage liquidity and fiduciary constraints. (Professional Pensions)
Broader Thought Leadership
Long‑term investors acknowledge that natural capital investing is still early stage, with fundamental challenges around valuation, permanence and standardisation, but also with potential ESG and resilience benefits that align with long‑term pension objectives. (pensionsforpurpose.com)
Summary — Key Takeaways
| Theme | Insight |
|---|---|
| Difficulty of allocation | Some UK pension funds find it hard to place natural capital explicitly due to liquidity, returns, and portfolio integration issues. (Responsible Investor) |
| Emerging commitments | Local schemes like South Yorkshire and Brunel are cases showing how natural capital can be embedded institutionally. (Agri Investor) |
| Sector momentum | Surveys suggest many pension funds are interested or planning small natural capital allocations, often as part of climate or private markets strategies. (pensionsforpurpose.com) |
| Barriers | Lack of investible products, unclear data, and governance challenges slow mainstream adoption. (Pensions Age) |
| Broader context | Natural capital is closely linked to net‑zero and biodiversity strategies but remains nascent as a distinct asset class. (Seneca ESG) |
Final Commentary
The statement from the UK pension investor reflects a pragmatic view of the evolving natural capital investment landscape: momentum is growing, but practical portfolio integration remains challenging. This is typical in institutional investing when new thematic asset classes emerge — initial interest and small allocations appear first, followed by clearer frameworks, product solutions, and data that enable larger, repeatable commitments.
Over time, as data, benchmarks and investible products improve — and as trustees build confidence in the risk/return story — natural capital may shift from a difficult to place area to a meaningful component of diversified, sustainability‑aligned pension portfolios. (pensionsforpurpose.com)