Schroders and Conservation International join hunt for natural capital assets

The pair have partnered to launch a natural capital asset manager that will invest in natural climate solutions in Southeast Asia.

Schroders and Conservation International’s partnership to launch a new investment management firm, Akaria Natural Capital, is big news in the development of natural capital as a mainstream investment theme.

Akaria was inspired by a desire to respond to Schroders’ clients’ increasing focus “on maximising impact while also benefiting from robust returns,” a statement said, and will seek to deploy capital “towards a range of 15 to 20 high quality natural climate solutions projects across Southeast Asia over the first five years.”

The creation of the firm is the latest in a series of moves that gradually built over the last three to five years, as GPs and LPs of all creeds have tried to find ways of investing in nature to create impact, while generating competitive returns. More recently, a need to make good on net-zero commitments has become another pressing driver.

The term ‘natural capital’ really penetrated investment circles in August 2020 when HSBC and Pollination launched Climate Asset Management, which the pair billed the first natural capital asset manager, and it has not left the lexicon since.

Schroders declined to comment on the type of assets Akaria will seek to invest in, the structure of the “series of funds” it will manage or how it will generate returns. Nevertheless, there are a few things that can be considered safe assumptions about a firm that has ‘natural capital’ in its name.

For example, given that timber is a sustainable building material, has a long and credible history of generating carbon credits and is key to enhancing biodiversity, you’d expect timberland to be among Akaria’s target assets.

And given Conservation International chief executive M Sanjayan’s statement that ecosystem investments “keep at-risk species out of harm’s way, support livelihoods and quality of life in rural communities, improve food, water, and resource security,” it would also be fair to expect biodiversity, water quality and farmland- or soil-related investments to be on the firm’s radar.

What is exciting for those enthused by investments in nature is that investments such as these, and many more besides, which all fit neatly under the natural capital umbrella, are highly in demand. Heavy hitters such as Nuveen and CPP Investments have internally realigned themselves to focus on natural asset investments in a new way, which allows them to capture fresh opportunities to monetize sustainable investments in nature.

And from a geographic perspective, Asia is rapidly evolving from being a region where some of its biggest LPs have had historically limited exposure to natural assets such as timberland, to one where first-time forays are becoming more frequent. The May acquisition of New Forests, a globally significant timberland GP, was executed by two Japanese LPs, for example.

Indeed, shortly after New Forests was acquired by Mitsui and Nomura, the firm confirmed to Agri Investor it was considering a natural capital platform based around carbon and biodiversity.

As Timberland Investment Group chief sustainability officer Mark Wishnie put it following the firm’s launch of a LatAm impact vehicle focused on restoration and reforestation in October, nature simply offers “one of the few opportunities to deploy capital into large-scale climate-positive activities today.”

With that in mind, Schroders is unlikely to be the last firm involved in the launch of a natural capital asset manager in the near term.