The turn towards ‘natural capital’ as a potential new asset class – encompassing farmland, forestry, carbon credits and plenty more besides under one banner – is something we have written about extensively at Agri Investor, with several funds or platforms being launched in the last couple of months alone.
And it was the talk of the town in Melbourne at the Agri Investor Australia Forum last week, our first in-person event Down Under since the pandemic began.
Panelist after panelist at our conference mentioned natural capital to one degree or another, with many citing it as a potential turning point for agriculture investing, particularly when it comes to unlocking greater allocations to the asset class from domestic Australian investors.
One discussion in the morning centered around Australian investor perspectives on natural capital, and featured Clean Energy Finance Corporation head of natural capital Heechung Sung. She flagged that the CEFC was planning to be more “aggressive” in pursuing farmland investments and pointed to the very existence of her job title as evidence of the CEFC’s view on where the asset class is heading next.
“It captures other developing asset classes like the biodiversity market and the carbon markets – it’s not just pure commodity production in the way we’ve known it,” she said, arguing that it was not only about rebadging existing investments in farmland and forestry, but shifting to a new way of thinking about investment returns and increasing the potential returns, thanks to carbon and biodiversity credits.
This, of course, should also tick the ESG/decarbonization box in which so many investors are interested.
On the same panel, Wilson Asset Management portfolio manager Dania Zinurova said investors were increasingly taking a total portfolio approach, rather than allocating capital to specific asset type buckets, and those that were looking to deploy more in climate-positive investments were attracted to natural capital.
But there were two dissenting views from the stage, courtesy of asset consultant Albourne Partners’ Simon Phillips and Kinneret Impact Ventures’ Ethy Levy, both speaking on a panel covering international investor perspectives.
Phillips said a discussion with his US-based colleagues prior to the conference had revealed that none of them were aware of the term ‘natural capital’, so they certainly weren’t advising clients on allocating capital to this as an asset class in its own right. Levy said the same, with the term not commonly used in her native Israel.
So why was this discussed so extensively at our conference if the terminology hasn’t quite translated globally yet?
Phillips pointed out that Australia has some inherent advantages over almost any other jurisdiction when it comes to pursuing natural capital projects. Not only is it home to almost every type of agriculture and forestry business you can think of, it has the scale to enable carbon sequestration and biodiversity uplift to be carried out in really meaningful ways (soil carbon across vast tracts of pastoral land is an obvious example here that many are already targeting with their funds).
It was a salient point and discussion about natural capital and its potential was the clear standout theme from this year’s Australia Forum. As we have said at Agri Investor before, it still remains to be seen if institutional investors will carve out allocations to natural capital specifically – but in Australia, at least, the momentum continues apace.